What is financial advisor misconduct?

Financial advisor misconduct refers to actions by a broker or investment advisor that violate securities laws, FINRA rules, or their duty to act in a client's best interest. Common forms include: making unsuitable investment recommendations, misrepresenting or omitting material facts, churning (excessive trading to generate commissions), unauthorized trading, over-concentrating a portfolio in a single security or sector, failing to supervise employees, and outright fraud or theft. Investors who suffer losses due to advisor misconduct can pursue recovery through FINRA arbitration.

What is a suitability claim against a financial advisor?

A suitability claim arises when a broker recommends investments that are not appropriate for a client's financial situation, risk tolerance, investment objectives, or time horizon. Under FINRA Rule 2111, brokers must have a reasonable basis to believe a recommendation is suitable for the specific customer. Recommending high-risk products to a retiree seeking income, or concentrating a portfolio in speculative securities for a conservative investor, are common examples of suitability violations that can support a FINRA arbitration claim.

Can I sue my financial advisor for investment losses?

Yes, investors can pursue legal claims against financial advisors for losses caused by misconduct. Most brokerage account agreements require disputes to be resolved through FINRA arbitration rather than court. To have a viable claim, the losses must have been caused by the advisor's wrongdoing — not simply by market declines. A securities attorney can evaluate whether your losses resulted from actionable misconduct. Bakhtiari & Harrison offers free consultations.

What is the largest FINRA arbitration award Bakhtiari & Harrison has won?

In 2011, Bakhtiari & Harrison won the largest FINRA arbitration award of that year — a $54 million award against Citigroup Global Markets, including $17 million in punitive damages, on behalf of two individual investors who suffered losses in Citigroup's Mat/ASTA leveraged municipal arbitrage fund. The award was described by the Wall Street Journal as the largest ever levied against a major Wall Street brokerage in favor of individual investors. The award was later confirmed by the U.S. District Court for the District of Colorado.

Does Bakhtiari & Harrison represent celebrity and athlete investors?

Yes. Bakhtiari & Harrison has represented professional athletes in the NFL, NBA, MLB, NHL, and Olympic Games, as well as entertainers and public figures, in securities fraud and investment misconduct cases. High-profile clients are frequent targets of unsuitable investments, fraudulent schemes, and advisors who exploit trust relationships. The firm handles these cases with the same level of confidentiality and strategic rigor as any other matter. In 2022, the firm represented multiple professional athletes including Lauren Holiday, Jrue Holiday, Chandler Parsons, and Courtney Lee in claims involving nearly $10 million in investment losses.

Broker Fraud Attorneys — Bakhtiari & Harrison

Written and reviewed by

Ryan Bakhtiari, Partner — Bakhtiari & Harrison

Admitted: CA | NY | TX | DC | Multiple Federal Courts · Super Lawyers 2005–2026 · Former PIABA President · Former FINRA NAMC Chairman · Last reviewed: April 2026

Bakhtiari & Harrison represents investors in broker fraud and securities misrepresentation claims in FINRA arbitration and securities litigation nationwide. Broker fraud — the use of deceptive practices by a broker or financial adviser to induce an investor to purchase or sell securities — is actionable under both federal securities law and California’s Corporate Securities Law of 1968. Over four decades, the firm has recovered more than $250 million for clients. Ryan Bakhtiari served as Chairman of the FINRA National Arbitration and Mediation Committee and as President of PIABA. Partner David Harrison is a former Morgan Stanley in-house counsel who began his career as a Series 7-licensed registered representative at Shearson Lehman Brothers. Investor cases are handled on a contingency fee basis — no recovery, no fee.

What is broker fraud?

Broker fraud occurs when a broker or financial adviser uses deceptive practices — misrepresentation, omission of material facts, or manipulation — to induce an investor to buy or sell securities. Unlike negligence, which requires only proof that the broker fell below the professional standard of care, fraud requires proof of an intentional or reckless misrepresentation on which the investor relied to their detriment. Both standards can give rise to a FINRA arbitration claim, and Bakhtiari & Harrison evaluates both in every case.

Broker fraud is actionable under multiple legal frameworks: SEC Rule 10b-5 under the Securities Exchange Act of 1934, California Corporations Code § 25401, and common law fraud. California’s § 25401 is particularly favorable for investors because it does not require proof of scienter — intent to deceive — that Rule 10b-5 requires, making California state law claims easier to prove in many broker fraud cases.

Common forms of broker fraud

Misrepresentation: a broker makes a false statement of material fact — about a product’s risk level, liquidity, historical performance, or regulatory status — that induces the investor to purchase. The false statement need not be intentional to be actionable under California law.
Omission of material facts: a broker fails to disclose information that a reasonable investor would consider important to an investment decision — undisclosed fees, conflicts of interest, prior regulatory sanctions, or known product risks.
Recommendation of unsuitable investments: a broker recommends investments inconsistent with the investor’s risk tolerance, financial situation, or investment objectives — actionable as both fraud and a FINRA suitability violation.
Self-dealing: a broker recommends investments in which the broker or firm has an undisclosed financial interest — putting the broker’s interests ahead of the investor’s in violation of FINRA Rule 2010.
Cherry-picking: a broker allocates profitable trades to their own account or favored accounts while directing losses to the investor’s account.
Front-running: a broker executes trades in their own account ahead of a large client order, profiting at the investor’s expense.

Broker fraud and the duty of disclosure

FINRA rules and securities law impose an affirmative duty on brokers to disclose all material information relevant to an investment recommendation. This duty extends beyond simply avoiding false statements — it requires proactively disclosing conflicts of interest, product risks, fee structures, and other information that a reasonable investor would want to know. A broker who fails to disclose material information — even without making an affirmative false statement — may be liable for fraud by omission.

Regulation Best Interest, which applies to recommendations made to retail investors after June 2020, requires brokers to act in the retail customer’s best interest and to disclose all material facts about conflicts of interest. Violations of Regulation Best Interest are directly actionable in FINRA arbitration.

Proving broker fraud in FINRA arbitration

Proving broker fraud requires establishing: (1) a material misrepresentation or omission, (2) made with knowledge or recklessness, (3) on which the investor reasonably relied, and (4) that caused quantifiable financial harm. Under California law, the scienter requirement is eliminated — making California § 25401 claims easier to prove than federal fraud claims. Key evidence in broker fraud cases includes marketing materials, account opening documents, trade confirmations, internal firm communications, and expert testimony on industry standards.

California Corporations Code — additional protections

California investors have access to Corporations Code § 25401, which prohibits misrepresentations and omissions in connection with securities transactions and does not require proof of intent. California § 25501 provides a rescission remedy — allowing investors to recover their original investment plus interest — in addition to out-of-pocket losses. Bakhtiari & Harrison layers California state law claims alongside federal and FINRA claims to maximize recovery for California investors.

Frequently asked questions — broker fraud

What is the difference between broker fraud and broker negligence?

Fraud requires proof of an intentional or reckless misrepresentation. Negligence requires only proof that the broker failed to meet the professional standard of care. Both are actionable in FINRA arbitration and both can result in significant recoveries. In practice, many investor claims involve elements of both — Bakhtiari & Harrison evaluates both theories and pursues whichever the facts support.

What is the statute of limitations for a broker fraud claim?

Federal fraud claims under Rule 10b-5 must be filed within two years of discovery and no later than five years after the violation. California § 25501 claims have a two-year limitations period from discovery. FINRA Rule 12206 imposes a six-year eligibility period. The shortest applicable deadline controls. Contact Bakhtiari & Harrison promptly — time limits are strictly enforced.

Can I recover punitive damages for broker fraud?

Yes. FINRA arbitration panels can award punitive damages for egregious broker fraud. The firm’s $54.1 million award against Citigroup included $17 million in punitive damages. Punitive damages are most likely when the broker’s conduct was intentional, systemic, or involved deliberate concealment.

Does the firm handle broker fraud claims outside California?

Yes. Bakhtiari & Harrison represents investors in all 50 states. Ryan Bakhtiari is admitted in California, New York, Texas, the District of Columbia, and multiple federal courts.

For a full overview of the firm’s investor representation practice, visit the Advisor Misconduct page.

Contact a broker fraud attorney — free consultation

Contact Bakhtiari & Harrison for a free, confidential consultation. Our FINRA attorneys review every potential investor claim at no charge. Investor cases are handled on a contingency fee basis — no recovery, no fee.

Call: (800) 382-7969 | Contact Us