Asset Theft Attorneys — Investor Fund Misappropriation

What is broker asset theft?

Broker asset theft and misappropriation occur when a registered representative directly steals funds or securities from a client’s account — converting investor assets for the broker’s personal use. This is the most serious category of broker misconduct and typically constitutes both a securities law violation and criminal fraud. Common forms include:

• Direct fund transfers: transferring funds from the investor’s account to the broker’s own account or to third-party accounts controlled by the broker.
• Check fraud: inducing investors to write checks to the broker directly rather than to the brokerage firm, diverting funds outside the firm’s custody systems.
• Unauthorized withdrawals: withdrawing funds from client accounts without authorization, often using forged signatures or falsified paperwork.
• Bogus investment programs: directing investor funds to fictitious investment accounts or programs that exist only on paper — a form of theft disguised as investment management.
• Fee overbilling: systematically overcharging advisory fees, custody fees, or transaction costs beyond the amounts disclosed and authorized.

Brokerage firm liability — failure to supervise

In asset theft cases, the individual broker is obviously liable. But the more significant recovery path is frequently against the brokerage firm — which has deeper pockets and insurance coverage, and which bears independent liability for failing to implement supervisory systems adequate to detect and prevent the theft.

Brokerage firms are required under FINRA Rule 3110 to establish and maintain supervisory systems that are reasonably designed to detect misconduct by their registered representatives. When a broker steals from clients over an extended period — and the firm’s compliance systems failed to detect it — the firm faces independent liability for the full extent of the theft. David Harrison’s experience as Morgan Stanley in-house counsel gives the firm direct knowledge of how brokerage compliance systems work — and where they fail.

SIPC protection for theft victims

When securities or funds have been stolen from a brokerage account, the Securities Investor Protection Corporation (SIPC) may provide coverage for missing assets up to $500,000 per customer (including up to $250,000 for cash). SIPC protection is available when the brokerage firm is SIPC-member and the assets are genuinely missing from the account — not simply lost through bad investments. Bakhtiari & Harrison advises asset theft victims on SIPC eligibility and assists with SIPC claims as part of its representation.

The Rise of Synthetic Identity Fraud

Once they have this information, fraud perpetrators may use it for their own purposes. Among other things, they could use it to:

• Set up credit accounts in your name
• Open an account with a utility company, such as phone, gas, or electricity account
• Steal money or securities from your financial accounts
• Access your tax refund
• Make use of your online accounts

ACAT Theft of Customer Assets from Brokerage Firms

The theft of assets from financial institutions is on the rise. One such alarming scam involves ACATS fraud. In a situation where customer account information is stolen, a bad actor may use this information to effect ACATS fraud in the following manner:

Using the stolen identity of a legitimate customer of a carrying member, a bad actor will open a brokerage account online or through a mobile application in the name of the legitimate customer at the receiving member to create a new account. The bad actor may open the new account solely using stolen information or with a combination of stolen and false information (e.g., false email address or phone number).

Shortly after successfully opening the new account at the receiving member—generally, within a few days or weeks—the bad actor will then provide the receiving member with a TIF to initiate a transfer through ACATS of the legitimate customer’s account assets from the carrying member.

Once the ACATS transfer of the assets to the newly established account at the receiving member is completed, the bad actor will (within a short period of time) attempt to move the ill-gotten assets to an external account at another financial institution by:

• transferring the account assets (i.e., cash and securities) to an account at another financial institution;
• liquidating the securities or a portion of the securities transferred into the new account, then transferring any realized proceeds (along with any cash that was transferred to the new account) to an account at another financial institution; or
• purchasing additional securities using the transferred cash and then transferring those securities to an account at another financial institution.

ACATS fraud is related to the growing threat of new accounts being opened online or through mobile applications using stolen or synthetic identities.

Frequently asked questions — asset theft

What should I do if I discover my broker stole from me?

Act immediately. First, contact the brokerage firm’s compliance department in writing to report the theft and demand an account freeze. Second, file a report with FINRA, the SEC, and your state securities regulator. Third, contact Bakhtiari & Harrison for a free consultation — the firm pursues recovery from both the individual broker and the brokerage firm simultaneously, and evaluates SIPC eligibility as part of the initial assessment.

Can the brokerage firm be liable even if they didn’t know the broker was stealing?

Yes. Brokerage firms are independently liable for failing to supervise their registered representatives. A firm that maintained adequate supervisory systems should have detected the theft — and a firm whose systems failed to detect it is liable for that failure regardless of whether firm management had actual knowledge of the theft. The failure to supervise claim is independent of the direct theft claim.

Can I recover if the broker has no assets?

Possibly — through multiple paths. The brokerage firm bears independent supervisory liability and has significant resources. SIPC may provide coverage for missing assets. The broker may have professional liability insurance. Bakhtiari & Harrison evaluates all recovery paths in asset theft cases — not just the direct claim against the individual perpetrator.

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

Contact a asset theft 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.

Investor cases are handled on a contingency fee basis — no recovery, no fee.

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