Unauthorized Trading Attorneys — Bakhtiari & Harrison
What is unauthorized trading?
Unauthorized trading occurs when a broker executes transactions in a client’s account without the client’s prior knowledge and approval. Unless an account has been specifically designated as “discretionary” — giving the broker authority to make trades without prior client approval — every transaction requires explicit client authorization before execution. A broker who trades without authorization violates the client’s account agreement, FINRA rules, and California securities law.
Unauthorized trading is one of the most straightforward forms of broker misconduct to identify — trade confirmations either match what the investor authorized or they do not. It is also one of the most serious: unauthorized trading is frequently accompanied by churning, misappropriation, or other compounding misconduct, and regulators treat it as a significant violation warranting suspension or bar.
Discretionary vs. non-discretionary accounts
- Non-discretionary accounts (the default): the broker must obtain the client’s prior approval for every transaction. Any trade executed without prior approval is unauthorized, regardless of whether the trade was profitable.
- Discretionary accounts: the client has specifically authorized the broker in writing to make investment decisions without prior approval for each trade. Even in discretionary accounts, the broker must trade within the scope of the discretionary authority granted and consistent with the account’s investment objectives.
- Time and price discretion: a limited form of discretion that allows the broker to determine the timing and price of a trade the client has already approved — but not the security to trade or the quantity. Using time and price discretion to make unauthorized investment decisions exceeds the scope of the authority granted.
Ratification — why prompt action matters
Broker-dealers sometimes argue that an investor “ratified” unauthorized trades by failing to object promptly after receiving trade confirmations or account statements. Courts and arbitration panels have recognized ratification as a defense in some circumstances — which makes prompt action essential. Investors who receive account statements showing trades they did not authorize should contact legal counsel immediately and send written objections to the firm as soon as possible.
David Harrison’s background as Morgan Stanley in-house counsel gives him direct knowledge of how brokerage firms assert ratification defenses — and how to defeat them by establishing that the investor lacked the sophistication to recognize the unauthorized nature of the trades, or that the confirmations were inadequate to put the investor on notice.
Frequently asked questions — unauthorized trading
How do I know if my broker executed unauthorized trades?
Review all trade confirmations and account statements carefully. Every transaction should correspond to an investment decision you specifically approved. If you see trades you do not recognize or did not authorize, contact Bakhtiari & Harrison immediately. The firm can review your account records and identify unauthorized transactions.
My broker says I gave verbal authorization — what can I do?
Verbal authorization disputes are common in unauthorized trading cases. The burden of proving authorization typically falls on the broker. Bakhtiari & Harrison pursues unauthorized trading claims by examining the pattern of trading activity, comparing trades to the investor’s known investment objectives, and reviewing any written communications that may corroborate or contradict the broker’s authorization claim.
Does the firm handle unauthorized trading claims if the trades were ultimately profitable?
Yes. Unauthorized trading is a violation regardless of whether the unauthorized trades resulted in gains or losses. The investor’s right to control their own account — and to authorize or decline every transaction — is not contingent on the outcome of those transactions.
For a full overview of the firm’s investor representation practice, visit the Advisor Misconduct page.
Contact a unauthorized trading 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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