Answer: The practice you are referring to is commonly known in the securities industry as “unauthorized trading.” It violates securities laws and securities industry rules. Unauthorized trading occurs when a broker makes trades in a customer’s account without having any authority, either in writing or orally, to do so. Unless a client gives a formal written grant of “discretion” (like a limited power of attorney) to her broker, a stockbroker is not entitled to trade in the client’s account without obtaining prior approval for the specific trade.
In your Aunt’s circumstance, if she has given you a financial power of attorney to act on her behalf, you should immediately notify the brokerage firm’s manager in writing that no new transactions should be executed in the account because of her condition. Even in the absence of a financial power of attorney, you should notify the manager in writing that your Aunt is suffering from Alzheimer’s. Either way, this will put the brokerage firm on notice it has potential liability and the broker’s conduct will be more closely scrutinized.
If the transactions in your Aunt’s account have not been authorized, she has a right to recover losses she has sustained on the unauthorized purchases and I would suggest you contact a securities lawyer to advise you further. If the broker’s manager wants to meet with you to discuss your Aunt’s account, keep in mind this is akin to the insurance adjuster trying to get a statement from a car accident victim before the victim can talk with a lawyer. If the broker has engaged in authorized trading someone knowledgeable should do a complete account review to be sure nothing else improper has transpired in the account.
Let me know if I can be of further assistance to you.
J. Michael Bishop, JD
Smiley Bishop & Porter, LLP
Atlanta, GA 30338
Member of the national ElderCare Matters Alliance
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