Discussion Post

Please respond to the below post with a min of 300 words.

  • Two stockbrokers, in clear violation of the rules of their employer, sold worthless stocks to unsuspecting customers. There was no question that the brokers had the actual or implied authority to sell the stock. The customers who lost money sued the brokerage firm, contending it was liable for their losses because the brokers had apparent authority. Based on this scenario, debate whether or not you believe these stockbrokers had apparent authority. Next, speculate on how the outcome of the customer’s suit against the brokers will turn out. Explain your rationale.

Next, Please respond and comment to the below post with a minimum of 250 words.

I feel that the outcome of this law suit will depend very heavily on the reaction from the Principal of the brokerage firm. If the lawsuit is against the actual firm, then the principal can attempt to prove that the sale of this stock is clearly a violation of company policy, and that the brokers were acting in violation of the consent from the principal. If this violation is in fact clear then the firm might not have any trouble distancing themselves from the liability despite the apparent authority.

The laws that govern financial planners, and stock brokers, are tight. Newly introduced this year the “fiduciary rule” now states that all financial planners, regardless of their title, must adhere to new “impartial conduct standards”. Simply put, anyone who handles your money must be able to clearly define, and prove that they were acting in the consumers best interest. If it appears that they were acting in a way that puts the customers money at risk unnecessarily, or without the express written consent of the customer, for their personal gain they can be held criminally liable for their actions.

It appears to me that the customers have a thin case against the firm, but a strong case against the agents. If it is specified that this is in clear violation of the firms policy then the firm will be able to distance themselves from liability by terminating the agents. The agents will face having their series 6, 63, and 7 licenses revoked, and face a penalty fee from FINRA, the DOL, and the SEC, perhaps even criminal litigation and jail time. The customers will have lost their money in an ill-advised market move, and the firm will walk away free of monetary responsibility toward the consumer. The customer can attempt to take the agents to court and would probably win, but might not get much, if any, of their money back.

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