Fraud or Theft
The most blatant of unlawful tactics is fraud or outright theft by a broker. An example of theft is the case where the broker instructs an investor to write a check payable to the broker personally or to a company other than the brokerage firm, and the money never reaches the investor's account. Investors should take all possible precautions when seeking the assistance of a broker, including checking the broker's and the brokerage firm's credentials.
Failure to Supervise
A brokerage firm must supervise its individual brokers and their recommendations to investors to ensure compliance with and prevent violations of the rules of the securities industry, or risk liability to the investor.
Under federal securities laws and state "blue sky" laws, brokers and brokerage companies must be registered to sell securities to residents of their states. In addition, most states require that the securities sold to their citizens be registered or properly exempt from registration.