Brokers owe a duty to investors to properly execute customer orders. In some s, a broker will fail to execute trades for a client despite being instructed to do so.
Allegations of a failure to execute trades will often be known to the broker or her or her firm after a problem has already developed. It is important to seek the advice of counsel as soon as any indication of potential risk becomes known.
The failure to execute trades occurs when a broker does not execute a trade ordered by an investor. Other examples of this include the failure of the broker to obtain the best possible price during an authorized trade; make the trade in a timely manner, or carry out a pre-specified action.
Failure to execute allegations are generally alleged on the basis of a failure to act under the duty of care a broker or his or her firm holds toward a client. However, there are instances of large scale fraud schemes which employ failure to execute a trade a means of securities fraud and manipulation.
Failing to execute trades often fall under the category of common law causes of action for negligence or breach of fiduciary duty. However, in some instances failing to execute a trade can rise to the level of criminal liability if it is found that the failure to execute a trade was connected to a scheme to defraud.
No SEC regulations or state securities laws require a trade to be executed within a set period of time. However, brokers or firms must not exaggerate or fail to tell investors about the possibility of significant delays.
Penalties and punishment for failing to execute trades fall under the general category of civil damages available in negligence and breach of fiduciary duty cases. In extreme cases failing to execute a trade as part of scheme to defraud can result in fines or incarceration under criminal penalties.
Failure to execute claims are often difficult to prove against a broker or firm are often and hinge on issues similar to that of breach of fiduciary duty or negligence claims. As such it is often key to the defense that the broker or firm acted in a reasonable and diligent manner with regard to executing a trade.
Federal and state securities laws do not specify a timeliness requirement for trades; however, both state and federal securities laws require a broker to act in the best interest of his or her client and to exercise a duty of care in managing investments.
A recent case reported illustrates the pitfalls of failure to execute claims, when a financial advisor with a large financial firm failed to execute a sale involving securities investments worth millions of dollars in a timely manner. The client incurred losses of approximately $2.5 million consequently. The client initially instructed the investment advisor to move forward with its request to sell securities investments on Aug. 1, 2011. The request, however, wasn’t actually fulfilled until Aug. 12 and the 11 day lag proved very costly to the client. Had the sale been made on the date the client instructed, the investments would have been spared the financial beating they took following an Aug. 5 announcement by Standard & Poor’s in which the United States lost its AAA credit rating. The client won the lawsuit and the advisor was ordered to pay $2.2 million dollars.