Can I sue a broker for doing this?

zorro1 · Dec 16, 2007

This is what happened to me last week. I had incurred a regular maintenance call - used up almost all my daytrading buying power 9 and held overnight. However, my account was not negative and I had a lot of excess funds.. I was short 25,000 shares in a stock. At the market close, the loss on these shares was approximately $37,000. The next day the stock was up pre-market by about $2. However, my net surplus at this point in time was about $80,000. As the opening bell approached the stock retraced back to its closing price of the previous day and started dipping below it. Once the market opened my broker covered 20,000 shares in 5,000 share increments at market within a minute of the market's open. Needless to say, when he started covering the first 5,000 increment at market the stock started skyrocketing and with each successive increment kept shooting up.By the time the broker had covered 20,000 shares the price increased by approx $5.
My broker made no attempt to contact me over the phone or via email prior to liquidating my shares. If I was allowed to handle this situation I would have come out of this situation with a gain of at least $20,000 at the very least.
Can I take legal action against my broker? Please address this issue. I don't want people talking to me about risk management and other such derisive remarks. I am not soliciting advise on the trading part of this trade but only want to know if I can take legal action.
The wording in the brokerage's margin handbook says that liquidations can take place if the firm feels the account faces the possibility of turning negative. Does this give them carte blanche to liquidate a position or positions in my account in such a manner which resulted in heavy losses

torontoman · Dec 16, 2007

Quote from zorro1:

This is what happened to me last week. I had incurred a regular maintenance call - used up almost all my daytrading buying power 9 and held overnight. However, my account was not negative and I had a lot of excess funds.. I was short 25,000 shares in a stock. At the market close, the loss on these shares was approximately $37,000. The next day the stock was up pre-market by about $2. However, my net surplus at this point in time was about $80,000. As the opening bell approached the stock retraced back to its closing price of the previous day and started dipping below it. Once the market opened my broker covered 20,000 shares in 5,000 share increments at market within a minute of the market's open. Needless to say, when he started covering the first 5,000 increment at market the stock started skyrocketing and with each successive increment kept shooting up.By the time the broker had covered 20,000 shares the price increased by approx $5.
My broker made no attempt to contact me over the phone or via email prior to liquidating my shares. If I was allowed to handle this situation I would have come out of this situation with a gain of at least $20,000 at the very least.
Can I take legal action against my broker? Please address this issue. I don't want people talking to me about risk management and other such derisive remarks. I am not soliciting advise on the trading part of this trade but only want to know if I can take legal action.
The wording in the brokerage's margin handbook says that liquidations can take place if the firm feels the account faces the possibility of turning negative. Does this give them carte blanche to liquidate a position or positions in my account in such a manner which resulted in heavy losses

My two cents for what it's worth. The wording in the first sentence of your last paragraph says it all. "liquidations can take place if the firm feels the account faces the possibility of turning negative." It doesn't matter how YOU feel. It matters how THEY feel. They felt it to be a risk. I'm sorry to say this, but I think they legally can do it.

nkhoi · Dec 16, 2007

yes, absolutely, you can sue anybody for anything. But before you do that read what you signed when you opened your account.

powerfade · Dec 16, 2007

Quote from zorro1:
Does this give them carte blanche to liquidate a position or positions in my account in such a manner which resulted in heavy losses

You want the short answer?

Yes.

I guess the reason you don't want any comments about risk management is that you know you blew it.

You do know that, right?

zorro1 · Dec 16, 2007

Quote from powerfade:

You want the short answer?

Yes.

I guess the reason you don't want any comments about risk management is that you know you blew it.

You do know that, right?

I did not blow it. Reread my post. Again please respect my wishes for not digressing from the issue that I want specifically addressed - legal remedy.
I have not posted here to discuss trading behavior, mistakes , blowups etc.

captain_trips · Dec 16, 2007

you say....My broker made no attempt to contact me over the phone or via email prior to liquidating my shares

what efforts did you make to take responsibility for your action??

none...it would seem

zorro1 · Dec 16, 2007

Quote from captain_trips:

you say....My broker made no attempt to contact me over the phone or via email prior to liquidating my shares

what efforts did you make to take responsibility for your action??

none...it would seem

If the broker had not liquidated it would have been a much different story as the price action in the stock subsequently proved. There was no need for me to take any action at this point in time. The margin handbook says I have 24 hours to take action. I still had at least 10 hours left.

Arnie · Dec 16, 2007

I doubt you can sue them. Every brokerage account contract I have seen calls for arbitration.

Besides, even if you could sue, you would lose.

powerfade · Dec 16, 2007

Quote from zorro1:

I did not blow it. Reread my post.

I did read your post. I based my comment upon its content. You clearly made three bad mistakes - overextended yourself in one stock, allowed your losses to get so bad that you incurred a margin call, and apparently went hugely short of a stock that was capable of skyrocketing on a 20,000 share buy at the open. 'Needless to say' is the way you put it. Actually, it needed to be said. You were shorting some low volume stock, clearly.

You blew it, and you have no legal recourse whatsoever. Trading is about owning up to your mistakes. Do so now, and move on. Your loss is your fault, not your broker's.

Quote from captain_trips:
what efforts did you make to take responsibility for your action??

none...it would seem

None at the time and still unable to do so, it seems.

akeyla · Dec 16, 2007

Quote from powerfade:

I did read your post. I based my comment upon its content. You clearly made three bad mistakes - overextended yourself in one stock, allowed your losses to get so bad that you incurred a margin call, and apparently went hugely short of a stock that was capable of skyrocketing on a 20,000 share buy at the open. 'Needless to say' is the way you put it. Actually, it needed to be said. You were shorting some low volume stock, clearly.

You blew it, and you have no legal recourse whatsoever. Trading is about owning up to your mistakes. Do so now, and move on. Your loss is your fault, not your broker's.

I said I did not want advise of this nature. So if you insist then go ahead. I've got you on 'ignore'. I don't want to get into arguments with anybody here.