Like “Churning,” the issue of suitability is a common basis for an arbitration award and it is something that any investigator handling cases involving securities issues must understand. A suitability violation occurs when and investment made by a broker is inconsistent with the investor’s objectives, and the broker knows or should know the investment is inappropriate.  For example, Thelma Lou is a sixty-eight year old widow, and retired school teacher, who has $350,000 she received following the death of her husband which represents her total net worth. Joe Broker invests this money in volatile derivatives and loses most of it. Although there was no fraud, and Thelma Lou approved every trade, a risky investment of this nature is wholly unsuitable and Thelma Lou would almost undoubtedly recover her losses in arbitration.

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