My IRA account has been traded for 2 years without my signed authorization. Legal?

[diddlybo]

What is the name of your state (only U.S. law)? Georgia

With a former employer, I had a 401k which was (and continues to be)managed by one of the big name investment firms. My former employer termintaed the 401K plan with this investment firm in 2008 and no further contributions were made to the account. It continues to be managed by the same investment firm.

I recently received a call from the investment firm advising me that my 401K was changed to an IRA account in Feb 2008 but at that time they neglected to get my signature on the paperwork needed to open the new account. The person I spoke to said they simply forgot to obtain the proper authorization from me. A couple of days later I received an application for the IRA account, which they asked me to sign and return. I have not signed this paperwork.

So, the investment firm has been managing an IRA for me since Feb 2008 even though I never signed an application or any authorizations for an IRA account. Since that time, my investments are down nearly 40%.

Are they in the wrong for continuing to make trades in an account that was never authorized? Shouldn't the money have gone into a money market account or some other stable account until the necessary paperwork was completed? Should I just sign the new paperwork and forget about it?

I have a friend in the business who says the investment firm should reset my account balance to what it was when the account change was made, seeing how they were trading an account without proper authority.

Any advice?

 

[Some Random Guy]

Since that time, my investments are down nearly 40%.

Are they in the wrong for continuing to make trades in an account that was never authorized?

So far, you have not indicated that any trades have been made. Most 401Ks and IRAs are made up of stocks and mutual funds which fluctuate in value. You may have had the same holdings in your account but had the values of those investments drop 40%.

But yes, if the company took it upon themselves to actively trade the investments in your account without your authorization, then they may have some liability. But such a situation would be highly unusual.

The only reasonable scenario that comes to mind where that would be authorized is during the initial transfer from 401K to IRA. There are some mutual funds which are not sold to the general public, but only through 401ks. In that case your investments may need to be sold during the transition.

The other quesiton is whether your signature is required for the new IRA account. That would depend on the details of your old 401K and possibly upon the value of the account. Some transfers are set up to be automatic and others require intervention on your part to set up the account. But usually if you were to fail to sign up for an IRA, the company would send you a check for the balance of the 401K minus a huge chunk for early withdrawl penalties.

Shouldn't the money have gone into a money market account or some other stable account until the necessary paperwork was completed?

Ok, so you ignored your investments for 2 years and they lost money (welcome to the club). So you want to sue them because they didn't sell your stocks and mutual funds and keep it all in cash.

If instead they did sell your investments and it was all in Apple computer stock, then you would likely sue them for making you miss out on a 100% stock gain.

Bottom line, the transfer should have happened according to the rules of the 401k plan. Read them.

 

[diddlybo]

The account was actively traded from Feb 2008 forward.

 

[Some Random Guy]

The account was actively traded from Feb 2008 forward.

So you are saying that an IRA was opened, funds were transferred in from your 401K and then the company took it upon themselves to buy and sell stocks without ever contacting you to ask permission or inform you about these trades?

Have they been sending you statements or trade acknowledgments?

Are the trades traditional buying/selling or is it just dividend reinvestment purchases?

What justification did the company give for making these trades?

Sounds like you may want to find a local lawyer versed in securities law.

 

[diddlybo]

So you are saying that an IRA was opened, funds were transferred in from your 401K and then the company took it upon themselves to buy and sell stocks without ever contacting you to ask permission or inform you about these trades?

Have they been sending you statements or trade acknowledgments?

Are the trades traditional buying/selling or is it just dividend reinvestment purchases?

What justification did the company give for making these trades?

Sounds like you may want to find a local lawyer versed in securities law.

1. Yes. The funds were transferred to a new account without my knowledge and the trading in the account continued as before. I didn't know any change had been made nor did I know I needed to sign new paperwork.

2. Yes, I get statements and acknowledgements in the mail.

3. Buying and selling

4. They said they just continued managing it as they did before.

 

[Some Random Guy]

Ok, so the account was being actively traded by the investment company when it was an employer based 401k. That's pretty unusual. The typical 401k plan only uses defined investmment percentages for incoming money and then participant directed trades for money already in the account.

Since you have been aware fo rhe trades they have made over the last 2 years and have not complained about them, your actions would limit any case that they were churning your account against your wishes. If you had in fact known that the account was an IRA instead of a 401k, can you reasonably say that you would have done anything differently?

While their failure to get your account signature may have violated their rules and some securities regulations, I am not sure that you have recoverable damages. But depending on the amount of money at stake, you may still want to sit down with a lawyer and see if there is something that can be done.

 

[Andy0192]

I'm sorry, but if you left a 401(k) sitting behind at a former business, it was probably not being "actively traded".

It sounds as though your former employer dis-banded the 401(k) and you were rolled over into an IRA into a "default" fund category, likely a money market or treasury fund. That's what happens when they can't get a response from participants.

 

[Some Random Guy]

Andy0192: In response to repeated questions, the poster has made it clear that it is actively traded.

 

[diddlybo]

I'm sorry, but if you left a 401(k) sitting behind at a former business, it was probably not being "actively traded".

It sounds as though your former employer dis-banded the 401(k) and you were rolled over into an IRA into a "default" fund category, likely a money market or treasury fund. That's what happens when they can't get a response from participants.

Yes, it was actively traded.

My money was rolled into an IRA after my former employer stopped the 401K plan. However, my sigs were never obtained for the IRA account. In the meantime, the trading of the account continued.

The investment firm has admitted to trading the account without acquiring the proper signatures and authorizations and in the meantime lost 40% of the money. My question is whether or not they could legally continue to trade the account without proper sigs. Legally speaking, could they be required to reset the account balance to what it was at the time the IRA account was established?

Morally speaking, I don't know that I would ever ask for the money back. I'm just wondering about the legality of this whole thing.

 

[Some Random Guy]

Legally, they shouldn't be trading stocks without your expressed permission. However, when you come to the matter of your actual loss, you have an obligation to mitigate your damages. By allowing them to trade for two years, sending you statements every month, you have failed to prevent this unauthorized trading from continuing.

That's why you should look at the dollars involved and see if its worth at least talking to a lawyer about your options.