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Broker Churning

In discretionary accounts, brokers have the power to freely transact with their client’s assets. Although brokers typically act responsibly, sometimes brokers abuse client confidence for personal gain.  Churning occurs when a broker buys or sells investments, such as stocks, in a customer’s account for the purpose of generating excessive commission.  It is a breach of the broker’s duty to recommend suitable investments and can be determined to be a negligent or fraudulent practice.  As detecting churning can be difficult, investors should contact a broker fraud specialist to assist in a thorough account review.

What is Churning?

Churning occurs in a discretionary trading account when a broker enters into transactions for the purpose of generating commissions and the broker unjustifiably gains from the transactions.

Churning can also occur in a non-discretionary account when the broker is in a position to determine the volume and frequency of the transactions where the customer is willing to follow the broker’s suggestions.

How do I Detect Churning?

To establish churning, the investor must prove a substantial disparity between the turnover in the account in question and the normal trading activity for similar accounts. This occurs where:

  1. Excessive trading occurred in light of the investor’s investment objectives;
  2. The broker exercised control over trading in the account; and,
  3. The broker acted with the intent to defraud or with willful and reckless disregard for the investor’s interest.

Each case is unique and establishing churning is a factually intensive process.  The trier of the facts reviews the account trading patterns, turnover ratio, as well as the broker’s commissions and profits.

Although churning is often difficult to prove, a broker fraud specialist can assist you in performing a thorough account review. Contact Astanehe Law for your free consultation.

What is a Turnover Ratio?

Turnover ratio, a vital aspect of every churning claim, is the measure of the number of times investments are replaced in an account during a given time period.  Churning requires the broker to trade in and out of securities, possibly even the same stock, numerous times over a short period of time.  Consequently, a high turnover ratio usually indicates that the broker has engaged in churning.  Churning occurs when this type of investment activity serves no purpose for the investor and occurred to generate excessive commissions.

Although a high turnover ratio often supports an investor’s churning claim, the investment type affects the amount of permissible turnover.  Less turnover is tolerated for debt investments, such as bonds and mortgages, as opposed to equity holdings.  However, option investments allow for the highest turnover ratio.

If you believe that your account has a high turnover ratio, contact Astanehe Law today to discuss your rights.

How Can I Tell if My Broker Has Control Over my Non-Discretionary Account?

An investor may still pursue a churning claim despite maintain a non-discretionary investment account.  To prove churning, the investor must show that his or her broker has control over the account.  Although a broker must get authority from the client to execute a transaction, de facto control is established where an investor relies on a broker’s advice to such a degree that the investor did not independently evaluate the broker’s recommendations and did not exercise independent judgment.  The trier of the fact is more likely to find that investors with little to no investment experience have ceded de facto control to their broker.

What Can I Do If I Have Been the Victim of Broker Churning?

An investor who is the victim of broker churning can bring a claim against his or her broker and brokerage firm for damages.  All claims must be brought in FINRA Arbitration.

Contact Astanehe Law today to learn about your rights and discuss your options!

What Am I Entitled To Recover in A Churning Suit?

Typically, brokers who engaged in churning are liable for the loss in account value due to the excessive commissions, the commissions generated, and accrued interest.  An increase in total portfolio value does not prevent an investor from bringing a churning claim.

No Upfront Cost for FINRA Arbitration

You will not owe Astanehe Law a penny until after you obtain a successful settlement or judgment. Astanehe Law offers contingency representation which means there is no upfront cost in securing legal representation. Please contact Astanehe Law to learn if your FINRA arbitration claim qualifies for contingency representation.

Astanehe Law Knows Broker Churning

Michael M. Astanehe possesses a zeal for helping investors bring claims against their brokers and brokerage firms.  Mr. Astanehe is an aggressive litigator with several years of civil litigation and arbitration experience.  He is willing to take your broker fraud case to the final arbitration hearing, if necessary.  This ferocity ensures that Astanehe Law will obtain the highest recovery possible for each client.

FINRA arbitration is stressful.  To that end, Mr. Astanehe provides each client with comprehensive legal service so that they remain fully-informed and comfortable throughout the process.  Astanehe Law strives to make FINRA arbitration as stress-free as possible.

With Astanehe Law on your side, you are poised to obtain the maximum recovery possible.  Call today for your free consultation!

Astanehe Law Knows Your Rights

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