Recover Losses from Churning
If your broker has engaged in excessive trading in your account, this can be known as churning. It is a form of securities fraud that results in generating significant commissions at the expense of the customer. FINRA has explained that churning is a violation of its Suitability rule, under the quantitative suitability section. That rule requires even recommendations that are suitable in isolation, must also be viewed as whether they are suitable in light of the customer’s entire account and investment portfolio.
“Churning occurs when a broker engages in excessive buying and selling of securities in a customer’s account chiefly to generate commissions that benefit the broker.”– SEC
The most insidious part of churning is that it is often masked by profits in the account. The customer trusts his/her broker that he is making good decisions for their account, not realizing that while profitable, it is significantly less so because much of the profit is being siphoned off in the form of commissions. Unfortunately, we see churning, or excessive trading, even in accounts where generating extra commissions is not the motive (in fee based accounts). There are time when the broker simply sees himself as a Warren Buffet type stock picker, but rather than the type of research and discipline that goes into the strategy employed by Berkshire Hathaway, the broker simply makes lots of in-and-out purchases of investments on various ideas and hunches. This often has disastrous results for the customer.
If a broker wants to gamble in that way with his or her own money, that is one thing, they are not permitted to do it with their customer’s money. If you noticed that your account value changes significantly, and there are numerous in and out trades of the same investments, even if your account showed gains, you may still have claim for what was taken from you by the inappropriate churning of your account. Contact us to discuss a potential claim.
If your broker was engaged in trades in your account without discussing them with you, whether it was for purposes of churning your account, or simply because she believed she knew what “was best” for you in your account, if you did not give them the express written authority to do so, you may have a claim.