Churning, also referred to as excessive trading, is another common complaint against unethical stock brokers. Because brokers earn profits for each trade they make, some brokers will make unduly large numbers of stock trades on behalf of their clients, whether such trades are profitable or not.
However, it is not always immediately apparent when a broker is engaging in churning. Depending on the circumstances, making a large number of trades may be the best strategy for the client. If, however, your broker has made an unusual number of trades particularly over an extended period with little to no monetary benefit to you, you may have grounds for a claim of stock broker fraud.
Proving a Churning Violation
Usually, churning happens when you have given your broker permission to trade your account at their discretion. This means that you do not have to approve each separate trade; you have trusted your broker to make trades in your best interest at all times. For individuals who require their permission to be given before a trade is made, churning is less likely to happen, because you personally oversee each trading decision.
One key element to establishing a churning claim is to review your account’s overall growth and determine whether your profits are sufficient to cover the expenses of trading. In some cases, even a single unnecessary trade may be considered churning if the trade serves no real purpose for the client. If you pursue a churning claim in a court of law, it will be evaluated in light of your customer information about tax needs, income and risk tolerance. After comparing the number and size of trades made with the way your account has been set up, the court will decide whether or not churning has occurred.
If you discover that your broker has been trading too much, and you have lost money as a result, you have a right to compensation. Please contact the experienced securities fraud lawyers at Colling, Gilbert, Wright & Carter today to discuss your claim. We can help you examine the details of your particular case and determine the best way forward.