“Account churning” is a way of describing the actions of a broker who performs an excessive number of investment transactions, such as buying or selling a stock, for the primary purpose of generating commissions. Based in New York, the accomplished stock fraud lawyers at Fitapelli Kurta are committed to representing investors in a wide variety of claims, including those related to this unlawful practice. Our team is knowledgeable in both state and federal securities laws and has arbitrated hundreds of cases with successful results. We represent individuals throughout the nation in claims against investment firms and brokers.Rules Prohibiting Account Churning
In churning cases, a broker does not buy, sell, or trade securities in order to advance a client’s investment goals. Instead, large volumes of transactions are made in order to increase fees and charges. Account churning generally arises in situations where a broker has the control over making investment transactions on a client’s account. Situations where this can occur usually involve discretionary or managed funds, or some margin funds. The Securities Exchange Commission (SEC) prohibits the unethical act of account churning, and it is illegal under state and federal securities laws.
Brokers must act in accordance with certain standards set by federal laws and regulatory guidelines. The Securities Exchange Act prohibits manipulative or deceptive practices in connection with the sale or purchase of securities. The Financial Industry Regulatory Authority (FINRA), a securities regulatory organization, requires members to conduct business while observing high standards of integrity. Specifically, in recommending a sale, purchase, or exchange of a security, a broker must reasonably believe that the transaction is suitable for the client, given his or her investment goals and financial situation. Excessive trades are also prohibited by FINRA conduct rules. These requirements are designed to protect investors and decrease cases of fraud.Seek Compensation from a Fraudulent Broker
To prove a claim of account churning, an investor must first show that that his or her broker had control over an investment account. An arbitrator or other tribunal will then examine the frequency of transactions and ascertain whether they were necessary to achieve the investor’s goals. In doing so, the decision-maker will closely examine the circumstances surrounding the trades, including the nature of the account and the investor’s desired risk level. One way of determining whether churning has occurred is to compare the number and cost of the transactions made against the value of the account. On occasion, account churning can result in fees in excess of the actual value of an investor’s equity.
The final requirement in a churning case is the intent of the broker to defraud an investor. However, intent can also be proven by showing that an investment professional acted in reckless disregard of a client’s interests.
As an investor, your damages in a successful claim are not necessarily limited to recovering the excess brokers’ commissions that you paid. You may also be able to regain the losses that your account experienced because of the churning. Since proving damages in a churning case is a complex process, it is important to have a skilled and experienced attorney on your side.Contact Lawyers Skilled in Securities Fraud Cases
If you or someone you know believes that a broker or investment professional has engaged in account churning, you should not hesitate to contact the securities fraud attorneys at Fitapelli Kurta. Once we evaluate whether you have a claim, our attorneys can use our skills and resources to fight to recover your investment losses. Call (877) 238-4175 or contact us online to speak one of our attorneys.