Churning is excessive trading in an account controlled by a broker for the purpose of generating commissions, without regard to the customer's interest. It is measured — not guessed — using the account's own turnover rate and cost-to-equity ratio. When the numbers show the account was run for the firm, the losses and costs may be recoverable.
Not all frequent trading is churning. The claim requires control of the account by the broker, excessive trading measured against the customer's objectives, and intent or reckless disregard of the customer's interest. The conduct below is what the metrics tend to expose.
An annualized turnover rate far beyond what the customer's stated strategy could justify — portfolios replaced several times a year in accounts that were supposed to be held for growth or income.
A cost-to-equity ratio so high that the account had to generate outsized returns just to break even on commissions, markups, and fees — a structural sign the trading served the firm.
De facto or actual control of the account by the representative, including unauthorized trades and discretionary trading without written authority.
Repeated buying and selling of similar securities, and switching between products (such as mutual fund share classes or annuities) that generated fresh commissions without a legitimate purpose.
Churning claims are quantitative. The proof is built from the account's own records, and recovery reflects both the losses and the excessive costs the trading generated.
Every purchase and sale, with dates, amounts, and costs, reconstructed into turnover and cost-to-equity figures that a panel or court can evaluate.
The stated objectives, risk tolerance, and time horizon that make the trading activity excessive relative to the customer — the same records the firm created at account opening.
Broker-dealers are required to monitor for excessive trading; a failure to act on active-account and commission alerts supports a parallel failure-to-supervise claim under FINRA Rule 3110.
Recovery can include trading losses, the commissions and costs generated by the excessive activity, and, where the conduct warrants it, additional relief.
Initial inquiries are reviewed personally and treated as confidential whether or not we ultimately work together. We respond to substantive case inquiries within one business day. There is no cost or obligation associated with the initial review.
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