California Churning Fraud Attorneys
Churning occurs when a broker or investment adviser engages in excessive buying and selling in a client’s account primarily to generate commissions rather than to benefit the investor. Because brokers who churn frequently disguise the activity with professional-sounding explanations for their “trading strategy,” many investors do not realize they have been victimized until they have incurred serious losses.
Churning claims in FINRA arbitration require three elements: the broker controlled the trading in the account (either through express discretion or de facto control), the trading was excessive in light of the investor’s objectives, and the broker acted with intent to defraud or with reckless disregard for the investor’s interests.
How We Prove Churning
We analyze the account’s trading records to calculate quantitative metrics that arbitration panels rely on to identify churning. These include the turnover rate (how many times the portfolio was bought and sold in a given period), the cost-to-equity ratio (the annual cost of trading as a percentage of the account’s average equity), and the in-and-out trading pattern (whether positions were held for unreasonably short periods). These numbers tell the story: elevated turnover rates and high cost-to-equity ratios are the kind of quantitative evidence FINRA panels rely on to find excessive trading.
FAQs
What is the difference between churning and active trading?
Active trading is a legitimate strategy for investors with the risk tolerance and objectives to support it. Churning is excessive trading that serves the broker’s financial interest, not the investor’s. The distinction turns on whether the frequency and cost of trading was consistent with the investor’s stated objectives and risk profile, and whether the broker exercised control over the account.
How do I know if my account has been churned?
The clearest sign is that your account generated significant trading costs (commissions and fees) while producing poor or negative returns. If your account statements show frequent buying and selling of the same or similar securities, short holding periods, and high total commissions relative to your account size, those are strong indicators. We can review your statements and calculate the relevant metrics.
Talk to a California Churning Fraud Lawyer
If you suspect your broker traded your account excessively to generate commissions, contact Rosenberger + Kawabata. Call (310) 894-6921 or submit an inquiry through our contact form.