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As reported in InvestmentNews, three Raymond James entities have agreed to pay over $15 million to resolve an investigation by the SEC. The settlement and SEC order focused on Raymond James’s actions in improperly charging certain clients advisory fees when the...read more
Stockbrokers have a fiduciary duty to act in their clients’ best interests. When brokers are entrusted with investment accounts, they are held to the good faith belief they will trade in a manner and frequency that benefits their clients. Occasionally, brokers will partake in the unethical practice of “churning” which means that they engage in excessive trading of clients’ accounts for the purpose of generating commission. If you believe that you were a victim of trade churning, you may be entitled to damages. Call a trade churning lawyer at the office of Epperson & Greenidge, P.A. and find out if you have a viable claim against your broker.
What is Trade Churning?
As explained above, trade churning occurs when, in an effort to generate commission, a broker practices excessive trading in a client’s account. There is no hard and fast rule about what makes a broker’s trading activities “excessive” for the purposes of a Securities Exchange Commission violation. A client will succeed on a trade churning claim in FINRA arbitration if he or she proves:
- The broker was in control of the transactions;
- The trading was excessive; and
- The broker acted with reckless disregard of the client’s interests or had the intent to defraud the client
There are several factors that a FINRA arbitrator or panel of arbitrators will consider in determining whether a broker had control over transactions in a client’s account:
- Client’s knowledge and understanding of trade strategy
- Client’s confidence and trust in the broker
- Amount of time client devoted to independent research
- Client’s prior investment experience
- Percentage of transactions that were solicited compared to those that were unsolicited
- Positions with other brokerage firms
Analyzing the turnover ratio is the most accurate way to determine if churning did in fact take place. The turnover ratio is the total amount of purchases made in the account divided by the average monthly net assets in the account. That number is then divided by the number of months spent trading and then multiplied by twelve to annualize the data. For a conservative investor, courts have found that an annualized turnover rate of two suggests that churning may have taken place. A turnover rate of four is presumably churning, and if the turnover rate is 6 or more then it is almost indisputable that churning took place.
How do I Protect Myself Against Trade Churning?
Investors often inquire about how they can protect themselves against excessive trading when they have entrusted brokers with their accounts. The first and most important piece of advice in this regard is to avoid giving your broker carte blanche to trade on your behalf. Stay involved in your account activity and ask questions about trade practices that you are unsure about. Some other tactics to avoid becoming a victim of trade churning are:
- Monitor your monthly account statements
- Establish clear trading objectives
- Research your stockbroker
- Do not sign anything without reading and researching its contents
- If you are suspicious of a broker, do not be afraid to hire a new one
How do I Pursue a Trade Churning Claim Against My Broker?
If you suspect that you may have already been a victim of trade churning, you do not have to eat your losses. You have the option of pursuing legal action against a broker who breached their fiduciary duty to act in your best interest. There are three methods to resolving a dispute with a stockbroker:
The Financial Industry Regulatory Authority (“FINRA”) offers dispute resolution services to victims of trade churning and their brokers. By filing a claim and participating in an arbitration hearing, you could potentially recover for your losses. To put yourself in an optimal position to recover damages, it is wise to seek the counsel of a churning lawyer who can present your case thoroughly and competently to an arbitration panel.
In order to file a FINRA claim that is eligible to be heard in front of an arbitrator, you must submit a statement of claim and a submission agreement. The statement of claim describes the dispute, identifies parties to the dispute, and addresses the type of relief that is requested. Some examples of relief that you may request include interest, specific performance, and monetary damages. The Submission Agreement also names the parties to the dispute. It acknowledges that FINRA is the entity that will conduct the proceedings, and if a hearing is held, the final ruling will be binding.
Trade Churning Lawyer
If you have been a victim of trade churning, it is in your best interest to hire an attorney who can walk you through your potential legal options. Epperson & Greenidge, P.A. provides high-quality legal services and aggressive representation to victims of excessive trading. He provides legal services areas and also, on a federal level, has appeared before FINRA. To schedule a free and confidential consultation with a skilled trade churning lawyer, call (877) 445-9261.