Understanding the Cost-Equity Ratio

Investment fraud is a serious crime that can have devastating financial consequences for victims. Investigators and federal agencies use a variety of techniques to identify and stop investment fraud. One of these techniques is the cost-equity ratio.

This ratio is commonly used to identify churning and excessive trading of investment accounts. If you think you are the victim of fraud, or you just want to make sure your accounts are secure, our firm can help. We can use various techniques and calculations, including the cost-equity ratio, to determine whether or not your investment accounts have been the victim of fraud.

• Related: Warning Signs of Account Churning

Cost-Equity Ratio and How It Is Used to Determine Fraud

The cost-equity ratio is a complicated calculation. It measures the amount that a specific investment must make each year to break even. The rate of return on an investment account, after all charges and costs (including the costs of commissions), is used to determine the amount that is needed to break even.

According to the Securities and Exchange Commission (SEC), a cost-equity ratio of greater than 20% is most likely a sign that the investment account has been subject to excessive trading. Thus, if your investment account requires a 20% cost-equity ratio just to break even in a certain year, this is a warning that your account may be compromised. Investments that are trading above and beyond the goals and norms must require higher cost-equity ratios to balance out each year. Thus, this ratio is a good indicator of whether or not an investment account has been overly traded or churned.

Call Our Investment Fraud Attorneys at (310) 220-0988

At Baldwin Mader Law Group, we represent victims of investment fraud. Our knowledgeable legal team can investigate your account by using the cost-equity ratio and by examining the turnover rate and in-and-out trading to determine if investment fraud has taken place. With more than 50 years of combined experience, our firm can answer your questions and guide you through the process. Once we detect and identify the type of fraud you have been the victim of, we can determine who is responsible and aggressively represent you as you pursue justice.

Related Reading

• What Is Churning and How Does It Affect Your Finances?

Contact Baldwin Mader Law Group online or call (310) 220-0988 for a free initial case evaluation.
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