Account churning is a form of
investment fraud that occurs when a broker makes an inordinate number of trades in your
account in order to garner more commissions for themselves. It is illegal
and violates a number of laws and restrictions laid out by the Securities
and Exchange Commission (SEC). Brokers and financial planners who are
given discretion over investment accounts are able to make decisions (and
a profit) on the client’s behalf. Making excessive trades in order
to turn a personal profit is unethical and breaks SEC Rule 15c1-7, among
other securities regulations.
A broker, brokerage firm, or financial planner should regularly communicate
with you (in writing) about what they’re doing with your money.
They are legally bound to advise you of every transaction and send you
written confirmation. It’s important to watch these closely, in
order to spot any signs of potential churning or other unethical management
of your money.
If you look at the trades your broker is making and see trades that don’t
appear to increase the value of your investment accounts or trades that
lower the value of your accounts, this may be evidence of
account churning. Your planner or broker may also be making trades for personal financial
gain if the trades are out of step with your investment goals.
Keep in mind that if you approve these trades and then realize that they
do not align with your investment objectives or suffer a loss, your broker
or planner is not necessarily guilty of churning.
Most investors who delegate the work of investing to a broker or firm are
not active traders and do not trade very often. If your investment firm,
broker, or financial planner is sending you multiple transaction confirmations
each week or more than 10 each month, you may have reason to suspect that
they are churning your account.
If you have received multiple forms requiring you to provide informed consent
for having your mutual fund or annuity switched for another one, this
may also be a warning sign, as multiple similar transactions can generate
significant commissions for brokers.
You should also be suspicious if the market is trending upward and the
value of your account is decreasing or remaining the same, despite frequent trades.
If you are concerned that you broker or financial planner is churning your
account to generate more commission for themselves, don’t wait to
take legal action. In your complimentary consultation, we can help you
evaluate concerning evidence in order to decide the best step forward.
Make Baldwin Mader Law Group your California investment fraud attorneys
by calling us at (310) 220-0988, or send us your information to receive a
free, confidential consultation.