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At the law firm of Colling Gilbert Wright & Carter in Orlando, Florida, we have long experience in helping people who have been financially hurt by churning on the part of their broker. To speak with a qualified stock broker fraud attorney, call (855) 880-4741 free today.
Over-Trading of Securities
Stockbrokers get paid for trading with their customers’ money. Each account has parameters based on the customer’s income, tax needs and risk tolerance, and when you open an account with a broker, you give that information as the basis for trading activity.
Churning is too much trading of securities for that particular account. The more trading the broker does, the more he or she earns, and sometimes it’s tempting for a broker to trade for that reason, rather than in accordance with customer preferences.
When such trades make money, perhaps nobody is upset. The broker is paid and you, as the customer, come out ahead in your investment situation. When these trades lose however, your investment situation worsens, but the broker doesn’t owe you anything in compensation, unless you discover what’s happened and file a lawsuit.
Churning Is a Violation
Churning usually happens when you’ve given your broker discretion to trade your account. That means you don’t have to give permission for each trade separately, and if you trust your broker you might give this discretion to avoid having to decide so many things yourself.
If your account is set up so that your broker must obtain your permission for each trade, churning would probably not happen, because you’d be more personally involved in each trading decision.
The National Association of Securities Dealers (NASD) created a rule to cover churning: Rule 2310-2(b)(2) in their Manual. The New York Stock Exchange (NYSE) also has a rule against it: Rule 408(c).
If you claim churning in a court of law, it will be examined in light of your customer information about income, tax needs and risk tolerance. The court will compare the number of trades and their size with your account’s set-up features and decide whether churning has happened.
If you find that your broker has been trading too much, and if you lose money as a result of that, you have the right to file a lawsuit. At Colling Gilbert Wright & Carter, we have significant experience assessing these situations and determining what would be the best step to take next.
Please email or call (855) 880-4741 to contact our Orlando securities fraud lawyers today for a free initial consultation.