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Churning

Free Consultation, No Recovery No FeeChurning, also referred to as “stock churning” or “commission churning,” is defined as excessive trading by the broker for the purpose of personal gain through generating more commissions. Churning constitutes fraud and violates state and federal securities laws.

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In order for the trading to constitute churning, the broker needs to have explicit control or implied control (based on the sophistication of the investor, reliance of the customer on the broker’s recommendations, and other factors) over the trading and have abused the client’s trust by engaging in trades which are excessive in frequency and size when considering the investor’s risk tolerances, financial resources, and trade objectives. Churning is generally measured by the large broker commissions and the rate of turnover in the account paired with frequent in and out trading. However, even one trade may qualify as churning, since churning is any trading that is done to benefit the trader rather than the investor.

Each churning claim must be dealt with on an individual basis because the investor’s trading objectives and the amount of control given to the broker are very important in determining whether churning actually occurred. Churning claims can be the sole basis for legal action or may be a part of the following claims:

  • State and Federal Securities Fraud
  • Common law fraud
  • Breach of contract
  • Breach of fiduciary duty

If you have paid excessive commissions as a result of churning, you may have a securities fraud claim worth pursuing.

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