Churning means excessive buying and selling in a client’s account by a broker for the primary purpose of generating commissions rather than furthering the customer’s investment goals. The major securities industry self-regulatory organizations (SROs) have rules that prohibit churning. Churning violates the NASD Fair Practice Rules. While churning is illegal, it is often difficult to prove. An attorney can analyze a broker’s records to determine if churning has occurred. To establish that churning has taken place, the attorney must show that the pattern of trading activity in the account was excessive in size or frequency, given the financial resources and character of a customer’s account. Most churning occurs when a broker has discretion to trade the account. Most churning involves trades of individual securities, but the SEC also discourages trading of mutual funds on a short-term basis. |
