Churning & Excessive Trading
As an investor, you’ve placed your trust in your broker to safeguard your financial future, but unethical practices like churning can shatter that trust and cause devastating losses.
Churning happens when a broker excessively buys and sells securities in your account mainly to pocket commissions, ignoring your investment goals. This illegal practice violates federal securities laws and FINRA rules, and we’re here to protect you from it.
At Varnavides Law, PC, we specialize in securities litigation and arbitration, helping victims of investment fraud recover their losses. If you’ve experienced unexplained high fees, frequent trades, or declining account values despite a stable market, you may be a victim of churning.
Our experienced churning attorney provides clear, comprehensive assessments of your legal rights and fights for the compensation you deserve. With a singular dedication to our clients, we offer sophisticated counsel to hold dishonest brokers accountable.
Churning is a form of securities fraud that erodes your hard-earned savings. It’s not just about overtrading; it’s a breach of fiduciary duty where the broker prioritizes their profits over your financial well-being. Common in brokerage accounts, this misconduct can result in excessive commissions, margin interest costs, and overall portfolio damage.
What Is Churning? Understanding the Basics
Churning, also known as excessive trading or overtrading, happens when a financial advisor makes unnecessary trades in your account to rack up commissions. This isn’t tied to market opportunities or your stated objectives—it’s driven by the advisor’s self-interest. For example, a broker might repeatedly buy and sell the same stocks, leading to high transaction costs that eat away at your returns.
Brokers must ensure all recommendations are suitable for your risk tolerance, investment horizon, and financial needs. These rules prohibit manipulative practices like churning.
If your account shows a high turnover ratio (the frequency of buys and sells relative to your account value) or a cost-to-equity ratio (the return needed just to cover fees) that’s unusually elevated, it could indicate churning.
Signs You May Need a Churning Attorney
Recognizing churning isn’t always straightforward, as brokers may disguise it as strategic trading. Here are key red flags to watch for:
- Frequent Transactions Without Clear Benefits: If your portfolio shows constant buying and selling with little net gain, this could be churning. Look for trades that don’t align with your conservative or moderate risk profile.
- High Commission and Fee Charges: If fees and commissions are eroding your returns disproportionately, it raises red flags. We’re here to review your statements and help you reclaim what may have been unfairly taken.
- Use of Margin Trading: Brokers might encourage borrowing to amplify trades, increasing both risks and their commissions.
- Declining Account Value in a Rising Market: If the overall market is up but your portfolio is down, overtrading could be the culprit.
- Unsolicited Trades: In non-discretionary accounts, brokers need your approval for each trade. Unauthorized activity is a serious violation.
If these signs sound familiar, contact a churning attorney at Varnavides Law, PC for a free consultation. We provide exceptional litigation counsel to evaluate your situation and determine if you’ve been victimized by investment fraud.
How to Prove Churning: Key Elements of a Claim
Proving churning requires demonstrating three main elements: control, excessiveness, and scienter (intent to defraud).
- Broker Control: The advisor must have had discretion over your account, either explicitly (via a written agreement) or implicitly (through your reliance on their advice).
- Excessive Trading: This is measured using ratios like turnover (annual buys/sells divided by average equity) and cost-to-equity. Courts often view a turnover rate of 4 as presumptive of churning.
- Intent: Evidence shows the trades were made to generate commissions, not to meet your objectives.
Our churning attorney at Varnavides Law, PC collaborate with forensic accountants to review your trading history. We’ve successfully represented clients in FINRA arbitrations, recovering commissions, fees, and principal losses.
With our deep knowledge of securities law, we ensure your case is presented effectively.
Steps to Take If You Suspect Churning
Don’t wait—acting quickly preserves evidence and limits further losses. Here’s what to do:
- Review Your Statements: Gather all account documents, including trade confirmations and monthly reports.
- Document Communications: Note any discussions with your broker about trades or concerns.
- File a Complaint: Report to the brokerage firm’s compliance department and FINRA.
- Consult a Churning Lawyer: Seek professional advice to assess your claim.
At Varnavides Law, PC, we offer confidential consultations to explore your options. Our team provides dedicated support through negotiation, arbitration, or litigation to advocate for your interests.
Why Choose Varnavides Law, PC as Your Churning Attorney
Varnavides Law, PC stands out in securities litigation with a client-focused approach. Led by Gary Varnavides, an experienced attorney with a background in business, we understand the complexities of investment fraud. Our firm has a track record of handling cases involving churning, unauthorized investments, and breach of fiduciary duty nationwide.
We emphasize clear communication and comprehensive strategies, ensuring you feel supported every step.
Unlike larger firms, we provide singular dedication to your case, aiming for maximum recovery. Past clients praise our exceptional counsel in achieving favorable outcomes in arbitration and litigation.
Recovering Losses from Churning: What Compensation Can You Expect?
In churning claims, investors may pursue various forms of relief, such as:
- Reimbursement for excessive commissions and fees.
- Recovery of eroded principal.
- Compensation for interest or opportunity costs.
- In rare cases, punitive measures for misconduct.
Through FINRA arbitration, we’ve helped clients in anonymized matters explore these options, always focusing on your unique situation without promises.
Note that this article is provided for informational and educational purposes only and does not constitute legal advice. Every investor’s situation is unique, and the outcomes of any securities claim, including those involving churning, depend on specific facts and circumstances.
Suspect churning or other investment fraud?
Contact Varnavides Law, PC today for a confidential case evaluation. Let us stand with you to explore your options and pursue accountability as your dedicated advocate.
Frequently Asked Questions (FAQs) About Churning Attorneys
What is the difference between churning and twisting in insurance?
Churning involves replacing policies within the same company to generate commissions, while twisting switches to a different provider using misleading tactics. Both are fraudulent, but churning is more common in securities.
Can churning happen in retirement accounts like IRAs?
Yes, excessive trading in any brokerage account, including IRAs, can constitute churning if it generates undue commissions.
What if my broker denies churning?
Brokers may claim suitability, but we can help analyze data to explore evidence of misconduct in your claim.
Does Varnavides Law, PC handle churning cases nationwide?
Absolutely. We represent clients across the U.S. in securities arbitration and litigation.
