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If a stockbroker is buying and selling securities in your account to generate commissions that seem excessive, there is a strong possibility that your account is being "churned." Churning is when a broker makes excessive trades in your account in order to generate money as commissions on trades executed for their clients. Attorneys will analyze your stockbroker's records to determine if churning has occurred. To establish that your broker has churned your account, your attorneys will have to show that the pattern of trading activity in your account was excessive. This can be done in a number of ways including: 1) calculations to determine what return would be necessary to cover the costs of all of the trading commissions in your account. 2) the purchase and sale trading activity that occurs in your account. 3) the number of times the equity in your account is turned over to purchase securities. For example, if your stockbroker begins with $300,000, buys $200,000 of stock, sells all or a portion of those shares, and buys and sells more shares over and over, all such that $1,000,000 of stock is traded, churning may very well be present. (There is no special rule or number of turnovers that means churning, time is a factor and a turnover of two or three can under some circumstances be churning.) In order to establish a case of churning where the stockbroker had control of the account, two conditions must be proven: 1) there was excessive trading in the account in light of the customer's investment objectives; and 2) the broker intended to defraud or his willful or reckless disregard of the customer's interest or authorizations. Where there is churning and the portfolio has declined in value or under performed as a result of excessive trading (and commensurate commissions), the customer should consider starting an arbitration or suit against the brokerage to be made whole. |
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