Churning – in a churning claim, the customer alleges that the broker purchased and sold securities solely to generate commissions, without regard to the customer’s investment objectives or goals. In the typical churning case, the customer must prove: 1) that the broker controlled the account; 2) that the trading was excessive in light of investment objectives; and 3) that the broker intended to defraud the customer or acted willfully or recklessly.
From Investopedia: Churning means excessive trading by a broker in a client’s account largely to generate commissions. Churning is an illegal and unethical practice that violates SEC rules and securities laws. While there is no quantitative measure for churning, frequent buying and selling of securities that does little to meet the client’s investment objectives may be construed as evidence of churning.
- SEC’s Fast Answers – Rule 504
- FINRA – Financial Industry Regulatory Authority
- What is a Security?
- Five-Year Statute Applies to Claims for Disgorgement
- Accredited Investor Definition
- SEC Fast Answers – Rule 506
- Control person liability requires culpable participation.
- Who regulates the stock market in the US?
- Churning – Definition and Cases