On behalf of Mihalek Law posted in Securities Law on Friday, October 24, 2014.
Many investors who reside throughout the nation are not prepared to manage their money in a way that can make a profit. Accordingly, some of these individuals turn to brokers to take care of that piece of the process. When an investor pays that individual to make money for them, there is a certain amount of trust that is placed in the broker’s hands. Unfortunately, sometimes that trust is misguided and rather than look out for the best interests of the investor, the broker takes steps to make an excessive profit off the investor.
There are multiple ways in which this might be accomplished by a broker. One of those ways is through churning.
When a broker is accused of churning he or she may be accumulating excessive commissions by participating in more buying and selling of securities found in an investor’s account than is actually warranted. This activity is illegal and violates SEC Rule 15c1-7.
For a broker to be held responsible for churning a formal written discretionary agreement must be in place that provides the broker control over decisions regarding investments for the customer.
The broker must have made purchases and sales of securities on a frequent basis that do not seem to be necessary for the broker to accomplish the goals laid out by the investor.
Individuals who believe they are the victim of churning could ultimately lose a lot of money. Fortunately, is may be possible to hold brokers responsible for their actions via a legal action. To pursue this approach it is important to work with a lawyer sooner rather than later.
Source: U.S. Securities and Exchange Commission, “Churning,” Accessed Oct. 23, 2014