I’m worried because my broker is buying and selling stocks for me on a very frequent basis. Is this churning?

Question: I’m worried because my broker is buying and selling stocks for me on a very frequent basis.  So far so good – I have not lost any more money than anyone else these days – but should I be concerned?

Response:  You should consult with an experienced securities attorney to determine if your broker is engaging in the illegal practice of “churning” your investments.  Brokers sometimes improperly “churn” gain extra commission income through excessive stock trading.  Churning involves a conflict of interest in which a broker seeks to maximize his or her profit in disregard of the client.  This is a violation of the anti-fraud provisions of the federal securities laws.

To determine if your account has been churned your attorney must review the trading record.  Excessive trading can be determined by calculating the size of the return necessary to cover the expense of all trading activities; if the size of the return does not justify the amount of trading that occurred, then it is likely that the account has been churned.  Additionally, your attorney will review the purchase and selling activity in the account to determine if stocks have been sold and bought with seemingly no advantage to you as an investor.  Detecting illegal churning can be difficult – the number of trades within a certain period of time is but one factor. In order to build a churning claim against your broker, your attorney will need to prove that excessive trading occurred contrary to your wishes and investment goals, and that your broker willfully attempted to defraud you by not acting in your best interests.

Answered by Jamilla Moore

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