Churning & Excessive Trading Attorney

Your Broker Was Paid to Trade. The Question Is Whether They Traded for You or for Themselves.

Churning occurs when a broker engages in excessive buying and selling of securities in a client's account primarily to generate commissions rather than to serve the client's investment objectives. It is one of the most well-established forms of broker misconduct and one of the most financially damaging, because the cumulative cost of excessive trading compounds over time through commissions, bid-ask spreads, and tax consequences.

Churning does not require proving that the broker selected bad investments. The claim is about the frequency and volume of trading relative to what was necessary to achieve the investor's goals. A broker who consistently turns over a portfolio at rates far exceeding what the investment strategy requires is churning the account, regardless of whether individual trades were profitable.

The Three Elements of a Successful Churning Claim

• Excessive trading: The volume and frequency of trading in the account was not warranted by the client's investment objectives, risk tolerance, or financial situation. Courts and FINRA panels use quantitative metrics including the turnover ratio and the cost-to-equity ratio to measure whether trading was excessive relative to the account size and objectives.
• Broker control: The broker exercised actual or de facto control over the trading in the account. This element is clearly satisfied in discretionary accounts where the broker trades without client approval. In non-discretionary accounts, de facto control is established by showing the client routinely followed the broker's recommendations without independent analysis.
• Scienter: The broker acted with the intent to generate commissions or with reckless disregard for the client's interests. This element is typically established through the pattern of trading itself: a broker who consistently recommends unnecessary trades across multiple client accounts has demonstrated a pattern that supports an inference of improper motive.