Excessive Trading Activity Claims: What Every Investor Needs to Know

You trust that your investment advisor or broker has your best interests in mind. Unfortunately, some investment professionals focus too much on earning a commission and it is the investors who pay the price.

Excessive trading, also known as churning or over-trading, is not allowed. Basically, this practice is defined as too much trading in and out of investments in a client’s account. Brokers have been known to participate in churning in an attempt to earn an excessive amount of commissions. The more that they trade in the investor client’s account, the more they will earn.

Churning may make money for the investment professional, but it generally causes the client to lose money. If you have been asked to sign an activity letter by the brokerage firm, it could indicate that there has been churning in your account.

When you bring a churning claim to arbitration (which is typically mandatory for a broker misconduct case), the following will be examined:

• Turnover: Turnover refers to the dollar amount of opening buy transactions as compared to the average net worth or equity of the portfolio. The general rule of thumb is that if your portfolio has a turnover of 600 percent or six times the average net worth of the account, then churning most likely took place. This calculation is one of the most important factors in these claims.

• Control: Another key element in churning cases is who was in control, meaning the person who decided what to buy and sell, how much and when to do it. To have a successful churning claim, you have to show that your broker or advisor controlled and directed the trading activity in your account.

Churning can lead to a high amount of financial loss, some of which might be hidden. Even if you don’t think you have a strong case against your broker, you should still talk with an experienced broker fraud attorney who will be able to review your claim.

The broker fraud lawyers at the law firm of David P. Meyer and Associates may be able to help you. We are licensed in Ohio and California and we represent investors nationwide in securities arbitration and litigation claims.

Call us toll-free at 1.866.827.6537 or fill out our contact form for your free case evaluation.