Churning (and Excessive Trading)

Excessive Trading and Churning Lawyers | Recover Investment Losses Nationwide

When you entrust your financial investments to a broker or financial advisor, you expect them to manage your money responsibly. Unfortunately, some brokers put their own financial interests first, engaging in excessive trading and churning—unethical practices designed to generate commissions at your expense. At Iorio Law PLLC, we help investors nationwide hold brokers accountable and recover losses resulting from these harmful actions.

What Is Excessive Trading?

Excessive trading occurs when a broker executes transactions primarily to generate commissions rather than to serve the investor’s financial goals. It involves frequent buying and selling that serves no legitimate investment purpose, significantly increasing transaction costs and reducing potential returns.

According to FINRA’s quantitative suitability standard, brokers must ensure that any recommended transactions are appropriate for a client’s investment profile, including their financial situation, risk tolerance, and investment objectives. Excessive trading violates this standard and can result in significant financial harm.

Understanding Churning: An Egregious Form of Excessive Trading

Churning takes excessive trading a step further. It refers to the intentional act of executing an excessive volume of trades with either fraudulent intent or reckless disregard for the investor’s financial interests. Churning is illegal and constitutes securities fraud.

A recent egregious example involved a broker who churned the account of a 93-year-old Holocaust survivor, causing over $700,000 in losses, while the broker made nearly $700,000 in commissions. Such cases highlight the severe harm that churning can inflict upon investors.

Recognizing Signs of Excessive Trading and Churning

Excessive trading can be challenging to detect. Brokers and brokerage firms often camouflage their excessive transactions with small individual trade commissions that, over time, can significantly deplete your investment account.

Common indicators include:

Unusually high turnover rates in your account (e.g., trading far more than necessary for your stated objectives).
Frequent buying and selling of stocks and other securities with no clear benefit to your portfolio.
Quick turnover of investments initially intended for long-term holding.
Skyrocketing commission costs that eat into your returns.

How Is Excessive Trading Determined?

Excessive trading is typically identified through two primary measures:

1. Turnover Rate

The turnover rate measures how often investments within an account are replaced within one year. Generally, a turnover rate of six or higher strongly suggests excessive trading. However, even lower rates (as low as four) might be excessive for conservative investors seeking capital preservation.

2. Cost-Equity Ratio

The cost-equity ratio indicates how much the account must appreciate simply to break even, accounting for all fees and commissions. A cost-equity ratio of 20% or higher often indicates excessive trading. This figure can vary based on the investor’s risk tolerance and financial objectives.

While these quantitative measures are not definitive proof on their own, they are powerful indicators that securities arbitration panels use to evaluate claims of excessive trading and churning.

How Churning Harms Investors

Churning doesn’t just drain your account through excessive commissions—it can also lead to significant investment losses. For example:

Eroded Gains: Constant trading prevents your investments from growing over time.
Tax Consequences: Excessive trades may trigger unnecessary capital gains taxes.
Unsuitable Strategies: Brokers may push risky trades that don’t match your goals, like speculation instead of long-term growth.

Victims of churning are often retirees, conservative investors, or individuals trusting their broker to act responsibly. If this sounds familiar, you’re not alone—and you have options.

Legal Remedies for Victims of Excessive Trading and Churning

Investors harmed by excessive trading and churning have the right to pursue compensation through securities arbitration. Brokers and brokerage firms may be held liable for:

Reimbursement of trading losses
Recovery of excessive commissions and fees
Interest and other related damages

Additionally, depending on the jurisdiction, state “Blue Sky” laws may offer further remedies, including attorney’s fees and litigation costs.

Steps to Take if You Suspect Churning

Review Your Statements: Look for frequent trades, high commission costs, or patterns that don’t match your goals.
Document Your Concerns: Note any conversations with your broker about trading activity. If you do not want the broker to continue trading as frequently, instruct them to stop and confirm in writing.
Contact an Attorney: Time is critical in arbitration claims—don’t wait to seek legal advice.

Iorio Law PLLC offers a free consultation to review your account and determine if you have a viable claim for excessive trading or churning.

Why Choose Iorio Law PLLC?

At Iorio Law PLLC, we exclusively represent investors harmed by broker misconduct. Our firm, led by experienced securities arbitration attorney August M. Iorio, has successfully recovered nearly $100 million in losses for investors nationwide.

We provide:

Comprehensive Investigation: Meticulous analysis of your brokerage accounts to identify and prove excessive trading and churning.
Personalized Legal Strategies: Tailored legal approaches designed specifically for your unique circumstances and financial losses.
Aggressive Advocacy: Skilled negotiation and vigorous representation in FINRA arbitration to maximize your financial recovery.
No Recovery, No Fee: Representation on a contingency fee basis—no fees unless we recover compensation for you.

Take the First Step Towards Financial Recovery

If you suspect excessive trading or churning in your investment accounts, contact Iorio Law PLLC today for a free, confidential consultation. Our experienced securities arbitration attorneys are committed to holding unethical brokers accountable and helping you reclaim your financial future.

☎ Call: (646) 330-4624 | ✉ Email: info@iorio.law | : Online Submission: Contact Form

📍Location: One World Trade Center, 85th Floor, New York, NY 10007 | Serving Investors Nationwide

At Iorio Law PLLC, your fight is our fight. Let us put our expertise and dedication into working for you.

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