Elgin, NY asked in Stockbroker Fraud for New York

Q: What does 'churning' mean in the context of investment fraud?

Related Topics:
1 Lawyer Answer
Alex Schmidt
Alex Schmidt
  • Criminal Law Lawyer
  • Cranford, NJ
  • Licensed in New York

A: Churning in connection with investment fraud is simply when a customers investment advisor generates a high amount of trading activity in the customers investment account in order to collect more commissions. Churning is most commonly measured by checking the turnover ratio of the investment account. This formula measures the amount of trades in the investment account in a given time period relative to the total amount of assets being managed by the investment advisor. Churning is a violation of a FINRA and SEC rules as they pertain to the management of customer investment accounts. Churning violates FINRA Rule 2111 as a broker must believe an investment is suitable to a customers investment profile in order to enter a trade. Executing trades simply to obtain more commissions from a customer does not qualify as something suitable to an investors financial profile.

Justia Ask a Lawyer is a forum for consumers to get answers to basic legal questions. Any information sent through Justia Ask a Lawyer is not secure and is done so on a non-confidential basis only.

The use of this website to ask questions or receive answers does not create an attorney–client relationship between you and Justia, or between you and any attorney who receives your information or responds to your questions, nor is it intended to create such a relationship. Additionally, no responses on this forum constitute legal advice, which must be tailored to the specific circumstances of each case. You should not act upon information provided in Justia Ask a Lawyer without seeking professional counsel from an attorney admitted or authorized to practice in your jurisdiction. Justia assumes no responsibility to any person who relies on information contained on or received through this site and disclaims all liability in respect to such information.

Justia cannot guarantee that the information on this website (including any legal information provided by an attorney through this service) is accurate, complete, or up-to-date. While we intend to make every attempt to keep the information on this site current, the owners of and contributors to this site make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in or linked to from this site.