how to prove churning
churning is serious financial misconduct but it s not easy to prove your best defense is to pay careful attention to your portfolio if you think your broker is churning you can report it to the securities and exchange commission sec or the financial industry regulatory authority finra 2sanctions for churningthe sec defines churning as excessive buying and selling in a customer s account that the broker controls in order to generate increased commissions 3 brokers who overtrade may be in breach of sec rule 15c1 7 which governs manipulative and deceptive conduct 4the securities and exchange commission sec looks into complaints about brokers who appear to be putting their own interests over that of their clients 3the financial industry regulatory authority finra governs overtrading under rule 2111 and the new york stock exchange nyse prohibits the practice under rule 408 c 56investors who believe they have been a victim of churning can file a complaint with either the sec or finra 3churning is a serious offense and if proven can lead to employment termination barring from the industry and legal ramifications in addition finra may impose a fine ranging from 5 000 to 116 000 7finra also has the right to suspend the broker for anywhere from one month to two years in more egregious cases finra can suspend the violator for a longer period or even bar the broker indefinitely 7churning faqshere are the answers to some commonly asked questions about churning credit card churning involves opening a series of new credit card accounts in order to take advantage of the introductory rewards offered by each and then closing the accounts or leaving them unused credit card churners used to be able to rack up a lot of rewards points by doing this this practice is not illegal but credit card companies don t like it they have now put in place safeguards to prevent customers from repeatedly opening and closing accounts 8churning occurs when a broker who is paid a commission for every trade makes many trades just to boost the commission pot reverse churning occurs when a broker who is paid a flat fee does little or no trading to earn that fee which is a percentage of the assets under management to back up a step investors have a choice to make when opening an account with a broker online or discount brokers charge a flat fee for every transaction with zero fees common for certain transactions up to a limit this is the do it yourself option with no professional advice or management although online brokers are adding premium tiered services for those who want that in the worst case scenario an investor could flee a commission based broker to avoid excessing transaction fees only to open an account with a flat rate broker who does nothing but take a slice off the top of the account every year a better option for the investor might be to maintain control over the account approving or disapproving any buy and sell decisions and make it clear at the outset how active you expect the management of your portfolio to be insurance salespeople work on a commission basis if they attempt to boost their own commissions by persuading their customers to switch insurance products instead of automatically renewing their existing policies then they are churning 9the practice is illegal in most states 