Churning refers to the illegal practice of excessive trading or buying and selling of securities in a customer’s account by a broker for the purpose of generating commissions. This practice is considered fraudulent and a violation of securities laws. Churning typically involves the broker making trades that are not in the best interest of the customer but rather to benefit the broker financially. It is a breach of the broker’s fiduciary duty to act in the best interest of the client. Churning can result in significant financial losses for the customer and can lead to legal action against the broker or brokerage firm involved.
Answer: Churning is a fraudulent practice where a broker engages in excessive trading in a client’s account to generate commissions for themselves, rather than acting in the client’s best interest.
Answer: Yes, churning is illegal under securities laws and regulations.
Answer: The consequences of churning can include financial losses for the client, disciplinary action against the broker by regulatory authorities, and potential criminal charges.
Answer: Signs of churning may include frequent trades, high commissions, and little or no profit for the client.
Answer: Clients who suspect churning should report their concerns to their broker’s supervisor or to regulatory authorities.
Answer: Yes, clients who have been victims of churning may be able to sue their broker for damages.
Answer: Legitimate trading involves making trades that are in the client’s best interest, while churning involves making trades solely for the purpose of generating commissions.
Answer: Legal remedies for churning may include damages, restitution, and disciplinary action against the broker.
Answer: Yes, brokers who engage in churning may be subject to criminal prosecution for securities fraud.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 4th April 2024.
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