Stockbrokers are bound by a fiduciary responsibility to act in the best interest of their clients. The Financial Industry Regulatory Authority (FINRA) has established a professional code of conduct that sets forth ethical standards brokers are expected to adhere to while acting in their capacity as fiduciaries for their clients. Stockbrokers who engage in excessive trading in order to inflate the commission they receive can be held financially liable for violating their fiduciary responsibility to their clients. Referred to as "churning," excessive stock trading costs investors each time a trade is made while exposing them to poor investments as well. At the law office of Bordas & Bordas, our attorneys work with forensic accountants and financial experts in exposing stockbroker misconduct associated with churning.
If you've suffered financial harm due to churning or other forms of stockbroker misconduct, contact the law office of Bordas & Bordas today and schedule a free consultation to discuss your case.
Patterns of Stockbroker Misconduct
In order to determine whether your stockbroker engaged in churning, review your investment portfolio and consider the following:
- Was equity in your account used to purchase stock?
- What is your account's annualized rate of return in relation to commissions charged to the account?
- What sorts of stock sales and purchases were made? Are there unusual patterns that seem inconsistent with market realities? For example, were stocks bought only to be quickly dumped for little or no gain?
Stockbrokers are aware of their fiduciary obligations and what constitutes professional malpractice or investment fraud. Consequently, stock churning may not be obvious at first glance if a broker has tried carefully to conceal his or her actions. In order to expose churning, what must first be considered is whether the growth of an account can cover the cost of commissions charged to it. If the amount of commission made on an account barely offsets the commission paid on it, churning may have occurred.
Since brokers will try and rationalize their trading decisions, it's important to place their trades within the context of what was occurring in the market at the time. Working with experienced financial analysts and accounting experts, we carefully evaluate the trading history of an account to determine whether certain trades were beneficial, recommended or reasonable.
Compensation for Financial Harm
In most cases involving churning, it's possible to resolve matters without going to trial. However, our attorneys prepare each case for litigation. In determining the financial harm suffered by our client, we consider commissions paid on unnecessary trades and any potential or actual loss in investment portfolios.
If you believe your broker has engaged in churning, contact an attorney at Bordas & Bordas today and schedule a free consultation to discuss your case.