{"id":352704,"date":"2017-05-09T18:32:20","date_gmt":"2017-05-09T23:32:20","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/consumer\/securities-law\/what-is-illegal-churning-or-excessive-trading.html"},"modified":"2024-05-14T09:05:31","modified_gmt":"2024-05-14T14:05:31","slug":"what-is-illegal-churning-or-excessive-trading","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/consumer\/securities-law\/what-is-illegal-churning-or-excessive-trading.html","title":{"rendered":"What Is Illegal Churning or Excessive Trading?"},"content":{"rendered":"\n
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What Is Illegal Churning or Excessive Trading?<\/h1>\n
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\n By Oni Harton, J.D.<\/a> | Legally reviewed by Melissa Bender, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

Many of us have a basic understanding of how buying and selling securities<\/a> works. Sometimes, investors entrust decisions about their investment strategy to a brokerage firm.<\/p>\r\n

Financial advisors must execute a trading strategy for clients’ investment accounts that aligns with their goals. But, some investment professionals engage in unethical practices. Professionals can make investment decisions to benefit themselves rather than clients.<\/p>\r\n

"Churning<\/a>" is one such unethical practice. It’s an illegal practice where a broker engages in excessive buying and selling activities. The broker<\/a> seeks to generate commissions for the stockbroker. This article describes churning in more detail. It also discusses related securities laws and industry rules<\/a> and how to spot a churning case committed by your broker.<\/p>\r\n

What Is Churning?<\/h2>\r\n

When brokers buy and sell securities, they usually make a commission from that transaction. Churning happens when a broker conducts excessive or frequent buying and selling of securities. If a broker does this to increase total commissions instead of acting in the client’s best interests, it’s illegal.<\/p>\r\n

When a broker has actual or effective control over the investment decisions of a client’s account and engages in a turnover rate for the broker’s benefit, it’s churning. Churning is unethical. In some cases, it’s illegal. Such trading activity can affect the brokerage accounts of novice and experienced investors.<\/p>\r\n

Red flags that may signal churning include the following:<\/p>\r\n