Excessive trading is any trading with an investor’s money that exceeds the investment objectives and risk tolerance of the investor. Many brokers earn a commission on every trade they make. This can tempt brokers into making trades with the money they handle that exceed the needs of their clients simply to rack up as many commissions as possible.
At Meyer Wilson, we have a long history of helping investors recover money lost due to excessive trading. Our experienced team of churning lawyers will work diligently on your case to hold your broker or financial advisor accountable and help ensure you recover the money you need and deserve. Contact us today to set up a free case review.
Excessive Trading and Churning
Many brokers are paid on a commission basis, which means they receive a commission for every transaction they make with the money entrusted to them by their clients.
However, brokers are required to only make trades that align with the risk profile and investment objectives of their clients. Making trades that exceed their clients’ investment goals is considered excessive trading.
Churning is an extreme form of excessive trading where the trading in a client’s account reaches an extreme level and is clearly being carried out with the intent of defrauding the investor for the financial gain of the broker.
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How to Identify When Trading Becomes Excessive
The Financial Industry Regulatory Authority (FINRA) has clear benchmarks for when trading is considered excessive. Many consider a turnover rate in a client’s account of four percent or more and a cost-equity ratio of 10% or more as indications of excessive trading. However, excessive trading can still occur even if the trader does not exceed these limits.
While hitting these marks will likely automatically trigger alarms regarding excessive trading in the brokerage firm that employs the broker, brokers can be guilty of excessive trading while staying below these numbers. Brokers will often try to avoid detection for excessive trading by remaining just below these benchmarks.
Brokers also often switch the accounts in which they are excessively trading to make their misconduct harder to detect. If you suspect that you lost money as a result of excessive trading, an experienced investment fraud lawyer can investigate your broker’s conduct to determine whether they engaged in excessive trading in your account.
Pursuing Compensation for Excessive Trading
After suffering losses caused by excessive trading, you will likely need to file a FINRA arbitration claim to recover the compensation you need and deserve. When you sign an investment contract with a broker or financial advisor, there will likely be a clause in the contract stating that any disputes that may arise will need to be resolved through arbitration.
An Experienced FINRA arbitration lawyer can help you through the process. While arbitration offers a much quicker path to recovering damages than is possible with a courtroom trial, there are still a variety of steps that must be taken, including:
- Filing your Statement of Claim
- Building your case
- Selecting arbitrators
- Attending a prehearing conference
- Discovery
- Arguing your case at a FINRA arbitration hearing
Filing Your Statement of Claim
The first step in recovering compensation through FINRA arbitration is to submit your Statement of Claim. A Statement of Claim is a document that includes all of the relevant details about your case and presents your arguments for why you deserve compensation. Your Statement of Claim will be the first impression the arbitrator or arbitration panel will have of your case.
The Statement of Claim is the most important document in any FINRA arbitration case. Because of this, it is critical that you hire an experienced lawyer to help you draft your Statement of Claim and ensure it makes a compelling case for why you deserve compensation.
Building Your Case
Once you have submitted your Statement of Claim, your broker or financial advisor will have 45 days to file their response. While you wait, your attorney will build your case. You can help your lawyer by providing them with any documents or other supporting evidence that helps to prove your claim.
Selecting Arbitrators
After FINRA has received your Statement of Claim and the response from your financial advisor or broker, they will distribute a randomly generated list of potential arbitrators for your case to both you and the opposing party. This list will contain information about each arbitrator, including their background and their past arbitration rulings.
Both parties will be permitted to strike names from the list and rank the remaining arbitrators in order of preference.
Attending a Prehearing Conference
The next step will be for your attorney to attend a prehearing conference. At this conference, various details regarding the proceedings of your arbitration hearing will be discussed, and the hearing date will be set.
Discovery
During discovery, each party will exchange the evidence they have collected and inform the opposing party of the witnesses they intend to call at the arbitration hearing.
Arguing Your Case at a FINRA Arbitration Hearing
Finally, it is time for the FINRA arbitration hearing, where your attorney will argue your case before the arbitrator or arbitration panel.
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Pursue Compensation for Excessive Trading With Help From an Experienced Investment Fraud Attorney
Hiring an experienced lawyer to help you file a claim after suffering losses caused by excessive trading is the best way to improve your chances of recovering the money you need and deserve. At Meyer Wilson, our experienced team has recovered more than $350 million for our clients.
Contact us through our website or by phone to schedule your free initial case consultation today.
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