What Is Churning?
Churning is a form of investment fraud that involves excessive trading in your account designed to generate commissions for your broker rather than profits for you. This is a serious form of fraud that is common in the securities industry and could result in substantial financial losses.
Brokers often have a fiduciary duty to act in your best interests first, and that means prioritizing your financial goals over their commission income. Excessive trading increases transaction costs and fees while exposing your account to unnecessary market risk and volatility, often resulting in losses that bear no relation to overall market performance. FINRA, the Financial Industry Regulatory Authority, bans churning specifically because it harms investors through avoidable losses and erodes the returns you depend on to build wealth.
We understand that trusting your broker to make sound decisions should come naturally, and discovering they’ve been taking advantage of your trust can feel overwhelming. Don’t worry, there is a path to financial recovery.
If your broker engaged in fraud and you suffered losses, we can take legal action on your behalf. We can’t guarantee results, but many of our previous clients have received compensation beyond what they lost.
Signs of Churning
Spotting churning in your account takes attention, due diligence, and a willingness to review your statements carefully. If your account shows any of these warning signs, your broker may be churning to generate commissions at your expense.
- Frequent Trading Activity: Have you noticed constant buy-and-sell transactions in your account with no clear or stated investment reason? If so, that's a red flag. You'll also see that trading frequency spikes suddenly beyond your stated long-term investment strategy, and you receive confirmation notices multiple times per month when you expected trades quarterly or annually. A high turnover ratio, which measures the volume of active trading relative to your account size, often signals that commissions are the driving force behind excessive trading activity. When you see dozens of trades you never approved, that's a warning sign that your broker exercised control over your account.
- Your Broker Has Control Over Your Account: You signed an agreement granting the broker discretionary authority to trade without consulting you first, or the broker consistently recommends transactions that you accept without question. This discretionary authority, whether express or implied, is one of the three elements required to prove churning.
- High Commissions Eating Into Returns: Your monthly or quarterly statements show commissions and fees consuming 5% or more of your account value. If you notice an unusually high figure, that should raise immediate red flags. Excessive commissions combined with frequent trading is the hallmark of a churned account.
- Account Performance Lags the Market: Another sign of unnecessary trading is when your portfolio loses money or underperforms the S&P 500 even when markets are strong, and you see significant losses despite gains elsewhere. After subtracting commissions, your net returns are consistently negative or far below reasonable benchmarks for your account type.
- You're Pushed Into Unsuitable Products: The broker repeatedly recommends annuities, private placements, or structured products that generate higher commissions than plain securities or sell securities you never requested. Your financial professional suggests selling a winning position to buy a similar one, generating two commissions for no real benefit to you.
Unsuitable product recommendations combined with frequent trading suggest the broker prioritizes revenue over their fiduciary duty to act in your best interests. This pattern often conceals unauthorized trading or recommendations that violate securities law.
If you've noticed any of these signs, contact an attorney immediately. Our team will review your case for free and let you know what your options are.
Why Choose Robert Wayne Pearce as Your Churning Attorney?
Churning cases demand experience because brokerage firms fight hard to deny liability and minimize damages.
Here at the Law Offices of Robert Wayne Pearce, P.A., we focus on broker misconduct and churning cases, and we fight to recover everything our clients are owed. Attorney Pearce has 45 years of experience litigating every type of broker misconduct case, including churning, excessive trading, unauthorized trading, breach of fiduciary duty, and unsuitable investment recommendations.
We’ve recovered $185 million for clients harmed by investment fraud across the country, and we maintain a 99% success rate through rigorous case preparation and trial readiness. Attorney Pearce has tried over 200 cases to trial verdict or arbitration award, with only four losses in his entire career. Our firm represents clients on a contingency basis, meaning you pay nothing unless we recover for you. When you work with us, you’re working with attorneys who understand how brokerage firms operate and how they defend themselves against churning claims.
Meet the Team
ROBERT WAYNE PEARCE
Securities Attorney
ADAM KARA LOPEZ
Securities AttorneyWhat to Do If You Suspect Churning
If you suspect churning, your first move is to act quickly.
Waiting gives your broker time to cover tracks and puts your recovery at risk. Start by gathering everything: pull all your account statements, trade confirmations, and any correspondence with your broker going back several years.
Then calculate your annualized turnover ratio, which tells you how much your account is being traded relative to its size.
We recommend that you divide your total purchases and sales by your average account balance. If that number is 2:1 or higher (and 3:1 to 6:1 is what we typically see in churned accounts), that's a strong signal. Please be aware that a turnover ratio in that range actually shifts the burden in FINRA arbitration, meaning the broker has to prove they didn't churn instead of you having to prove they did.
Before you confront your broker, consult a securities attorney.
We understand how urgent this feels, but patience now protects your ability to recover later. File your FINRA arbitration claim within six years of the churning activity, or you permanently lose your right to recover.
Penalties for Excessive Trading and How a Lawyer Can Help You Recover
FINRA imposes severe penalties on brokers found to have churned accounts.
Penalties include substantial fines or even suspensions.
Your broker or firm may also be required to pay restitution for all excess commissions and investment losses directly caused by the churning activity.
An experienced securities attorney helps you prove the three essential legal elements: that the broker had control over your account, that trading was excessive relative to your objectives, and that the broker acted with intent to defraud or reckless disregard for your interests. We gather expert testimony proving your turnover ratio was excessive and inconsistent with your investment objectives and account type, which shifts the burden to the broker to disprove churning.
We demand recovery of all excess commissions paid, all losses directly caused by unnecessary trades, and punitive damages where the broker acted with clear intent to defraud. We can never guarantee results. However, we can guarantee that we will fight for every penny that you are entitled to and do our best to make you whole again.
Contact our churning and excessive trading attorneys today if you suspect your broker is behaving in an unethical manner. The Law Offices of Robert Wayne Pearce, P.A. serves investors nationwide, and we’re ready to fight for the recovery you deserve. Call (800) 732-2889 today for a free consultation and pay nothing unless we win.
Preguntas frecuentes
Is churning illegal?
Yes. FINRA bans churning under Rules 2110 (high standards of commercial honor) and 2111 (suitability), and the practice is prosecuted aggressively in arbitration and court.
How long do I have to file a churning claim?
You must file a FINRA arbitration claim within six years of the churning activity or permanently lose your right to recover.
What damages can I recover if I prove churning?
You can recover excess commissions paid, all trading losses directly caused by excessive activity, lost interest, and sometimes punitive damages.
Do I need a lawyer to prove churning?
Yes. Churning requires expert testimony about turnover ratios, cost-to-equity analysis, and FINRA arbitration experience that most investors lack alone.