We Sue Brokers Who Churn or Excessively Trade Your Account For Commissions
Churning is a violation of federal and state securities statutes, industry rules and regulations and a breach of fiduciary duty to investors under common law. Churning occurs when a broker manages or exercises control over the investment decisions in an account and excessively purchases and sells stocks or recommends that you make an excessive number of purchases and sales of stocks or bonds for his benefit; i.e., commissions! These trades rarely, if ever, make the investor any money. In fact, the additional commissions raise the break-even point for the investor to the level where the stock must perform at an extremely high level in order for the investor to make any money.
But most investors are incapable of knowing whether churning or excessive trading is occurring in their accounts. Attorney Pearce handles cases nationwide and provides a complete review of your accounts in order to determine if excessive trading has taken place and you have a churning claim against your stockbroker. He has the experience, and his firm employs the experts who perform a churning analysis of the trading activity in your accounts.
The churning analysis includes calculations of the “holding period” (the average number of days an investment is held before it is sold), the “annual turnover ratio” (the number of times the assets in your account turn over each year), and calculations of the “cost to equity ratio” (the percentage return on your investments necessary to break even after all the commissions are paid). The shorter the average “holding period,” the higher the “turnover ratio” and the greater the “cost to equity ratio,” the more likely your account is being churned or excessively traded. The rule of thumb for the “turnover ratio” calculation is the 2:4:6 rule; with 2 times being an inference of churning, 4 times is a presumption of churning, and 6 times conclusive of churning. Similarly, a calculation of a “cost to equity ratio” above 15% (meaning you need profits of over 15% annually to break even) in your account is a red flag warning of churning or excessive trading in your account for your broker’s benefit and not in your best interest.
Churning or excessive trading is rarely in the “best interest” of investors at brokerage firms. The SEC recognized this fact when it promulgated Regulation “Best Interest” effective June 30, 2020. The significance of the new rule in churning cases is that investors whose accounts were churned after the effective date will no longer have to prove the broker was in “control” of the account or activity through his/her recommendations to have a valid claim to recover their losses.
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The detection of the fraudulent practice and measurement of damages in churning cases can be challenging because the perpetrators of this fraud generally excessively trade accounts when the market is in an upward trend taking many small profits for the investor and many large commissions for themselves. The fraud goes undetected because the account value remains the same or slightly higher month to month. At the arbitration hearing, the broker’s lawyer will try to defend by claiming there are no damages. But Attorney Pearce will prove otherwise by pointing out the lost profits you suffered by the excessive commissions you paid in a rising market as measured by the so-called “market adjusted” measure of damages and argue for those damages along with the excessive commissions, punitive damages, attorney fees and your expenses.
Hear From Our Clients
At The Law Offices of Robert Wayne Pearce, P.A., we believe the ultimate barometer of our success is surpassing the expectation of our clients.
The following clients have direct knowledge of our firm's processes from the inside and experienced our fierce advocacy.
Hear From Our Clients
- “Robert Pearce is part of that unusual breed of lawyers that are able to create empathy with clients and thoroughly adopt their cause”
No half efforts here. He and his group of professionals are outstanding strategists that can execute with precise fervor and unyielding determination. Theirs is a huge wave of facts, research, precedents and preparation, that has impressed me in its thoroughness and creativity, and most importantly with the results. No stone goes unturned and no effort is ever spared. In my book, he and they are those of a very rare kind that one wants to keep for a very long time.- Ramon Flores-Esteves -
- “Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side.”
Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side. He is the consumate plaintiff's lawyer: smart. dedicated, fully able to try a case but a great negotiator in a mediation. He did a wonderful job for us, fully supporting us through the process and more than holding his own against a large national law firm.- Maurice Z. -
- "Mr. Pearce and his staff exceeded all of our expectations."
Mr. Pearce and his staff exceeded all of our expectations. We were able to reach a settlement that was of our complete satisfaction, all within a very smooth, professional and efficient process. Mr. Pearce is now not only our lawyer but our family friend. We highly recommend him and his team!- Severiano L. -
- "For the best fighting chance, Robert Pearce is the lawyer you want in your corner."
This law firm is the real deal. We were so lucky that they took our case as they have so much experience in securities and all the wrongdoing that happens in these investment companies where they mislead you and your money (as in our case) into schemes that are not what you think they are. Mr. Robert Pearce is one of the best lawyers around, a truly professional who will fight for you and will tell you as it is all the time. We could not have gone thru this experience if it was not for all the advice, guidance and support he and all of his staff and associates brought to the game. For the best fighting chance, Robert Pearce is the lawyer you want in your corner.- Astrid M. -
- "He never felt intimidated and his study of the case and perseverance prevailed at all times."
Attorney Robert Pearce was our lawyer in a case against a Brokerage Firm and I'm witness to his ability and intelligence to deal with lawyers from the most prominent law firm in New York which was the key to recovering much of our losses cheered by their negligence. He never felt intimidated and his study of the case and perseverance prevailed at all times.- Jose A. C. -
- "In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars."
No lawyer except Bob said I had a chance of winning. When UBS Lawyers laughingly offered me zero to settle the dispute, Bob became even more determined to prove everybody wrong. Bob was extremely prepared, and always a step ahead of the opposing attorneys throughout the arbitration. In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars.- J. Blanco -
- "Every meeting and phone call was made with dedication and desire to help our family every step of the way."
Robert's team is excellent. They are very competitive in what they do and they are very responsible. Every meeting and phone call was made with dedication and desire to help our family every step of the way. Their professionalism, responsibility and empathy assured us that we were in good hands. Recommend to everyone.- Mayra A. -