What is stock churning?
Stock churning, the practice of engaging in transactions solely for the purpose of generating commissions, is a common abuse in the brokerage industry. To prove a claim of stock churning, an investor must show the broker exercised actual or de facto control over the churned account and that the trading directed by the broker was excessive. An analysis is necessary to determine the “turnover” in the account, based on the volume of transactions in a particular period of time, as well as the costs incurred in the account compared to the assets held. An investor can take legal action if excessive transactions were performed to enrich the stockbroker at their expense.
