Excessive trading, commonly referred to as “churning,” involves the broker trading securities in the account in an excessive manner. In this type of case, the broker places his own interests ahead of those of his customer for the purpose of generating additional fees. Although churning often occurs by trading in and out of stocks, churning can also occur by short-term trading in mutual funds, bonds or annuities.
To succeed in a securities arbitration “churning” claim with an arbitration panel a claimant must prove two case facts. The panel must conclude the stockbroker controlled the account transactions and the account activity was excessive based on the claimant’s risk tolerance and investment objectives.