by Brian Mahany
Churning is a bad word in the securities industry. It happens when a stockbroker engages in excessive buying and selling of securities in a customer’s account. The motive is almost always high commissions. Each transaction generates a commission – the more turnover in an account the more the broker makes. (Investment advisers typically work on an annual fee basis and do not get paid by transaction, hence unlike stockbrokers,there is little incentive to churn their clients accounts.) Earlier this month, an arbitration panel from the Financial Industry Regulatory Authority (FINRA) awarded a customer of JHS Capital approximately $1.9 million which includes a punitive damages award.
Most claims against stockbrokers are handled by FINRA arbitration. Unlike court cases that can take years, FINRA generally turns around cases in about 14 months. The arbitration process offers some finality as well – when a case is over there is usually no appeal.
According to an article in InvestmentNews, in the JHS Capital case, the customer’s account was turned over so many times that the customer would have had to receive a rate of return of 160% just to break even! Try that in this bad economy.
Although the customer won, collecting may be difficult. The brokerage firm told the SEC last year that it had net capital of under $500,000 – that’s a small fraction of what is owed to the client.
One of the lessons here is to always be careful when dealing with small brokerage firms. The Merrilly Lynch’s of the world have tens of millions of dollars on hand to pay claims. Often, the smaller firms do not.
Stockbrokers are responsible for the recommendations they make to clients. Although no broker can guarantee results, they do have an obligation to know their customer’s needs, only make recommendations that are suitable for those needs and to not churn the account.
If you lost money to a stockbroker and believe he or she is responsible for your losses, you may have a claim. Most arbitration cases can be handled on a contingent fee basis meaning no attorney’s fees unless you win. And as noted above, most cases can be resolved relatively quickly.
The stockbroker fraud lawyers at Mahany & Ertl help hard working individuals and small businesses get back their hard earned money. One of the lawyers on our team is a former securities arbitrator. For a no obligation consultation, contact attorney Brian Mahany at or by telephone at (direct). All inquiries are protected by the attorney – client privilege and are kept in complete confidence.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in most jurisdictions.