How to prove churning

On Behalf of | Jan 18, 2021 | Uncategorized |

Investors understand that they may lose a lot of money in the process, but what they do not expect is for their broker to be the cause of that financial loss. In Detroit, beginning legal proceedings against your broker is possible if there are grounds for you to do so. For example, a broker accused of churning may be liable for damages. The following includes more information about how you can prove churning in order to obtain justice and compensation for your financial losses.

Evaluation of validity process

Before any legal actions are taken, it is important to evaluate if your case has any merit. As stated above, losing money is part of the risk of investing, so simply losing money isn’t enough to bring a case against a broker. However, if you believe that there is more to your loss than market downturns, then bringing in a legal professional may be in your best interest. A securities litigation attorney may be able to uncover any inconsistencies with your broker’s documents or actions.

What is churning?

Although there are various legal paths you can take to hold a broker responsible for your losses, an accusation of churning is often the most used due to its simplicity and ability to prove in court. Churning accuses the broker of trading in excess to increase their commission. In many cases, that leads to a great financial loss for the investor.

Providing evidence of churning

The issue with churning is that there’s not always enough evidence to bring to court. You may be able to prove that churning was the cause of your losses by presenting documents showing that the broker was going above the legally stated definition of excessive trading, which is a four to six times turnover. However, the broker may present counter-evidence that states you were making a profit through that method. If no evidence exists, you may be able to request compensation in the form of return commissions.

This type of case can be very complicated, even for seasoned investors. It is important to ensure that you are consulting with an experienced attorney through each step of the process. Doing so may help you avoid making costly legal mistakes.