Customers Who Are The Victims of Churning May Be Able To Recover Damages
The Financial Industry Regulatory Authority (FINRA) has ordered Joseph Stone Capital and a number of its registered representatives to pay $1M in restitution for allegedly excessively trading in customers’ accounts. This includes $825K in restitution from the broker-dealers and $211K from eight current and ex-Joseph Stone brokers, all of whom have been suspended.
Three Joseph Stone supervisors were also suspended for allegedly not doing enough to identify or address red flags warning of this purported broker misconduct. Two other Joseph Stone representatives were barred for not responding to FINRA’s requests for more information in its investigation.
About 25 customer accounts were affected by this allegedly excessive trading that cost clients $1M in commissions and trading fees. Customers affected by this have our securities attorneys to rely on.
What Is Excessive Trading?
Excessive trading, also known as churning, is when a financial advisor conducts too many trades in a customer’s accounts for the purpose of earning commissions.
Churning can be tough to prove. Often, an arbitration panel will examine a number of factors to determine whether this type of broker misconduct occurred. This will usually include using statistical formulas to determine whether a broker violated the quantitative suitability obligation, such as the:
- Cost-equity ratio. This calculates the total yearly costs of an investment strategy. Also known as the breakeven return rate, this ratio is found by taking the total yearly costs (including margin interests and commissions) and dividing that by the yearly average brokerage account balance.
- The turnover rate. This is the percentage of holdings that have been “turned over” or replaced throughout the year. This measures the overall activity level and is determined by taking the total purchases in an account for the year and dividing that by the average yearly balance of the account.
There may also be an examination of the In-and-out trading in a customer’s account. This type of short-term trading activity often earns fees and commissions for a broker-dealer while costing investors. It is highly speculative and not suitable for most retail customers.
Pursue Churning Damages from A Broker-Dealer with A Securities Attorney
Your best chance for a full financial recovery is to work with a skilled securities lawyer and investment fraud law firm like Shepherd Smith Edwards and Kantas. Our savvy excessive trading lawyers have represented thousands of investors in recouping churning-related losses from their broker-dealers. Call (800) 259-9010 to work with one of our securities lawyers today.