Churning

Churning is the excessive trading of an account for the purpose of generating commissions for the broker and the brokerage firm. Generally, the trading will have no reasonable or rational basis that can be linked to the particular performance of the investments. In order to determine if an account has been churned, calculations are made regarding the turnover rate, the annualized rate of return and the number of purchases and sales, among other things. It is necessary that the customer prove that the broker exercised actual control over the decision making in the account, the trading was excessive, and that the broker acted in reckless regard to the customer's best interest.

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