A NY Investment Fraud Lawyer Explains Consequences of Excessive Trading
Investors sign brokerage accounts establishing the authority of their broker. Brokers in managed accounts may have discretion to buy and sell securities without prior permission from investors, while other brokers simply act as agents and execute client orders. Traders who manage accounts and who make investment decisions for clients have a fiduciary obligation to act in the client’s best interests and not to engage in dishonest or fraudulent behaviors that allow the broker to profit at the expense of the investor.
Some brokers fail to follow their obligations and engage in behavior that is considered unethical or even illegal. Excessive trading is one type of broker action that could lead to civil actions and potential criminal penalties. Excessive trading is a problem when it is crosses the line into stock churning. An experienced NY investment fraud lawyer can represent brokers and brokerage houses when accusations of churning stocks are made. Call Bukh Law Firm, PLLC. today for help if you have been accused of wrongdoing.
What is Stock Churning?
Stock churning occurs when a broker engages in excessive trading for the purposes of increasing commissions rather than to try to turn a profit for investors.
Some trading strategies require the regular purchase and sale of different investment positions. If the trades are executed as part of a plan to make financially sound investments for clients, frequent trades are not necessarily excessive trades and stock churning does not necessarily occur.
It can be a difficult question to determine when stock churning is happening because the question of whether too many trades happened is a subjective one. There is no clear formula or guidelines to determine when making trades crosses the line into excessive trading. Brokers who are facing civil or criminal legal actions can get help from an investment fraud lawyer to argue that the trades were not done to boost commissions but instead to benefit clients.
Proving Excessive Trading Occurred
In both a civil and a criminal action, a plaintiff or prosecutor claiming excessive trading has the burden of proving that the broker was motivated by an attempt to make more in commissions. The standard of proof in a criminal case is beyond a reasonable doubt and the standard of proof in a civil case is preponderance of the evidence.
Plaintiffs and prosecutors can show a pattern and practice of excessive trades and high commissions to try to demonstrate that a broker acted in violations of legal regulations. You do not need to prove you did not engage in excessive trading or stock churning- you simply need to make it impossible for the plaintiff or prosecutor to successfully meet the burden of proof. Civil and criminal actions arising from securities frauds are always complicated and stock churning cases may be among the most difficult to prove. At Bukh Law Firm, PLLC, we have extensive experience making courts and juries doubt whether stock churning actually occurred.
Penalties for Stock Churning
Both state and federal laws prohibit fraudulent behavior and material misrepresentations related to the sales of commodities and securities.
Stock churning could be a violation of NY laws prohibiting both securities fraud and general fraud. Section 358 of the Martin Act indicates that an act of securities fraud could result in misdemeanor or felony penalties, while NY Penal Law Article 190.65 prohibits general fraud schemes. If investment documents are falsified to hide churning, a broker could also be charged with a violation of NY Penal Law Article 175 prohibiting falsification of business documents.
On the federal level, stock churning could also be a violation of Rule 10B-5 of the Securities and Exchange Act of 1934 as well as 18 U.S. Code Section 1348, which carries a maximum penalty of two decades of imprisonment for certain securities fraud scams.
How a Securities Fraud Lawyer Can Help
A securities fraud lawyer at Bukh Law Firm, PLLC can provide you with important legal assistance if you have been accused of stock churning. Call today to get help responding to civil and criminal actions so you can try to avoid forfeiture of assets; required restitution; large fines; jail time and other potential penalties.
