Introduction
When brokers trade for commission instead of your goals, it’s called churning — and it’s more common than most investors realize. In our recent $5.6 million class action win, churning was one of the most damaging practices uncovered across dozens of client accounts.
This post breaks down how churning happens, the legal violations it represents, and how Lex Firm Global took action to hold the brokerage accountable.
What is Churning?
Churning is when a broker excessively buys and sells securities in your account for the sole purpose of generating commissions. It has nothing to do with your financial benefit and everything to do with inflating their paycheck.
In our case, brokers were executing 10–15 trades per week in accounts that were meant to be low-risk. Some clients saw their portfolio value drop by over 30% due to transaction fees, capital losses, and margin costs.
The Tactics We Uncovered
When we investigated the firm, we found these alarming practices:
- Trades executed without written or verbal consent
- Risky leveraged ETFs placed in retirement accounts
- Clients receiving misleading statements to hide loss ratios
- Internal communications showing pressure from management to push trades
Several clients were retirees who had no idea their nest egg was being used like a trading playground.
Legal Violations Identified
The brokers in this case breached several core industry standards:
- FINRA Rule 2111: Suitability — brokers must ensure investments match the client’s profile
- FINRA Rule 2010: Standards of commercial honor
- SEC Section 10(b) and Rule 10b-5: Fraudulent and deceptive practices
We built a strong claim by comparing portfolio strategies to investor profiles, exposing a mismatch so egregious that the court issued immediate sanctions.
The Turning Point
After depositions, account audits, and mounting media attention, the brokerage firm opted for a settlement rather than face a prolonged public trial. They agreed to pay $5.6 million in damages and cover legal costs — with several brokers facing personal penalties.
Conclusion
Churning is silent theft — hidden behind trade confirmations and complex terminology. But if you’ve seen excessive activity in your portfolio, unexplained fees, or mounting losses, don’t ignore it.
At Lex Firm Global, we know how to decode the noise, follow the trail, and build the case. Contact us for a no-risk evaluation and take the first step toward recovery.