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Churning is a manipulative and deceptive practice in violation that violates Section 10(b), Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010. It is fraudulent conduct that occurs when: (i) a registered representative controls trading activity in an account, (ii) the level of activity in the account is inconsistent with the customer’s objectives and financial situation, and (iii) the registered representative acts with intent to defraud or a reckless disregard for the customer’s interests. FINRA Rule 2111 governs suitability, and…
Excessive buying and selling of securities in an investor’s account, also known as churning, is not only unethical, but also violates securities laws.  Most, if not all, churning stems from the broker’s desire to generate commissions that benefit the broker.  For churning to occur, the broker must exercise control over the investment decisions in the account.  Such control can be through a formal written agreement or de facto, aka the circumstances show that the broker…
Long names call for shorthand.  Here is a list (by no means exhaustive) of acronyms for investment and finance-related entities, which you might come across in this blog or elsewhere: ACLI – American Council of Life Insurers. ACLI is an association of American life insurance carriers which promotes the life insurance industry to the public and deals with legislation on all levels of government as it relates to life insurance.  ACLI is based in Washington,…
Investing has its own language, including beloved acronyms and shorthand.  Here’s a list (by no means exhaustive) of general terms you might hear thrown around in this blog or elsewhere: AUM – assets under management, which is the total market value of the investments that a person or entity manages on behalf of clients. BD – an abbreviation for a broker-dealer. A BD is a buyer and seller of securities, as well as a distributor…
Working under the supervision of the SEC, one of FINRA’s tasks is to write and enforce rules governing the ethical activities of brokerage firms and brokers.  With respect to discretion, FINRA Rule 3260(b) (aka NASD Rule 2510(b)) provides that for a broker to exercise discretionary power in a customer’s account, the customer must provide prior written authorization and that the broker’s firm must approve the discretionary arrangement. FINRA’s Monthly Disciplinary Actions for December 2019 include…
Merriam-Webster defines discretion as “individual choice or judgment.”  In the investment arena, discretion similarly refers to the exercise of judgment.  When the customer makes all the trading decisions in the account, then the account is non-discretionary.  In contrast, a discretionary account is one where the customer has given the broker written authority to buy and sell securities without the customer’s consent; that is, the broker can place trades without conferring with the customer.  Even in discretionary…
What are the possible signs of fraud or other misconduct in your account?  Here are some potential red flags: Big drops in the value of your portfolio, particularly when these dips don’t follow the market or seem exaggerated in comparison to what the market is doing. Under-performance of the portfolio compared to the market. While there may be a perfectly benign explanation for this, it can also be a telltale sign of misconduct, including unsuitable…
Investing is complicated – that’s probably the primary reason you chose to work with a broker.  Unfortunately, despite one’s best efforts, things may have gone disastrously awry.  Now, you are sitting down to a late night Google session and attempting to figure out your options.  Obviously, when you embarked upon your investment journey you expected some market hiccups, but nothing which would require litigation.  Sadly, your eyes have been opened to this possibility, but even…