A broker typically earns a portion of the commissions or other fees on each purchase or sale of securities that the brokerage firm makes for an investor. When a broker engages in excessive buying and selling (i.e., trading) of securities in a customer’s account without considering the customer’s investment goals and primarily to generate commissions that benefit the broker, the broker may be engaged in an illegal practice known as churning.

Red flags of excessive trading may include:

• Unauthorized Trading—Be alarmed if you become aware of trades in your account that you did not authorize your broker to make.

• Frequent Trading—Be wary of frequent in-and-out purchases and sales of securities that don’t seem consistent with your investment goals and risk tolerance.

• Excessive Fees—Be suspicious if the total amount of fees seems high or if one segment of your portfolio consistently generates high fees.

If you believe a broker has engaged in churning, submit a complaint in writing to the brokerage firm and to the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA).

In California, churning by a broker is considered a form of securities fraud and is illegal under both federal and state regulations. Churning occurs when a broker excessively trades securities in a client's account mainly to generate commissions, without regard for the client's investment objectives. This practice violates the duty of the broker to act in the best interests of the client. Investors should be vigilant for signs of churning, such as unauthorized trading, frequent trading that does not align with stated investment goals, and excessive fees. Victims of churning in California can file a written complaint with the brokerage firm, the Securities and Exchange Commission (SEC), or the Financial Industry Regulatory Authority (FINRA). These regulatory bodies enforce rules against fraudulent activities and can take action against brokers who engage in churning. It is advisable for investors to consult with an attorney experienced in securities law if they suspect churning or any other type of investment fraud.