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 Maine, as in other states, churning by a broker is considered a violation of both state securities laws and federal regulations. Churning occurs when a broker engages in excessive trading in a client's account mainly to generate commissions, without regard for the client's investment objectives. This practice is illegal and can be addressed by state and federal regulatory bodies. Investors in Maine who suspect churning should first file a written complaint with the brokerage firm. If the issue is not resolved, they can escalate the complaint to the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), which enforce regulations against such unethical practices. Both the SEC and FINRA have mechanisms in place to investigate and penalize brokers and firms that engage in churning. It's important for investors to monitor their accounts for unauthorized trading, frequent trading that doesn't align with their goals, and excessive fees, as these can be indicators of churning.