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 New York, as in other states, churning by a broker is considered a violation of both state securities laws and federal securities 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 pursued under New York's Martin Act, which is one of the nation's oldest securities laws and provides the state attorney general broad powers to investigate and prosecute securities fraud. Additionally, federal bodies such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) also oversee and enforce rules against churning. Victims of churning in New York can file a written complaint with the brokerage firm, the SEC, or FINRA. They may also seek private legal action against the broker or brokerage firm to recover damages. It is advisable to consult with an attorney experienced in securities law to explore legal options.