There are many different types of investment fraud in which a financial professional may take advantage of their position. People often turn to these experts to help maximize their financial situation. However, someone who abuses this position for their own gain could be guilty of fraud.
One potential type of fraud to be aware of is known as churning. If you are an investor and notice an excessive number of transactions on your account, carried out by your broker or another financial professional, it could be a red flag that churning is occurring. Why would this happen, and what is the goal of this type of scheme?
Generating commissions
Typically, churning is carried out by individuals who are paid a commission for every transaction they make. Each transaction generates a commission.
In theory, the financial professional is using their knowledge and experience to make wise transactions on their client’s behalf. The client pays for this service through commissions. The more transactions that are made, the more work the professional has performed, and the more they are paid.
However, it becomes a problem when these transactions are made solely to generate commissions. There is no benefit to the client, and the portfolio is not performing any better. The broker could have simply left the account alone, and it may have continued growing at the same rate. Instead, they made numerous unnecessary transactions so they would be paid a commission each time.
Your legal options
If you believe you have been victimized by investment fraud, this is a serious matter. Be sure you understand exactly what legal options are available to you at this time.