In a news release that can be accessed here, the Securities and Exchange Commission (SEC) charged three former brokers from J.P. Turner & Company (Ralph Calabro, Dimitrios Koutsoubos & Jason Konner) with churning the accounts of customers with conservative investment objectives resulting in losses of $2.7 million. According to the SEC release, the brokers churned the accounts of seven customers generating commissions, fees and margin interest of about $845,000.
In addition the company, J.P. Turner's president William Mello and Michael Bresner, head of firm compliance, were also charged with compliance failures.
JP Turner and Mello agreed to settle by paying penalties of about $500,000 and agreeing to hire an independent consultant to review the firm's supervisory procedures. Mello is suspended from association in a supervisory capacity for five months. The SEC proceeding will continue against the three brokers and the compliance supervisor.
In 2008, J.P. Turner was fined $250,000 by FINRA for failing to to have an adequate supervisory system designed to ensure that commissions charged to customers were fair and reasonable. As a part of that settlement, J.P. Turner was required to hire an independent consultant to review firm policies and procedures relating to FINRA's Fair Pricing Rule.
An SEC website which provides answers to common questions from investors defines "churning" as:
Churning occurs when a broker engages in excessive buying and selling of securities in a customer's account chiefly to generate commissions that benefit the broker. For churning to occur, the broker must exercise control over the investment decisions in the customer's account, such as through a formal written discretionary agreement.
Frequent in-and-out purchases and sales of securities that don't appear necessary to fulfill the customer's investment goals may be evidence of churning.
Churning is illegal and unethical.
It can violate SEC Rule 15c1-7 and other securities laws.
It is not necessary that there be a formal written discretionary agreement between the customer and the brokerage firm for churning to occur. We have seen many instances where the broker buys and sells in customer accounts without first obtaining permission from the customer and where there is no written agreement.
If you have conservative investment objectives and your risk tolerance is low to moderate, which is the case for most retirees, then there should not be a significant amount of trading (buying and selling) in your account. If you believe your account has been traded excessively resulting in losses, you may be a victim of churning.
If you have a question about your brokerage account, do not hesitate to contact us. We have been helping investors recover stock market and investment losses for more than twenty years.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.