Yesterday, the SEC issued an investor alert about “churning.” This alert was issued alongside a churning case that the SEC also filed in federal court yesterday. Yesterday’s news may be of interest to a potential SEC whistleblower or an SEC whistleblower lawyer, as it provides yet another example of the kinds of cases that the SEC brings.
Relevance of the alert for an SEC whistleblower or SEC whistleblower lawyer
In its alert, the SEC defines churning as occurring “[w]hen 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 alert includes churning under the category of “excessive trading.” According to the SEC alert, some flags that churning or excessive trading may be occurring include:
- unauthorized trades,
- frequent in-and-out purchases and sales that are inconsistent with the customer’s investment goals and risk tolerance, and
- excessive fees.
If an SEC whistleblower or their SEC whistleblower lawyer believes that a broker or broker dealer firm has been engaging in excessive trading or churning, the alert says that they should “submit a complaint in writing to the brokerage firm and to the SEC or FINRA.” (Note that a complaint to FINRA may not satisfy the requirements of the SEC whistleblower program; a complaint to the SEC will.)
SEC charges brokers with $1.37MM churning fraud
The SEC’s alert mentions two churning cases, the most recent one being SEC v. Dean and Fowler, filed in U.S. District Court on the same day as the alert.
Allegedly, the two brokers named in the court Complaint engaged in churning and excessive in-and-out trading in customer accounts. According to the Complaint, the scheme caused investors losses totaling $1,374,202.
In a press release about the case, Andrew M. Calamari, the Director of the SEC’s Regional Office stated “This case marks another chapter in the SEC’s pursuit of brokers who deploy excessive trading as a strategy in customer accounts to enrich themselves at customers’ expense.” Mr. Calamari is also a Co-Chair of the SEC Enforcement Division’s Broker Dealer task force.
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