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Courts generally look at the turnover of an investment account, or the number of times the investment capital has been re-invested during a year. For example, for an actively traded mutual fund, the entire assets of the fund will be involved in buying and selling transactions once every six to
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twenty-four months. In churning cases, the entire assets of the investor are often traded once a month, or even more frequently. As a commission is paid on each trade, commissions can substantially destroy the value of an investment account in a very short period of time.
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Critics of the practice of paying brokers commissions for managing investment accounts point to churning as one of the indicators that the brokerage system indirectly encourages such behavior by brokers to the detriment of
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Frequent trading in fee-based accounts is not an example of churning, since no commissions are generated in those transactions. However, the practice of putting clients who trade infrequently into a fee-based
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in many jurisdictions, and it is generally actionable by the account holder for the return of the commissions paid, and any losses occasioned by the broker's choice of stocks.
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is known as "reverse churning", since clients are charged fees in accounts with few if any transactions.
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95:"FINRA Fines Brokerage Firm for Reverse Churning (Securities Litigation and Arbitration)"
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19:is the practice of executing trades for an
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128:Description of excessive trading
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123:Churning description at SEC
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65:Foreign exchange fraud
27:in order to generate
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143:Investment
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