Securities Lawyers Blog
The securities fraud lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker James Flower (Flower). According to BrokerCheck records Flower has been the subject of at least four customer complaints and one bankruptcy that was disclosed in January 2016. The customer complaints against Flower allege a number of securities law violations including that the broker made unsuitable investments, excessive use of margin, and churning (excessive trading) among other claims.
When brokers engage in excessive trading, sometimes referred to as churning, the broker will typical trade in and out of securities, sometimes even the same stock, many times over a short period of time. Often times the account will completely “turnover” every month with different securities. This type of investment trading activity in the client’s account serves no reasonable purpose for the investor and is engaged in only to profit the broker through the generation of commissions created by the trades. Churning is considered a species of securities fraud. The elements of the claim are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions. A similar claim, excessive trading, under FINRA’s suitability rule involves just the first two elements. Certain commonly used measures and ratios used to determine churning help evaluate a churning claim. These ratios look at how frequently the account is turned over plus whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably profit from the activity.
An examination of Flower’s employment history reveals that Flower moves from troubled firm to troubled firm. The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry. See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013). In Flower’s 18 year career he has worked at least 15 different firms. What’s more astonishing is that seven of those firm’s have been expelled from the industry by FINRA and in many instances for securities laws violations for mistreating their customers.