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 Michael McMahon (McMahon). According to BrokerCheck records McMahon has been the subject of at least nine customer complaints since November 2007. The customer complaints against McMahon allege a number of securities law violations including that the broker made unsuitable investments, unauthorized trading, negligence, breach of fiduciary duty, and churning (excessive trading) among other claims.
The most recent customer complaint filed in July 2015 and alleged breach of fiduciary duty, negligence, and misrepresentations claiming $1 million in damages. The claim is still pending. Also in July 2015, another client filed a complaint alleging McMahon made unsuitable investments among other claims claiming $442,000 in damages. The dispute is currently pending. In a third complaint filed in June 2015, an investor claimed that McMahon engaged in excessive trading and made unauthorized trades among other claims resulting in over $250,000 in damages. The claim is still pending.
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.