According to the United States Sentencing Commission, the courts sentenced almost 200 people in 2022 for securities fraud, and some of those crimes were for churning. Being accused of churning by Texas authorities can be a serious allegation. Churning refers to the practice of executing excessive trading by a broker on a client’s account to generate commissions without regard for the client’s investment objectives. It is not just unethical; it is illegal and can have severe consequences.
If you find yourself facing such an accusation, it is important to understand the gravity of the situation and the importance of taking immediate and thoughtful action.
Stay calm and collect information
Your first step is to remain calm. Emotions run high when you face accusations, but panic can cloud your judgment. Stay composed and start gathering all your transaction records. These documents provide an account of your trading decisions. Make sure you have a comprehensive history of all communications with your clients, including emails, letters and phone call logs, as they can help in showing the context of your trading decisions.
Prepare to respond to inquiries in a complete and timely manner. Authorities have a process for investigating claims of churning, and they will expect detailed responses to their questions. Provide all requested information on time and ensure that your responses are thorough and reflect the situation accurately.
Communicate with your clients
Maintain an open line of communication with your clients. They might have concerns about the situation and need assurance that their investments are secure. Keeping them informed can help maintain their trust and can also provide you with support.
Facing accusations of churning is challenging and can bring your integrity into question. Take each step with diligence and ensure you provide a clear and factual representation of your trading practices. Through methodical and careful action, you can navigate this trying time with as much control over the outcome as possible.