Readers of this securities fraud blog may have heard about churning. The term refers to a stockbroker or investment advisor whose recommendation to a client was primarily motivated by the commission that he or she could get from a proposed transaction.
When buying or selling securities, current law requires stockbrokers to disclose material, relevant information to their clients. In securities trading, as in other industries, the customer’s interests should come first. In other words, client decisions to buy or sell securities should be motivated by financial strategy or need. Clients who are mislead into transactions for other reasons might be the victims of securities fraud.
Yet churning may not always be easily visible or characterized by frequent transactions. It’s conceivable that even a single transaction recommended by a stockbroker was motivated by reasons other than the client’s best interests. Nevertheless, those professionals may likely have violated their fiduciary duties to their clients. Clients who suspect this activity might benefit from a consultation with a securities fraud attorney.
In recent news, a federal jury determined that a unit of Bank of America, called Countrywide Financial Corp., was guilty of churning out subprime or high-risk mortgage loans. According to prosecutors, the mortgage unit entered into loans that were then sold to Fannie Mae and Freddie Mac. As readers know, many loans were determined to be worthless during the 2008 housing crisis. Prosecutors also claimed that the unit encouraged employees to increase the pace at which they could churn out the risky loan products.
Source: latimes.com, “Bank of America is found liable for Countrywide mortgage fraud,” Andrew Tangel, Oct. 23, 2013
