CHURNING / EXCESSIVE TRADING COMPLAINT

FINRA ARBITRATION CLAIM

CASE INFORMATION

FINRA Case Number: _________________________ (Office Use Only)

Date Filed: _________________________

Type of Claim:
☐ FINRA Arbitration
☐ Written Complaint to Firm
☐ SEC Complaint
☐ State Securities Regulator Complaint

I. CLAIMANT INFORMATION

A. Personal Information

Full Legal Name: _________________________

Address:
_________________________
_________________________

City: _________________________ State: _______ ZIP: ___________

Telephone: _________________________ Email: _________________________

Date of Birth: _____________ Age at Time of Account Opening: _______

Occupation at Time of Account Opening: _________________________

Current Occupation: _________________________

B. Claimant's Attorney (If Applicable)

Attorney Name: _________________________

Firm Name: _________________________

Bar Number: _________________________ State: _______

Address:
_________________________
_________________________

Telephone: _________________________ Email: _________________________

II. RESPONDENT INFORMATION

A. Brokerage Firm

Firm Name: _________________________

CRD Number: _________________________

Address:
_________________________
_________________________

B. Individual Broker/Registered Representative

Name: _________________________

CRD Number: _________________________

Title: _________________________

Dates as Account Representative: From _____________ To _____________

C. Supervisory Personnel

Branch Manager: _________________________

Compliance Officer: _________________________

III. ACCOUNT INFORMATION

Account Number: _________________________

Account Type:
☐ Individual Cash Account
☐ Individual Margin Account
☐ Joint Account
☐ IRA/Retirement Account
☐ Trust Account
☐ Corporate Account
☐ Other: _________________________

Date Account Opened: _________________________

Date Account Closed or Transferred: _________________________

Analysis Period: From _____________ To _____________

IV. CLAIMANT'S INVESTMENT PROFILE

A. Financial Situation at Account Opening

Annual Income: $______________

Liquid Net Worth: $______________

Total Net Worth (excluding primary residence): $______________

Source of Funds for Investment:
☐ Savings
☐ Inheritance
☐ Retirement/Pension
☐ Sale of Property
☐ Other: _________________________

B. Investment Objectives

Stated Investment Objectives on Account Documents:
☐ Capital Preservation
☐ Income
☐ Growth
☐ Aggressive Growth
☐ Speculation

Actual Investment Objectives (as discussed with broker):
_________________________________________________________________________________

C. Risk Tolerance

Stated Risk Tolerance:
☐ Conservative
☐ Moderate
☐ Aggressive

Actual Risk Tolerance:
☐ Conservative
☐ Moderate
☐ Aggressive

D. Investment Experience

Prior Investment Experience:
☐ None/Novice
☐ Limited (less than 5 years)
☐ Moderate (5-10 years)
☐ Extensive (10+ years)

Types of Securities Previously Owned:
☐ Stocks
☐ Bonds
☐ Mutual Funds
☐ Options
☐ None
☐ Other: _________________________

E. Investment Time Horizon

☐ Short-term (less than 3 years)
☐ Medium-term (3-10 years)
☐ Long-term (10+ years)

F. Special Circumstances

☐ Retired or approaching retirement
☐ Dependent on investment income
☐ Limited investment knowledge
☐ Advanced age
☐ Health issues
☐ Non-native English speaker
☐ Other: _________________________

V. ELEMENTS OF CHURNING CLAIM

A. Element 1: Control

Type of Control:
☐ Express/Formal Discretionary Authority (written agreement)
☐ De Facto Control (implied control through broker's conduct)

Evidence of Broker Control:

☐ Broker made all investment decisions
☐ Claimant routinely followed broker's recommendations
☐ Claimant lacked investment sophistication
☐ Broker initiated all or most transactions
☐ Claimant rarely or never rejected broker's recommendations
☐ Account documents granted discretionary authority
☐ Other: _________________________

Description of Control Relationship:
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

B. Element 2: Excessive Trading

Key Trading Metrics:

Turnover Ratio

The turnover ratio measures how many times the account's equity was turned over (bought and sold) during the year.

Calculation:
- Total Purchases During Period: $______________
- Average Monthly Equity: $______________
- Number of Months in Period: _______

Formula: Turnover Ratio = (Total Purchases / Average Monthly Equity) x (12 / Number of Months)

Calculated Annualized Turnover Ratio: _______

Industry Standards for Churning:
- Turnover ratio of 2: Presumption of suitability issues
- Turnover ratio of 4-6: Strong indication of churning
- Turnover ratio above 6: Excessive trading presumed

☐ Turnover ratio exceeds 6 (churning presumed)
☐ Turnover ratio between 4-6 (strong indication of churning)
☐ Turnover ratio between 2-4 (suitability issues indicated)

Cost-to-Equity Ratio (Break-Even Analysis)

The cost-to-equity ratio shows what annual return the account would need to generate just to cover trading costs.

Calculation:
- Total Trading Costs (commissions, fees, margin interest): $______________
- Average Monthly Equity: $______________

Formula: Cost-to-Equity Ratio = (Total Annual Costs / Average Monthly Equity) x 100

Calculated Cost-to-Equity Ratio: _______%

Industry Standards:
- Cost-to-equity ratio above 15-20%: Indicates possible churning
- Cost-to-equity ratio above 20%: Strong presumption of churning

☐ Cost-to-equity ratio exceeds 20%
☐ Cost-to-equity ratio between 15-20%

In-and-Out Trading

Number of Round-Trip Transactions (buy and sell of same security within 30 days): _______

Securities Bought and Sold Multiple Times:

C. Element 3: Scienter (Intent to Defraud)

Evidence of Broker's Intent:

☐ Broker's compensation was commission-based
☐ High volume of commissions generated relative to account size
☐ Broker disregarded claimant's investment objectives
☐ Broker ignored claimant's risk tolerance
☐ Pattern of similar conduct with other customers
☐ Broker failed to disclose trading costs
☐ Broker made misrepresentations about trading strategy
☐ Other: _________________________

Total Commissions and Fees Generated: $______________

Percentage of Account Equity Consumed by Costs: _______%

VI. DETAILED TRADING ANALYSIS

A. Summary Statistics

B. Monthly Trading Activity

C. Transaction Detail (Attach Additional Sheets if Necessary)

VII. DAMAGES CALCULATION

A. Direct Losses

Method 1: Excess Commissions

Total Commissions Charged: $______________
Reasonable Commissions (industry standard): $______________
Excess Commissions: $______________

Method 2: Trading Losses

Total Sales Proceeds: $______________
Total Purchase Costs: $______________
Net Trading Loss: $______________

Method 3: Well-Managed Account

What account would have earned if invested conservatively:
Beginning Value: $______________ x Expected Return ______% = $______________
Lost Earnings: $______________

B. Total Damages Claimed

C. Interest

☐ Pre-judgment interest requested at rate of ______% per annum
☐ Post-judgment interest at statutory rate

VIII. CAUSES OF ACTION

Count I: Churning/Excessive Trading

1. Respondent Broker exercised control over Claimant's account.

2. Respondent Broker engaged in excessive trading in Claimant's account, as evidenced by:
   - Annualized turnover ratio of _______, which exceeds the industry threshold of 6
   - Cost-to-equity ratio of _______%, which exceeds the industry threshold of 20%
   - Pattern of in-and-out trading without legitimate investment purpose

3. Respondent Broker engaged in such excessive trading with the intent to generate commissions for the broker's benefit, without regard to Claimant's investment objectives.

4. As a direct and proximate result of Respondent's churning, Claimant has suffered damages in the amount of $______________.

Count II: Violation of FINRA Rule 2111 (Quantitative Suitability)

1. FINRA Rule 2111 requires brokers to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer when taken together.

2. Respondent Broker violated the quantitative suitability obligation by recommending a series of transactions that was excessive in light of Claimant's investment profile.

3. As a direct and proximate result of this violation, Claimant has suffered damages.

Count III: Fraud (SEC Rule 10b-5)

1. Respondent Broker made material misrepresentations and/or omissions in connection with the purchase and sale of securities in Claimant's account.

2. Respondent Broker acted with scienter in making such misrepresentations and/or omissions.

3. Claimant reasonably relied on such misrepresentations and/or omissions.

4. As a direct and proximate result of this fraud, Claimant has suffered damages.

Count IV: Breach of Fiduciary Duty

1. Respondent Broker owed a fiduciary duty to Claimant.

2. Respondent Broker breached that duty by engaging in excessive trading for the broker's own benefit rather than acting in Claimant's best interest.

3. As a direct and proximate result of this breach, Claimant has suffered damages.

Count V: Negligence

1. Respondent Broker owed a duty of care to Claimant.

2. Respondent Broker breached that duty by failing to exercise the care that a reasonably prudent securities professional would exercise under similar circumstances.

3. As a direct and proximate result of this negligence, Claimant has suffered damages.

Count VI: Failure to Supervise (Against Firm)

1. Respondent Firm had a duty under FINRA Rule 3110 to establish and maintain a supervisory system to supervise the activities of its registered representatives.

2. Respondent Firm failed to adequately supervise Respondent Broker's trading activities, despite red flags including:
   - Excessive turnover ratios
   - High cost-to-equity ratios
   - Patterns of in-and-out trading
   - Commission levels disproportionate to account size

3. As a direct and proximate result of Respondent Firm's failure to supervise, Claimant has suffered damages.

IX. RELIEF REQUESTED

Claimant respectfully requests that the Arbitration Panel award the following:

☐ Compensatory damages in the amount of $______________
☐ Disgorgement of all commissions, fees, and margin interest paid: $______________
☐ Pre-judgment interest at the rate of ______% per annum
☐ Post-judgment interest at the statutory rate
☐ Punitive damages in an amount to be determined (where permitted)
☐ Attorneys' fees and costs
☐ Expert witness fees
☐ Filing and forum fees
☐ Such other relief as the Panel deems just and appropriate

X. SUPPORTING DOCUMENTS

☐ Account opening documents
☐ Customer agreement
☐ Margin agreement
☐ Monthly account statements for entire analysis period
☐ Trade confirmations
☐ Expert witness report/trading analysis
☐ Correspondence with broker/firm
☐ Complaints to firm
☐ BrokerCheck report on broker
☐ BrokerCheck report on firm
☐ Damage calculation spreadsheet
☐ Other: _________________________

XI. CERTIFICATION

I certify under penalty of perjury that the information provided in this complaint is true and correct to the best of my knowledge, information, and belief.

Claimant Signature: _________________________ Date: _____________

Print Name: _________________________

STATE-SPECIFIC CONSIDERATIONS

California

• California Corporations Code Section 25401 prohibits fraud in securities transactions
• California Civil Code Section 1709 provides fraud remedies
• Statute of limitations: 4 years from discovery under Cal. Corp. Code Section 25506
• California Department of Financial Protection and Innovation accepts complaints
• Consider pursuing claims under California's Unfair Competition Law (Bus. & Prof. Code Section 17200)

Texas

• Texas Securities Act Article 581-33 provides civil liability
• Texas Deceptive Trade Practices Act may provide treble damages in egregious cases
• Statute of limitations: 5 years for fraud under Tex. Civ. Prac. & Rem. Code Section 16.004
• File complaints with Texas State Securities Board

Florida

• Florida Securities and Investor Protection Act (Chapter 517) applies
• Section 517.301 prohibits fraudulent transactions
• Statute of limitations: 5 years for fraud under Fla. Stat. Section 95.11(3)(j)
• Florida Office of Financial Regulation accepts complaints

New York

• Martin Act (N.Y. Gen. Bus. Law Article 23-A) provides broad anti-fraud authority
• Statute of limitations: 6 years for fraud under CPLR 213(8)
• New York Attorney General's Investor Protection Bureau handles complaints
• Consider concurrent claims under New York common law fraud

CHURNING ANALYSIS CHECKLIST

Red Flags Indicating Churning:

☐ Turnover ratio exceeds 6 (industry presumption of churning)
☐ Cost-to-equity ratio exceeds 20%
☐ High number of round-trip transactions (in-and-out trading)
☐ Frequent trading in securities held for very short periods
☐ Trading activity inconsistent with stated investment objectives
☐ Commissions disproportionate to account size
☐ Account value declining despite active management
☐ Broker exercised de facto control over trading decisions
☐ Customer is unsophisticated investor
☐ Customer is elderly or has diminished capacity
☐ Commission-based compensation structure for broker
☐ Similar pattern of trading in other customer accounts

Key Documents to Obtain:

☐ Complete account statements for analysis period
☐ All trade confirmations
☐ New account form/investment profile
☐ Customer agreement
☐ Margin agreement (if applicable)
☐ Options agreement (if applicable)
☐ Correspondence and communications with broker
☐ Written complaints to firm
☐ Broker's CRD/BrokerCheck report
☐ Firm's supervisory procedures (through discovery)

This template is provided for informational purposes only and does not constitute legal advice. Churning claims require detailed trading analysis and expert testimony. The calculation of turnover ratios and cost-to-equity ratios should be verified by a qualified expert. Consult a securities attorney before filing any claim.