Brokerage Firm Spotlight: Investor Claims of Churning Against Rockwell Global Capital

shutterstock_103681238The law offices of Gana LLP is investigating Rockwell Global Capital LLC (Rockwell) after having filed a complaint on behalf of an investor. We have posted on several previous occasions that brokers at Rockwell have been alleged by dozens of investors in recent years of churning client accounts. In Three Rockwell Global Capital Brokers Accused of Securities Misconduct by Customers we wrote about three brokers, Robert E. Lee Jr. (Robert Lee), Douglas Guarino (Guarino), and Lawrence Lee (Lee) that have been the subject of at least 29 combined customer complaints. All three brokers have been accused by clients of churning their accounts and making unsuitable investment recommendations.

Recently, an arbitration panel awarded a customer and ordered Rockwell to pay $119,000 in compensation together with costs and attorneys fees due to claims that included excessive trading.

What is “churning”? This type of securities misconduct includes investment trading activity that serves no reasonable purpose for the investor and is transacted in order for the broker to generate commissions. The elements that an arbitration panel will look at to establish a churning claim, a species of securities fraud, 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.

Often two commonly measured account metrics are used to analyze the trading activity, the account’s ‘annualized turnover ratio’ and its ‘cost to equity ratio.’ The turnover ratio measures the average turnover of the account over the churning period. Typically will ratios in the 3 to 6 range are indicative of churning. The cost to equity ratio measures how expensive the trading strategy was. An annual cost to net equity ratio of 5% would require the account to earn a 5% profit to breakeven. The more expensive the trading strategy is the more likely the trading activity is excessive because it would be highly unlikely that the account could have been profitable for the investor.

Investors who have suffered investment losses may be able recover their losses through arbitration. The attorneys at Gana LLP are experienced in representing investors in cases of churning and excessive trading and other breaches of a brokerage firm’s obligations to customers. Our consultations are free of charge and the firm is only compensated if you recover.