Churning is an unethical business practice by some stock brokers which occurs when a broker, exercising control over the volume and frequency of trades, abuses their customer’s confidence for personal gain by initiating transactions that are excessive in view of the character of account and the customer’s objectives as expressed to the broker. As a matter of law, churning is considered a violation of federal securities law proscribing fraud in connection with the purchase and sale of securities. Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful to “use or employ, in connection with the purchase or sale of any security” a “manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.” 15 U.S.C. § 78j(b).
[Last updated in November of 2021 by the Wex Definitions Team]