75 Geo. L. J. 1875 (1986-1987)
Account executives—when serving as either a broker or a dealer—stand in a conflict of interest position with their customers. The brokerage house profits through commissions from the execution of the transaction regardless of whether the customer profits on the investment. Account executives who do so, violate the fiduciary duties he owes to a customer in favor of his own self-interest. The customer can bring an action for churning under federal securities and commodities laws if he or she can demonstrate that the broker excessively traded an account over which the broker exercised control in order to generate commissions for himself to the detriment of the customer, and that the broker possessed the requisite state of mind. It is easy to establish the control element in cases in which the customer granted the account executive discretionary control to engage in transactions on their behalf, but it is not as simple in cases of non-discretionary authority. This Article proposes that a relational reliance standard should serve as the framework for analyzing whether there was the requisite amount of control to prove a churning action. In making such a proposal, the Author traces the judicial and administrative evolution of the concept of control in churning claims involving non-discretionary accounts and analyzes the problems presented by the existing disparity in standards used to determine control.
Patricia A. O'Hara,
The Elusive Concept of Control in Churning Claims under Federal Securities and Commodities Law,
75 Geo. L. J. 1875 (1986-1987).
Available at: https://scholarship.law.nd.edu/law_faculty_scholarship/875