A plaque remaining from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem.

Above, a 1934 plaque from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem. Discarded as trash in 2006. Now a Popeyes fast food restaurant on Google Maps.

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Entry from May 25, 2012

“Churning” occurs when a broker executes many trades on an investment account; the trades are not necessarily in the best interests of the investor (the client), but the trades are in the best interests of the broker, who makes a profit on commissions. The Securities and Exchange Commission’s web page states that “churning is illegal and unethical.”
The July 20, 1953 issue of Time magazine stated that the SEC had charged J. Arthur Warner & Co. with the “fraudulent practice known…as ‘churning,’ by means of which a large part of the customers’ invested capital was taken…in the form of repeated commissions, charges and profits.” The word “churning” was so new that a September 1960 newspaper story was titled, “The New Financial Word Is ‘Churning.’”
Wikipedia: Churning (finance)
Churning is the practice of executing trades for an investment account by a salesman or broker in order to generate commission from the account. It is a breach of securities law in many jurisdictions, and it is generally actionable by the account holder for the return of the commissions paid, and any losses occasioned by the broker’s choice of stocks.
U.S. Securities and Exchange Commission
Churning occurs when a broker engages in excessive buying and selling of securities in a customer’s account chiefly to generate commissions that benefit the broker.  For churning to occur, the broker must exercise control over the investment decisions in the customer’s account, such as through a formal written discretionary agreement.  Frequent in-and-out purchases and sales of securities that don’t appear necessary to fulfill the customer’s investment goals may be evidence of churning.
Churning is illegal and unethical.  It can violate SEC Rule 15c1-7 and other securities laws.
Wiktionary: churn
(third-person singular simple present churns, present participle churning, simple past and past participle churned)
1.(transitive) To agitate rapidly and repetitively, or to stir with a rowing or rocking motion; generally applies to liquids, notably cream. Now the cream is churned to make butter.
2.(transitive, figuratively) To produce excessive and sometimes undesirable or unproductive activity or motion.
3.(intransitive) To move rapidly and repetitively with a rocking motion; to tumble, mix or shake. I was so nervous my stomach was churning.
Definition of ‘Churning’
1. An unethical practice employed by some brokers to increase their commissions by excessively trading in a client’s account. This practice violates the NASD Fair Practice Rules. It is also referred to as “churn and burn”, “twisting” and “overtrading”.
2. A period of heavy trading with few sustained price trends and little movement in stock market indexes.
Google Books
20 July 1953, Time magazine, “High Finance,” pg. 84:
Core of the indictment: Warner and his associates had traded “customers in & out, and in again, at frequent intervals…and at net losses to the customers.” J. Arthur Warner & Co. had thereby indulged in the “fraudulent practice known…as ‘churning,’ by means of which a large part of the customers’ invested capital was taken…in the form of repeated commissions, charges and profits.”
A favorite Warner & Co. trick, said the indictment, was to advise customers to buy stocks that were about to declare a dividend, then trade them out when the stock went ex-dividend, without explaining that the price had fallen by the amount of the dividend. Thus the customers broke even in the market but actually lost money because of Warner’s commissions.
3 September 1960, San Antonio (TX) Express and News, “Mutual Funds,” pg. 17D, col. 7:
The New Financial
Word Is “Churning”

A word not too familiar to most mutual fund shareholders may pop into the news soon. The word is “churning.” Just when it will become popular in the financial dictionary depends on how soon the Securities and Exchange Commission completes its “full dress” study of investment companies and releases its report to the public.
Churning refers to the practice of buying and selling securities at a rapid pace and, thereby, paying out fat brokerage commissions.
When portfolio turnover gets too high, some of the more suspicious observers of the financial scene contend that it is done to generate brokerage commissions.
That study is being conducted forthe SEC by the University of Pennsylvania’s Wharton School of Business and Finance.
20 October 1961, Morning Advocate (Baton Rouge, LA), “Securities Probe Spheres Are Listed” by Sylvia Porter, pg. 13B, col. 1: 
The policing agency is frankly disturbed by evidence that some mutual fund managers “churn” their portfolios of securities to increase commissions they pay to brokerage firms, which in turn repay the favor by pushing the sale of the mutual funds which give them the most business.
Google Books
February 1963, Changing Times (The Kiplinger Magazine), “Mutual funds: pick with care,” pg. 26, col. 2:
These facts, obviously, lead evidence to the suspicion that some funds deliberately “churn” their portfolios to make money in commissions for their brokerage affiliates.
Google Books
11 February 1966, Life magazine, pg. 78, col. 3:
Some rivals were accusing Dreyfus of “churning” (i.e., trading excessively at a high cost in brokerage commissions).
Google Books
24 March 1969, New York magazine, “How to Take Over General Motors” by Chris Welles,  pg. 24, col. 1:
One of the most colorful is a stockbroker known as Charlie the Churner. Charlie is called the Churner because he is brilliantly adept at “churning” his customers’ accounts. He gets his people into stocks that are highly volatile, that are certain to move up or down quickly. It doesn’t matter which way: If the stock moves up, Charlie tells his people it’s time to take some quick profits and get into something else. If the stock moves down, he says the stock’s beginning to look pretty weak and that it would be smart to get into something else. Whether this makes money for his customers is not important. The point is that it makes a lof of money for Charlie in commissions.
31 July 1978, New York (NY) Times, “Stock-Monitor Design Sought,” pg. D2:
The system is intended to help SEC officials detect illicit stock activities, such as churning (excessively active trading in securities to increase broker commissions), stock manipulation, misuse of market information, ...
Google News Archive
9 February 1982, The Robesonian (Lumberton, NC), “Newsletter Distribution To Continue (AP), pg. 1B, col. 2:
The issue arose when Belth, in last April’s issue of The Insurance Forum, criticized the Williams firm’s sales tactics and its product. He compared the sales activities with “churning,” a practice in which stock brokers buy and sell a client’s holdings for the sole purpose of creating commissions.

Posted by Barry Popik
New York CityBanking/Finance/Insurance • Friday, May 25, 2012 • Permalink

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