Claims Against Stock and Commodities Brokers - Churning, Unauthorized Trades, Etc.
Efforts are often made by creditor who hold claims against brokers to except these claims from discharge in bankruptcy.
Section 523 (a)(2)(A) of the bankruptcy code excepts from discharge certain claims based on "false pretenses, a false representation, or actual fraud ..."
Churning
Courts have held that an allegation or finding of "churning" by an arbitration panel of the NASD may be sufficient grounds for a valid securities regulations claim, but it is not necessarily sufficient for the section 523 (a)(2)(A)'s exception from discharge for "actual fraud" to apply as churning may not be "actual fraud" but only fraud in law or fraud implied in law. Actual fraud or common law fraud requires a specific intent to defraud. Churning may be established without proving a specific intent to deceive and may not necessarily be based on actual fraud.
Unauthorized Purchases
Courts have held that section 523(a)(2) does not apply where the stock or commodities brokers makes unauthorized purchases and does not obtain possession or title to the securities.
Courts have held that unauthorized trades by a broker may possibly not be dischargeable under section 523 (a)(4) "for fraud or defalcation while acting in a difuciary capacity..."
Section 523 (a)(2)(A) of the bankruptcy code excepts from discharge certain claims based on "false pretenses, a false representation, or actual fraud ..."
Churning
Courts have held that an allegation or finding of "churning" by an arbitration panel of the NASD may be sufficient grounds for a valid securities regulations claim, but it is not necessarily sufficient for the section 523 (a)(2)(A)'s exception from discharge for "actual fraud" to apply as churning may not be "actual fraud" but only fraud in law or fraud implied in law. Actual fraud or common law fraud requires a specific intent to defraud. Churning may be established without proving a specific intent to deceive and may not necessarily be based on actual fraud.
Unauthorized Purchases
Courts have held that section 523(a)(2) does not apply where the stock or commodities brokers makes unauthorized purchases and does not obtain possession or title to the securities.
Courts have held that unauthorized trades by a broker may possibly not be dischargeable under section 523 (a)(4) "for fraud or defalcation while acting in a difuciary capacity..."