Investors sue XP over alleged churning and abusive brokerage practices in Brazil
XP alleged churning and abusive brokerage practices
XP Inc., one of Brazil’s largest financial institutions, is facing a lawsuit from investors alleging abusive brokerage practices, including excessive trading—commonly known as "churning"—to generate higher commissions.
The case raises concerns about the firm’s treatment of retail investors and its reliance on complex financial products, according to Block Trends.
According to the lawsuit, XP encouraged clients to invest in Structured Operations Certificates (COEs), complex financial instruments that combine fixed and variable income components. Investors claim that XP’s advisors pushed these products without fully disclosing the risks, leading to substantial financial losses.
The lawsuit further alleges that XP manipulated client portfolios to maximize commissions, engaging in high-frequency trading without proper investor consent.
Allegations of a pyramid-like structure
A recent report by Grizzly Research, a U.S.-based analysis firm, reinforced these concerns, suggesting that XP’s profitability relies on continuous COE sales to sustain the Gladius fund. The report compared XP’s structure to a pyramid scheme, stating that if new investments slow down, the firm could face financial instability.
XP has previously been accused of similar practices, with regulators and investors questioning its business model. In 2024, investors sued the brokerage for alleged deceptive sales tactics, claiming losses in the millions.
The Brazilian Securities and Exchange Commission (CVM) has yet to announce an official investigation into these latest allegations. Meanwhile, XP’s stock dropped 2.87% on Nasdaq following the publication of the Grizzly Research report. The company has not yet commented on the lawsuit.
As scrutiny over XP grows, investors and regulators are watching closely to determine whether legal action will lead to greater oversight of Brazil’s financial sector.
Meanwhile, Brazil has solidified its status as a global leader in crypto, with 26 million citizens—12% of the population—owning digital assets. This ranks the country sixth worldwide in crypto adoption, highlighting its growing impact in the sector.
