Gregory Dean Barred by FINRA and the SEC for Alleged ChurningSaturday, September 28, 2019
On June 10, 2019, a final judgment was entered against former broker Gregory Dean, by consent, in an action brought by the Securities and Exchange Commission in the United States District Court for the Southern District of New York. Dean admitted findings in the final judgment that, while he was associated with J.D. Nicholas, he knowingly or recklessly made trade recommendations to customers with no reasonable basis; made material misrepresentations and omissions to customers; and engaged in unauthorized trading in customer accounts between 2011 and 2014 in violation of federal securities laws.
Dean consented to the entry of an injunction, disgorgement of $253,881.98, pre-judgment interest of $50,521.70 and a civil penalty of $253,881.98. On June 26, 2019, an Order was filed by the Securities and Exchange Commission barring Dean from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.
According to a FINRA action filed against Dean, between December 2014 and December 2017, while associated with Worden Capital Management LLC, Dean churned and excessively traded seven customers’ accounts. Dean’s trading in his customers’ accounts, which heavily utilized margin, caused significant account losses and high commissions and fees.
Excessive trading occurs when a registered representative, while exercising control over a customer’s account, recommends a level of trading activity that is inconsistent with the customer’s investment needs and objectives. No single test defines excessive activity, but factors such as the turnover rate, cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding excessive trading. Turnover rate represents the number of times that a portfolio of securities is exchanged for another portfolio of securities. The cost-to-equity ratio measures the amount an account has to appreciate just to cover commissions and other expenses. In other words, it is the break-even point where a customer may begin to see a return. A turnover rate of six or a cost-to-equity ratio above 20 percent generally indicates that excessive trading has occurred. Excessive trading becomes churning when the registered representative acts with an intent to defraud or a reckless disregard for the customer’s interests.
FINRA alleges between 2014-2017, Dean engaged in churning in the accounts of seven customers. Dean made all trading decisions in the seven customers’ accounts, including which specific securities to buy and sell, when to buy and sell the securities, and the quantity of securities to buy and sell. Dean recommended the trading in the customers’ accounts and each of the customers followed Dean’s recommendations. Therefore, FINRA found Dean exercised de facto control over these customers’ accounts. According to the FINRA action, Dean’s trading in the seven customers’ accounts was excessive and conducted with reckless disregard for the customers’ interests. Dean employed an investment strategy that entailed short-term in-and-out trades, and Dean used margin as a means to increase the buying power in his customers’ accounts. Dean’s trading of the seven accounts resulted in high turnover rates and cost-to-equity ratios as well as significant losses.
FINRA found Dean’s trading in the customer was excessive and unsuitable given the customers’ investment profiles. Moreover, FINRA found Dean effected the short term in-and-out trading with reckless disregard for these seven customers’ interests. Dean’s trading in the seven customers’ accounts resulted in more than $1,834,832 in cumulative losses while generating more than $715,930 in commissions, fees and margin interest charged to the customers. The level of trading activity in these accounts, which Dean controlled, made it nearly impossible to generate trading profits for them. This strategy did, however, increase commissions for Dean.
Since 1998, the attorneys at ChapmanAlbin have been helping investors recover money lost due to fraud and other misconduct. If you lost money due to Dean’s alleged churning, we may be able to help you recover from him or Worden, the brokerage firm where he was registered. Contact us at 1-877-410-8172 for a free consultation.