U.S. District Court of New York Gives Final Judgment to Brokers Found to Fraudulently Engage in In-and-Out Trading in Customer AccountsTuesday, March 24, 2020
On February 28, 2020, the Securities and Exchange Commission received a final judgment against Donald Fowler, a former J.D. Nicholas & Associated, Inc. broker, who allegedly deployed a fraudulent trading scheme that was unsuitable for his customers in order to generate large commissions for himself.
The SEC Complaint, filed in January 2017, claimed that Fowler failed to conduct any due diligence to determine whether his frequent in-and-out method of trading securities, could generate a profit for his customers. As proven in the trial, Fowler caused unsuitable trading in 13 customer accounts and engaged in unauthorized trading in one of those accounts. The Memorandum Opinion and Order released by the U.S. District Court of Southern District of New York stated that “the average annualized cost-to-equity ratio for these accounts was 110.90%, meaning that the customers, on average, had to realize 110.90% in profits just to break even.” All 13 customers, who were not wealthy, lost thousands of dollars and much of the losses were due to Fowler’s high commission charges.
The SEC investigated multiple registered representatives thought to be involved in this fraudulent scheme, specifically naming Gregory T. Dean as a respondent. The SEC claimed that he also conducted in-and-out trading without determining whether the investment strategy involving frequent buying and selling of securities could deliver a profit for their customers.
The final judgment against Fowler enjoins him from violating the antifraud provisions of the Securities Act of 1933 and the Securities Act of 1934. Fowler is also ordered to pay disgorgement of $132,085.20, prejudgment interest of $35,195.04 and a civil penalty totaling $1,950,000.
Donald Fowler was associated with J.D. Nicholas & Associates, Inc. in Syosset, New York from January 2007 to November 2014. By the time the SEC filed this Complaint against Fowler, Dean and others involved in this fraudulent scheme, J.D. Nicholas & Associates had gone out of business. Fowler was then associated with Worden Capital Management LLC in Rockville Center, New York from November 2014 to August 2019. Though he is not currently associated with a member firm of the Financial Industry Regulatory Authority (FINRA), he has eleven settled customer disputes on his BrokerCheck report. The customer disputes have settled in amounts ranging from $7,500 to $400,000 and allege churning, unsuitability, negligent supervision, markup or commission abuse, breach of fiduciary duty and misrepresentation, among other things. Fowler has two additional pending customer disputes with similar allegations and damage amounts requested at $29,036 and $100,000.
Gregory T. Dean also received a final judgement on June 10, 2019. In the final judgment, Dean admitted to knowingly making reckless trade recommendations to his customer without a reasonable basis to do so and that his conduct violated federal securities laws.
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