Worden Capital Broker Gregory Dean Sanctioned for Churning Customer AccountsMonday, September 9, 2019
Gregory Dean recently entered into an Acceptance, Waiver, and Consent (“AWC”) with FINRA and agreed to a bar for allegedly churning customer accounts. Dean was associated with J.D. Nicholas & Associates, Inc. from January 2007 until November 2014. From November 21, 2014 through July 1, 2019, Dean was registered through Worden Capital Management LLC.
On June 10, 2019, a final judgment was entered against Dean, by consent, in an action brought by the Securities and Exchange Commission (Case No. 17-CV139) in the United States District Court for the Southern District of New York. Dean admitted to findings in the final judgment that, while Dean 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 SEC rules and regulations.
In that action, 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 Instituting Administrative Proceedings against Dean 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 the FINRA AWC, between December 2014 and December 2017, while associated with Worden, 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. As a result, FINRA found Dean willfully violated SEC and FINRA Rules.
Excessive trading and churning are evidenced by high turnover rates and cost-to-equity ratios. Turnover rate represents the number of times 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.
According to FINRA, Dean engaged in churning and quantitatively unsuitable trading in the accounts of seven customers. Dean’s trading in the seven customers’ accounts was allegedly excessive and conducted with reckless disregard for the customers’ interests. According to the AWC, 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 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 the customers. This strategy did, however, increase commissions for Dean. For these alleged violations, Dean consented to a bar from association in all capacities with any FINRA member firm.
Worden Capital Management should have had systems in place to detect such high levels of trade and losses to customer accounts. If you invested with Gregory Dean and lost money, you may have a case against Worden Capital. Call the attorneys at ChapmanAlbin today at 1-877-410-8172 for a free consultation. Since 1998, ChapmanAlbin has been helping investors recoup money lost due to fraudulent and negligent investment advice.