The SEC charged former J.D. Nicholas broker Don Fowler with violating the securities laws for churning customer accounts.
On January 10, 2017 the SEC charged Don Fowler of Massapequa, N.Y. a registered representative with Worden Capital Management, and previously with J.D. Nicholas & Associates (f/k/a A & F Financial Securities) with excessively trading customer accounts for the purpose of generating commissions.
This type of conduct, if proven, is typically referred to as churning, and is a violation of the securities laws. The SEC alleges that Fowler failed to act for the benefit of his customers, and instead pursued a strategy designed to generate excess commissions at his customers’ expense. The SEC has charged Fowler with violations of Section 17(a) of the Securities Act as well as Section 10(b)(5) of the Exchange Act.
The SEC’s complaint details the costly in and out trading strategy employed, and describes just how difficult it was for Fowler’s customers to make money in light of the costs and fees incurred. One measure of excessive trading is the so called “turnover ratio” which implies that an account that has been turned over six times in the course of a year has been “churned” or excessively traded. Fowler’s accounts had an average turnover ratio in excess of 100, meaning that the portfolios were turned over 100 times in the course of a year.
Another way to determine excessive trading is the cost to equity ratio, which adds the costs of maintaining the account, including commissions and margin interest. The SEC found the average cost to equity ratio for these accounts was 110%, meaning the customers had to make an annual profit of 110% just to break even.
The SEC contends that Fowler failed to consider the costs to his clients, and did virtually no investigation into the securities he was recommending prior to purchasing them in his customers’ accounts.
The complaint filed by the SEC is not final, and until the allegations have been proven in a court of law, no adverse inferences should be drawn.
Don Fowler’s registration and disciplinary history
In order to lawfully sell investments to the public, one must either be registered or exempt from registration. Don Fowler is registered with Worden Capital Managment.
According to FINRA’s CRD disclosure report, Don Fowler has been the subject of twelve customer complaints and one regulatory investigation.
The Law Office of David Liebrader practices exclusively in the field of investment loss recovery. For the past 23 years, we have dedicated our law practice to assisting investors who have been victims of investment fraud via fraudulent and unsuitable investment transactions. During that time we have recovered money for over one thousand individuals, pension plans, trusts and companies. The recoveries we have obtained via judgments, awards and settlements on behalf of our clients exceed $40,000,000.
FINRA’s rules require that all investment recommendations made by licensed financial advisors be suitable in light of a customer’s needs, objectives and risk tolerance. In addition, all registered representatives are required to be properly supervised, with periodic inspections and reviews by qualified supervisors, whose job it is to vigorously investigate suspicions of wrongdoing (red flags).
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