The Financial Industry Regulatory Authority Inc. closed out 2020 by sanctioning a small broker-dealer on Long Island more than $1.5 million as part of a settlement over the firm’s brokers’ excessive trades, commonly referred to as churning in the securities industry.
The firm, Worden Capital Management of Garden City, N.Y., will pay clients about $1.2 million in restitution, as well as a $350,000 fine for supervisory and other violations, according to Finra.
Worden Capital Management has 49 registered reps working mostly from six branches in the New York metropolitan area, according to Finra. As part of the settlement, the firm neither admitted to or denied Finra’s findings. Worden Capital Management, led by owner and CEO Jamie Worden, also agreed to hire a consultant to review the firm’s procedures.
Jamie Worden did not return a call Thursday morning to comment.
In a press release, Finra said that from January 2015 to October 2019, the firm and Jamie Worden “failed to establish and enforce a supervisory system reasonably designed to achieve compliance” with industry rules related to excessive trading and churning.
As a result, the firm’s reps “made unsuitable recommendations and excessively traded customers’ accounts, causing customers to incur more than $1.2 million in commissions,” according to Finra.
“In one instance, a [Worden Capital Management] customer whose account was traded for approximately one year had a cost-to-equity ratio (or breakeven point) of more than 100 percent and incurred realized losses of $118,490, inclusive of the $205,557 the customer paid in commissions,” according to Finra.
The firm displayed lax oversight of the trading in client accounts, according to Finra. It “did not take action to investigate or stop the trading in this customer’s account, and others like it, even though [Worden Capital Management] received a monthly active account report that routinely flagged dozens of customer accounts indicative of excessive trading,” according to the regulator.
As is customary in December, Finra has been busy closing significant regulatory and enforcement issues as firms prepare for the new year. On Tuesday, the regulator said it had obtained a $1.7 million settlement with Morgan Stanley related to excessive fees charged to clients invested in 529 college saving plans, and earlier this month Finra said that Transamerica Financial Advisors agreed to pay $8.8 million in sanctions for unsuitable sales of variable annuities, mutual funds and 529 college savings plans.
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