SEC Accuses New York Brokers of In-and-Out Trading Fraud

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By Andrew Ramonas

Two brokers at a now-defunct broker-dealer firm in New York state used a fraudulent in-and-out strategy that netted them about $800,000 but cost customers nearly $1.4 million, the Securities and Exchange Commission alleged in a Jan. 9 complaint ( SEC v. Dean , S.D.N.Y., No. 1:17-cv-00139, 1/9/17 ).

Gregory T. Dean and Donald J. Fowler of J.D. Nicholas & Associates Inc. defrauded 27 clients in a scheme that generally involved selling securities within two weeks of purchasing them and charging commissions for each transaction, according to a filing with the U.S. District Court for the Southern District of New York. The process, also called “churning,” didn’t bring even a small profit to their customers, the SEC said.

“This case marks another chapter in the SEC’s pursuit of brokers who deploy excessive trading as a strategy in customer accounts to enrich themselves at customers’ expense,” Andrew M. Calamari, director of the SEC’s New York Regional Office and co-chairman of the Enforcement Division’s Broker Dealer Task Force, said in a statement.

Wexler Burkhart Hirschberg & Unger partner Ian Frimet, who is representing Dean and Fowler, wasn’t immediately available to comment.

In the complaint, the SEC claimed that Dean and Fowler did “almost no due diligence” and were primarily interested in making money for themselves.

Customers were charged up to 3.5 percent of the amount of the securities purchases or sales per trade and a mandatory “firm commission” from $49.95 to $65 per trade.

“The impact of the costs that arose from the excessive trading doomed any possibility of even a minimal profit,” the complaint said. “Dean and Fowler knew, or were reckless in not knowing, that repeated short-term buying and selling of securities was not in the best interests of their customers and that the transaction costs would almost certainly outstrip any potential gains in the accounts.”

The SEC also warned investors about excessive trading and churning in an alert that followed the filing of the complaint.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bna.com

To contact the editors responsible for this story: Phyllis Diamond at pdiamond@bna.com; Seth Stern at sstern@bna.com

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