Securities Arbitration Lawyer Blog
The Financial Industry Regulatory Authority (“FINRA”) has barred stockbroker Donald Fowler from the securities industry. Mr. Fowler consented to the suspension after FINRA alleged that from December 2014 through December 2018, while associated with Worden Capital Management LLC, Mr. Fowler churned and excessively traded four customers’ accounts in violation of FINRA Rules 2111 and 2010. As a result of churning and excessive trading, the customers incurred high commissions and fees, and significant realized investment losses.
Customers of Mr. Fowler or Worden Capital Management LLC should consult with a securities arbitration law firm. If you or a loved one were a customer of Donald Fowler or Worden Capital Management LLC, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation and review of your legal rights.
Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms, such as Worden Capital Management LLC.
Worden Capital Management
According to a 2017 investigation by Reuters, Worden Capital Management hired more brokers with a history of significant disclosures than all but twenty-three other firms in the country. In 2021, Iorio Altamirano LLP set out to update that analysis.
The investigation revealed that fifty-four percent (54%) of Worden Capital Management’s brokers and supervisors have significant “red flag” public disclosures. Significant red flag disclosures include:
- regulatory sanctions,
- terminations of employment after allegations of misconduct,
- customer disputes that result in an award or settlement, and
- prior association with a firm that FINRA has expelled.
You can read the full investigative report here: Investigative Report: Worden Capital Management LLC’s Owners, Executives, and Brokers Have Concerning Red Flag Disclosures
FINRA Letter of Acceptance, Waiver, and Consent No. 2017056432606
FINRA and Mr. Fowler entered into a Letter of Acceptance, Waiver, and Consent on August 25, 2021, after FINRA alleged that from December 2014 through December 2018, while associated with Worden Capital Management LLC, Mr. Fowler churned and excessively traded four customers’ accounts. While exercising de facto control over these customers’ accounts, Mr. Fowler recommended excessive activity, and his customers routinely followed his recommendations. Specifically, FINRA alleged:
- Fowler’s trading in the four customers’ accounts was excessive and, with reckless disregard for the customers’ interests, conducted to maximize his commissions. Mr. Fowler employed an investment strategy that entailed short-term in-and-out trades, and Mr. Fowler used margin as a means to increase the buying power in his customers’ accounts.
- Fowler’s trading of the four accounts resulted in high turnover rates and cost-to-equity ratios.
- From December 2014 to May 2016, Mr. Fowler effected 1,419 trades in Customer 1’s account, resulting in an annualized turnover rate of 114.47 and an annualized cost-to-equity ratio of 77.75%. Mr. Fowler’s trading in Customer 1’s account generated total trading costs of $766,256, including $664,797 in commissions and $74,488 in margin interest, and caused $755,727 in realized losses.
- From September 2015 to January 2017, Mr. Fowler effected 53 trades in Customer 2’s account, resulting in an annualized turnover rate of 29.23 and an annualized cost-to-equity ratio of 71.19%. Mr. Fowler’s trading in Customer 2’s account generated total trading costs of $60,824, including $53,440 in commissions and $5,898 in margin interest, and caused $29,736 in realized losses.
- From June 2016 to March 2017, Mr. Fowler effected 65 trades in Customer 3’s account, resulting in a turnover rate of 27.25 (equivalent to an annualized turnover rate of 32.70) and a cost-to-equity ratio of 61.02% (equivalent to an annualized cost-to-equity ratio of 73.22%). Fowler’s trading in Customer 3’s account generated total trading costs of $41,609, including $35,365 in commissions and $4,473 in margin interest, and caused $118,137 in realized losses.
- From April 2015 to December 2018, Mr. Fowler effected 193 trades in Customer 4’s account, resulting in an annualized turnover rate of 16.68 and an annualized cost-to-equity ratio of 43.90%. Mr. Fowler’s trading in Customer 4’s account generated total trading costs of $271,930, including $195,754 in commissions and $70,836 in margin interest, and caused $192,178 in realized losses.
- Fowler’s trading in these customers’ accounts was excessive and unsuitable. Moreover, Mr. Fowler effected short-term in-and-out trading with reckless disregard for these four customers’ interests.
- Therefore, Mr. Fowler willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and violated FINRA Rules 2111, 2020 and 201
Excessive trading occurs when a financial advisor makes many trades in a customer’s account, not to benefit the customer but to generate commissions for the broker.
Churning is a more egregious variation of excessive trading. Churning refers to a situation where the broker executed an excessive number of trades and did so with the intent to defraud or reckless disregard for the customer’s interest.
There are two primary indicators used to evaluate whether a financial advisor excessively traded an account. The first is turnover rate, which represents the number of times a portfolio of investments is replaced for another portfolio of investments. Generally, a turnover rate of six suggests excessive trading, but a turnover rate below four can be excessive in some cases. According to FINRA, the accounts at issue had an annual turnover rate between 16.68 and 114.47.
The second indicator used to assess whether trading is excessive in an investment account is its cost-to-equity ratio. The cost-to-equity ratio measures the amount an account must appreciate to cover commissions and other expenses. That is, how much the account needs to grow just to break even. A cost-to-equity ratio of 20% generally indicates excessive trading has occurred. According to FINRA, the accounts at issue had cost-to-equity ratios between 43.90% and 77.75%.
Financial Advisor Donald Joseph Fowler (CRD No. 4989632)
Donald Joseph Fowler, who had only 13 years of experience in the securities industry, has a history of customer complaints and regulatory discipline.
Mr. Fowler has been affiliated with the following firms in New York:
- Worden Capital Management LLC, from November 2014 to August 2019.
- D. Nicholas & Associates, Inc., from January 2007 to November 2014.
- American Capital Partners, LLC, from September 2005 to February 2007
Mr. Fowler has been the subject of 14 customer complaints and securities arbitrations, several relating to allegations of excessive trading, churning, and unauthorized trading. Twelve of the disputes were resolved by paying a settlement to the harmed customer(s).
Excessive trading, churning, and unauthorized trading are unethical and illegal. They are all also violations of securities rules and regulations and can cause enormous harm to customers.
FINRA’s BrokerCheck tool can be used to obtain Mr. Fowler’s complete and updated disclosure reports.
Worden Capital Management – A Duty to Supervise
Financial institutions like Worden Capital Management must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity, such as excessive trading, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.
How to Recover Financial Losses or Obtain a Free Consultation
If you have suffered investment losses with Donald Fowler or Worden Capital Management or suspect other inappropriate activity occurred in your investment or retirement account, contact securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (855) 430-4010 for a free and confidential review of your legal rights.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.