SEC Charges Two Brokers for Defrauding Multiple Traders

The US regulator recommended the use of an in-and-out trading strategy that was unsuitable for its clients.

With an ever-increasing number of cases coming to the attention of the Securities and Exchange Commission (SEC), Finance Magnates today learned that the US regulator has once again clamped down on unlawful activities, charging two New York-based brokers with fraudulently using an in-and-out trading strategy that was unsuitable for clients in order to generate hefty commissions for themselves.

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According to the SEC, Gregory Dean and Donald Fowler did not carry out any reasonable diligence to determine whether their investment strategy involving frequent buying and selling of securities could deliver even a minimal profit for their customers.  

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Their strategy, which generally involved selling the securities within a week or two of purchase and charging customers a commission for each transaction, allegedly resulted in substantial losses for 27 customers.

Only the brokers stood to profit from this cost-laden in-and-out strategy.

Andrew M. Calamari, Director of the SEC’s New York Regional Office and Co-Chair of the Enforcement Division’s Broker Dealer Task Force, commented: “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. The allegations in our complaint are based on our examination of trading patterns across more than two dozen customer accounts, and this trading data shows that only the brokers stood to profit from this cost-laden in-and-out strategy.”

In conjunction with the announcement, SEC issued an Investor Alert warning about excessive trading and churning in brokerage accounts: “Investors should be wary of unauthorized trading, frequent sales and purchases, or excessive fees in their brokerage accounts. If you do not know why a trade was made or why a fee was charged, ask your broker to explain it to you.”

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