Markets Wired

Jurors in Manhattan federal court today returned a verdict in the Securities and Exchange Commission’s favor against a broker who was charged in January 2017 with fraud for excessively trading customer accounts using a trading scheme that generated hefty commissions for the broker but significant losses for his customers. A second broker, also charged in the same complaint for engaging in the same fraudulent practices, admitted to his misconduct and settled with the SEC on the eve of trial.

The SEC’s evidence at trial showed that the broker, Donald J. Fowler, while registered with J.D. Nicholas & Associates Inc., a now-defunct broker-dealer located in Syosset, New York, engaged in fraud when he deployed an in-and-out trading scheme that was unsuitable for his customers in order to generate large commissions for himself.  The evidence showed that Fowler failed to do any reasonable due diligence to determine whether his trading, which involved frequent buying and selling of securities, could deliver a profit for his customers. Indeed, the SEC’s proof showed that the cumulative commissions Fowler charged were so high that investors would have needed to generate, on average, a 142% return simply to break even.

On June 10, the SEC obtained a final judgment against Fowler’s partner, Gregory T. Dean, who admitted, among other things, that he knowingly or recklessly made trade recommendations to his customers with no reasonable basis, and that his conduct violated the federal securities laws.

The jury found Fowler liable on all counts, finding that he violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Dean consented to the entry of the final judgment, which enjoined him from violating the above listed antifraud provisions. In addition to admitting that his conduct violated the law, Dean agreed to pay $253,881 in disgorgement, $50,521 in prejudgment interest, and a civil penalty in the amount of $253,881. The court will determine remedies against Fowler at a later date.

The SEC’s litigation is being conducted by Kristin Pauley, David Stoelting, Jorge Tenreiro, and Thomas P. Smith, Jr. of the New York Regional Office. The investigation that led to the SEC’s action was conducted by Ms. Pauley, Mr. Stoelting, Barry O’Connell, Michael P. Fioribello, Jordan Baker, Leslie Kazon, and Mr. Smith. The case is being supervised by Sanjay Wadhwa.