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Brokers Caught Defrauding Customers

Published Jan 10, 2017

Two New York- based brokers have been charged with fraudently using an in-and-out trading strategy that was unsuitable for customers in order to generate hefty commissions for themselves.

The SEC’s complaint alleges that Gregory T. Dean and Donald J. Fowler did no reasonable diligence to determine whether their investment strategy involving frequent buying and selling of securities could deliver even a minimal profit for their customers.  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.

“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,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office and Co-Chair of the Enforcement Division’s Broker Dealer Task Force.  “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.”

The SEC today issued an Investor Alert warning about excessive trading and churning that can occur in brokerage accounts. 

“Investors should be wary of unauthorized trading, frequent sales and purchases, or excessive fees in their brokerage accounts,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “If you do not know why a trade was made or why a fee was charged, ask your broker to explain it to you.”

The SEC’s complaint, filed in federal court in Manhattan, charges Dean and Fowler with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

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