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FINRA docks Worden Capital Management more than US$1.5 million

Chris Hamblin, Editor, London, 14 January 2021

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The US federal Financial Regulatory Authority has ordered a New York private wealth management firm to pay US$1.2 million in restitution for 'churning,' adding a $350,000 fine for various transgressions against its rules.

Worden Capital's registered representatives allegedly made unsuitable recommendations and excessively traded customers’ accounts, causing those customers to incur more than $1.2 million in commissions. Worden is neither admitting nor denying the allegations. The fine of $350,000 is for failing to reasonably supervise recommended securities transactions and other things. As part of the settlement, as is standard practice, Worden must also hire a consultant to review the relevant portions of its supervisory systems and procedures thoroughly.

FINRA says that between January 2015 and October 2019 WCM and Jamie Worden, the firm’s owner and CEO, failed to establish and enforce a supervisory system reasonably designed to achieve compliance with FINRA’s rules relating to excessive trading, which thereupon took place. In one instance, it avers, a WCM customer whose account was traded for approximately one year had a cost-to-equity ratio (or break-even point) of more than 100% and incurred realised losses of $118,490, inclusive of the $205,557 that he paid in commissions. WCM allegedly did not take action to investigate or stop the trading in this customer’s account and others like it, even though WCM received monthly active account reports that routinely indicated excessive trading on dozens of customers' accounts.

The allegations do not stop there. FINRA has also found that WCM and Worden interfered with customers’ requests to transfer their accounts to another member firm.

FINRA is touting this as a major blow in favour of "investor protection." It also says that, as a result of "supervisory failures," WCM "failed to timely file amendments to registered representatives’ Form U4s and Form U5s to disclose the filing or resolution of customer arbitrations."

Worden himself has agreed to a 15-day suspension in all capacities, a three-month supervisory suspension, a $15,000 fine and 20 hours of "continuing education."

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