J.D. Nicholas & Associates Exec found Guilty in Excessive Trading Case

J.D. Nicholas & Associates Exec found Guilty in Excessive Trading Case

Donald Fowler, a broker of J.D. Nicholas & Associates Inc., was found to be liable for his involvement in an in-and-out trading strategy that generated high commissions to the detriment of his clients. This type of trading, commonly referred to as churning, is one of the more common and heinous of investment frauds that stockbrokers perpetrate on clients.

Colleagues Admit to Reckless Trade Recommendations 

On June 10th, Fowler’s colleague Gregory T. Dean, who also was facing charges for the same fraudulent activity, admitted to SEC allegations of making reckless trade recommendations to clients with no logical basis.

In January 2017, the SEC charged Donald Fowler and his colleague for their trading scheme that generated sizeable commissions through the purchase of stocks and the sale of the same stocks within a few weeks, regardless of value. The SEC claims that Fowler and Dean generated approximately $800,000 in commissions. Their customers would have needed to generate 142% return on average just to break even under the high commission costs.

During their time at the now-defunct J.D. Nicholas & Associates Inc., the two brokers solicited clients through cold-calling efforts; disregarding the mention of fees or costs while assuring them of large returns. According to SEC allegations, “the real risk to Dean and Fowler’s customers arose not from market conditions but instead from the strategy imposed by Dean and Fowler.”

Exec of Now-Defunct Firm will Pay Penalties

According to the final judgment, Dean admitted to the allegations brought against him and agreed to pay $253,881 in disgorgement, $50,521 in prejudgment interest, and an additional $253,881 in civil penalty.  The remedies against Donald Fowler will be determined at a later date.

Verdict Comes on the Heels of New Regulation

This verdict was reached just shortly after SEC’s Regulation Best Interest was approved; a regulation meant to provide enhancement and clarification on standards of conduct for brokers. Reg BI requires brokers to identify and disclose any conflicts of interest, and to mitigate conflicts that may encourage brokers and their affiliates to put the firm or their own interests before the clients.

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