Broker Investigation: Gregory Dean Churning Claims

shutterstock_173864537According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Gregory Dean (Dean) has been the subject of at least 4 customer complaints over the course of his career. Customers have filed complaints against Dean in recent years alleging that the broker made unsuitable investments and churned their accounts. Other claims concerning Dean’s handling of customer accounts include allegations of failing to execute trades.

Dean has been registered with FINRA since 2005. From January 2007 until November 2011, Dean was registered with J.D. Nicholas & Associates, Inc. Currently, Dean is associated with Worden Capital Management LLC.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. When brokers engage in churning the investment trading activity in the client’s account serves no reasonable purpose for the investor and is transacted to profit the broker through the generation of commission payments. The elements to establish a churning claim, which is considered a species of securities fraud, are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions. A similar claim, excessive trading, under FINRA’s suitability rule involves just the first two elements.

Two commonly measured account metrics are used to analyze an investor’s trading activity for signs of churning. Those two ratios are the account’s ‘annualized turnover ratio’ and its ‘cost to equity ratio.’ The turnover ratio measures the average turnover of the account over the churning period. Typically will ratios in the 3 to 6 range are indicative of churning. The cost to equity ratio measures how expensive the trading strategy was. An annual cost to net equity ratio of 5% would require the account to earn a 5% profit to breakeven. The more expensive the trading strategy is the more likely the trading activity could not possibly benefit the investor because it would be highly unlikely that the account could have been expected to return a profit for the investor given the costs.

The number of complaints made by investors against Dean is relatively large by industry standards. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must disclose different types of events, not necessarily all of which are customer complaints. These disclosures can include IRS tax liens, judgments, and even criminal matters.

Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana LLP are experienced in representing investors in cases of unsuitable investments and churning. Our consultations are free of charge and the firm is only compensated if you recover