On December 21, 2020, Worden Capital Management LLC (Worden, or WCM; CRD No. 148366), entered into a Letter of Acceptance, Waiver & Consent (AWC) with FINRA Enforcement. Pursuant to the AWC—through which WCM neither admitted nor denied FINRA’s factual findings—Worden consented to a censure, a $350,000 fine, and restitution of $1,246,471 to impacted customers. As an additional condition of the settlement, Worden agreed to the 2-year appointment of an independent consultant to monitor and review its brokerage business, including its “policies, systems, and procedures relating to actively traded accounts...”

This matter centered on FINRA Enforcement’s allegations that Worden failed to supervise its stockbrokers, where some brokers purportedly made unsuitable investment recommendations, through an alleged pattern of excessive trading in certain customer accounts. A FINRA member firm since 2009, Worden is headquartered in Garden City, NY, employing around 50 registered representatives out of six branch offices. According to FINRA’s findings of fact: “WCM is an introducing broker-dealer that generates the majority of its revenues from commissions charged in connection with buying and selling equities from its retail customers.”

According to the AWC in this matter, from January 2015 – October 2019, Worden failed to establish, maintain and enforce an appropriate supervisory system, including certain written supervisory procedures (WSPs). Specifically, FINRA determined Worden’s WSPs “failed to reasonably address how the firm reviewed for suitability issues in actively traded accounts, including excessive trading.” 

Based upon FINRA’s factual findings, certain Worden customers incurred sizeable realized losses in their portfolios, inclusive of commissions. For example, one customer lost in excess of $1 million, inclusive of more than $285,000 in commissions. In total, for the period between May 2015 – September 2017, there were 635 trades in this customer’s account, with a cost-to-equity ratio of 84% and an annualized turnover rate of more than 92. Another impacted customer’s account, for the period between December 2016 – October 2018, saw 83 trades, activity which translated to a cost-to-equity ratio of 135% and an annualized turnover rate of more than 29.

Under FINRA Rule 2111, brokerage firms and their associated persons “must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through…” reasonable diligence. A pattern of securities transactions may be quantitatively unsuitable if, when viewed together, are excessive, the level of trading is inconsistent with the customer’s stated objectives and investment profile, and the broker exercises control over the customer’s account. While no single test defines what level of trading is excessive, certain factors including “the turnover rate and the cost-to-equity ratio are considered in determining whether a member firm or associated person has violated FINRA’s [quantitative] suitability rule.”

Investors who have suffered losses with Worden Capital Management, or another brokerage firm, may contact our office by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost and confidential consultation to learn more about their legal rights. The attorneys at Giarrusso Law Group LLC have extensive experience with handling all manner of claims on behalf of investors who have been victimized by securities fraud or related misconduct, including instances of excessive trading or account churning.