Worden Capital Management LLC (WCM) and Chief Executive Officer Jaime John Worden have been sanctioned by Financial Industry Regulatory Authority (FINRA) supported by findings that WCM and Jaime Worden failed to supervise the suitability of customer transactions and neglected to ensure the public disclosure of customer initiated investment related FINRA securities arbitration claims alleging sales practice violations against the firm and its stockbrokers. Letter of Acceptance Waiver and Consent No. 2017056432601 (Dec. 31, 2020).
According to the AWC, between January of 2015 and October of 2019, Jaime Worden and WCM neglected to ensure that they complied with FINRA suitability rules pertaining to excessive trading. The regulator indicated that a large portion of the securities broker dealer’s business between 2015 and 2019 consisted of short-term trades which were recommended by WCM stockbrokers. Customers of WCM were also advised by stockbrokers to use margin so that they had more buying power.
FINRA indicated that an unreasonable supervision system used by WCM led to stockbrokers recommending excessive trades which generated approximately $1,000,000.00 in commissions. In one example highlighted in the AWC, between May of 2015 and September of 2017, a customer’s account contained 635 trades. That account had an annual turnover rate of 92 and a cost-to-equity ratio of 84 percent. This produced $285,169.00 in commissions for WCM while resulting in $1,000,000.00 in losses for the customer.
The AWC stated that WCM supervisory personnel disregarded the risks pertaining to stockbrokers’ active trading strategies. The high costs and use of margin were not considered by the securities broker dealer as a basis to restrict its stockbrokers’ trading practices.
FINRA also determined that both methods that WCM implemented to monitor excessive trading were defective and unreasonable. When problematic trades were detected by WCM, its stockbrokers were only told to reduce their commissions. No one was disciplined or scrutinized in this respect. WCM’s CCO even advised for stockbrokers to be disciplined for providing unsuitable recommendations to customers but the CCO’s recommendation was rejected. WCM and Jaime Worden violated FINRA Rules 2010 and 3110 in this respect.
FINRA revealed in the AWC that customers’ requests to transfer assets outside of WCM had been stalled or interfered with by WCM. 288 customer accounts contained restrictions on transfers. This led to 54 instances in which customers’ requests to transfer assets to another securities broker dealer had been denied. One customer’s transfer requests were denied multiple times. During this period in which the requests were dishonored, stockbrokers at WCM tried to persuade customers not to transfer their assets to other firms. FINRA found that WCM violated FINRA Rules 2010 and 2140.
The AWC also indicated that customer initiated investment related FINRA securities arbitration claims involving WCM stockbrokers should have been reported through Forms U4 or U5 no later than one month after the stockbrokers were made aware of those claims. Those customer disputes were not timely reported by WCM.
FINRA revealed that between January of 2016 and December of 2020, supervisory personnel were not trained to identify whether Forms U4 or U5 needed to be updated. The regulator noted that 27 customer initiated investment related FINRA securities arbitration claims were filed by customers of WCM. This necessitated 129 amendments to stockbrokers’ Forms U4 or U5. The securities broker dealer failed to timely make 59 amendments.
FINRA also indicated that some customers who filed complaints had alleged that WCM supervisors neglected to supervise those stockbrokers covering their accounts. This required the disclosures of those disputes on the public records of the supervisors. But the securities broker dealer decided not to make those disclosures until months or years later. FINRA determined that WCM violated FINRA Rules 2010, 1122, 3110(a) and FINRA By-Laws in this regard.
Jaime Worden has been fined $15,000.00 and suspended for three months from associating with any FINRA member in any principal capacity. He has been suspended for 15 days in all capacities. WCM has been censured and fined $350,000.00.