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Securities Regulation, Keyed to Choi
Securities and Exchange Commission v. Fowler
Citation:
6 F.4th 255 (2021)Facts
Donald Fowler worked as a registered broker for J.D. Nicholas & Associates from January 2007 to November 2014. Beginning in 2011, Fowler pursued an “event-driven” investment strategy involving extremely high-frequency trading in customer accounts, achieving turnover rates averaging 116 times per year compared to the firm’s benchmark of four times per year for conservative accounts. Fowler charged customers $65 per trade (later reduced to $49.95) plus an additional 3.5 percent fee on purchases and sales, receiving portions of both fees as compensation. He also recommended margin trading to increase his commissions. The excessive costs required customer accounts to generate an average 142.6 percent return just to break even, while J.D. Nicholas considered returns above 10 percent necessary to break even as problematic. Fowler made over half the trades without obtaining customer authorization and failed to disclose that the strategy would inevitably lose money due to fees. Thirteen customers who were the focus at trial collectively lost $467,627. Customer complaints to FINRA led to Fowler being placed on special supervision in 2012, but he continued the same practices. The SEC investigated beginning in 2014 and entered two tolling agreements with Fowler in 2016, extending the statute of limitations by one year before filing suit on January 9, 2017.
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