On July 21, the SEC prevailed in a federal jury trial against Donald Fowler, a broker who had employed an in-and-out trading strategy for a number of his customers. While the strategy, a close relative of churning, provided Fowler with enormous commissions, it dramatically depleted the values of the affected customer accounts. Among other things, the SEC alleged that Fowler and his co-defendant, Gregory Dean, traded in and out of 27 customer accounts, including those of a retired Army veteran and a disabled retired aerospace engineer. Wisely, Dean settled just before the trial began.
It’s gratifying to see the SEC litigate a case, even one that is not perfect in every conceivable way. And although FINRA typically brings these types of enforcement action, it is certainly appropriate for the SEC to be more involved in policing bad broker conduct. After all the SEC is the primary regulator for brokers, and it has many more investigative tools available to it than FINRA. Moreover, SEC actions typically are more widely publicized and include greater sanctions. An added benefit in the SEC bringing more of these types of cases, is that it may give their litigators a chance to practice their trial skills, something that can not realistically happen outside of a courtroom. This successful action by the SEC is a step in the right direction.
The SEC in Action 