The continued nuisance of firms and brokers that lose lawsuits and then run out on them is highlighted this month by the shuttering of a small broker-dealer based on Wall Street, Worden Capital Management, and its owner and CEO, Jamie Worden, who was barred from the securities industry.
At the end of last year, the Financial Industry Regulatory Authority Inc. fined Worden Capital Management $350,000 and ordered it to pay restitution of $1.25 million as part of a settlement; the key issue was the firm being accused of failing to have in place the oversight to catch brokers’ excessive trading, known in the industry as churning.
Investors and clients of Worden Capital Management will be harmed. Jamie Worden alone faces a staggering 11 ongoing investor complaints seeking $6.8 million in damages, according to his BrokerCheck profile. Many of the charges stem from allegations he failed to supervise and churning. Investors suing him will likely never see a penny.
At the center of this problem is Finra, which oversees more than 3,000 brokerage firms. Regulators at Finra are good at sounding concerned when asked about such firms, but the problem of unpaid arbitration awards has been going on for years.
Finra recognizes the problem and the past couple of years has been working on getting a new rule in place that could give investors some help.
Unpaid arbitration awards have been a consistent stain on the retail securities industry. Brokers have been walking away from paying investors for years.
The Public Investors Advocate Bar Association reviewed all publicly available 2020 arbitration awards available on Finra’s website and found that 19 customer awards totaling $5 million went unpaid out of a total of 64 awards and $20.9 million won.
To be fair to Finra and its staff, the total dollar amount of unpaid arbitration awards has come down in recent years. But the percentage of investor awards that are not paid each year remains nearly the same, 25% to 33%, which means it remains a black eye for an industry whose biggest firms are currently touting record profits during Covid 19.
The closing of Worden Capital Management represents millions of dollars of potential client claims that will not get paid.
By the time Finra arrived to douse the flames at Worden Capital Management, issuing a fine late in 2020, it was too late — the house had already burnt down.
“This was just another boiler room operation, and Jamie Worden’s brokers were cold calling the country,” said Scott Silver, a plaintiff’s attorney who is representing one client with a complaint against the firm. He has been contacted by other Worden Capital Management clients but said he turned them down because of concerns about whether an award could be collected. “This should have been on Finra’s radar screen ages ago.”
“This place was a churn and burn shop,” Silver said, referring to excessive trading of clients’ accounts, which drives up commissions for brokers. “Now, Worden Capital folds up its tent, Jamie Worden moves on as a rich man and the clients are left high and dry.”
Jaimie Worden could not be reached for comment, and a message left with his attorney, Michael Utilla, asking to arrange for an interview with Worden was not immediately returned. Utilla said separately that he was not authorized to comment about his client.
“Customer recovery can be a challenge across the financial services industry and dispute resolution forums, and we remain committed to working with all stakeholders on this important issue,” a Finra spokesperson wrote in an email. “Finra remains focused on reducing the amount of unpaid awards in the Finra forum.”
Some background: When an investor has a complaint against a firm or broker, he or she sues in an arbitration forum overseen by Finra. If the client works with a broker at a large firm, they’re in luck; big firms have the deep pockets to pay the investor if he or she wins the claim and gets damages.
Not so if the client has a broker at a small firm like Worden Capital Management, a tiny shop that had 49 brokers and financial advisers at the end of last year. Such firms typically have little or no capital on hand for emergencies, wafer-thin insurance policies, and close down before investor complaints can be adjudicated or paid.
Opened in 2009, Worden Capital Management’s 12-year history is littered with brokers who failed clients. A search of Finra’s website reveals that more than a dozen of Worden Capital Management’s brokers have been barred or suspended from the industry, primarily for allegations of excessive trading and churning.
One broker was even barred twice, by the Securities and Exchange Commission and Finra, for the rare double securities industry bar.
Put another way: 13 of the firm’s 49 brokers have been barred or suspended, or 26.5% of the firm’s salespeople, and most in the past couple of years. That’s a disgrace.
Worden Capital Management’s website is no longer working, and its telephone mailbox is full, so no message could be left for the firm. On its LinkedIn page, the firm declares: “We hold ourselves to a higher standard while helping you achieve your investment goals.”
The evidence cited above points quite starkly to the contrary. Now departed, Worden Capital Management lived too long a life, harmed investors and damaged the reputation of the financial advice industry and its advisers.
Niche advisers should demonstrate their expertise
The post The demise of Worden Capital signals danger for investors and harm to the industry appeared first on InvestmentNews.
Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.