Two New York-based brokers used an investment strategy that was unsuitable for their clients in order to generate hefty commissions for themselves, the Securities and Exchange Commission announced Wednesday.
Gregory T. Dean and Donald J. Fowler, who worked for the now-defunct J.D. Nicholas & Associates Inc. based in Syosset, N.Y., did no reasonable diligence to determine whether their investment strategy involving frequent buying and selling of securities could deliver even a minimal profit for their customers, the SEC said.
Their strategy, known as in-and-out strategy, which generally involved selling the securities within a week or two of purchase and charging customers a commission for each transaction, resulted in substantial losses for 27 customers, the SEC complaint says.
The investors were charged $65 for each trade and were charged an extra fee for purchases made on margin. The fees made it nearly impossible for the investors to make even minor profits, and often resulted in losses, the SEC says. Dean and Fowler’s clients had accounts under $100,000 and yet the pair made purchases and sales of hundreds of thousands of dollars of stocks, the complaint says.
The SEC's complaint, which was filed in federal court in Manhattan Monday, does not give a total of the funds invested or fees the pair garnered.