A panel of Financial Industry Regulatory Authority arbitrators ordered Axos Clearing LLC to pay $49.2 million to a group of 102 investors, InvestmentNews reported.
The matter involves alleged misconduct at a broker-dealer Axos served as the clearing firm for, now defunct-Worden Capital Management.
The three-member FINRA panel stated that Worden Capital and its brokers used the accounts of the 102 clients “as personal slush funds.” The allegations included fraud, churning, and excessive trading and commissions.
The arbitration award states that Worden Capital and its brokers engaged “in egregiously unsuitable and excessive trading and churning, garnering over $16 million dollars in commissions and fees while costing nearly all of [clients] out-of-pocket losses of over $12 million dollars,” and that Axos “turned a blind eye” to these practices.
The financial penalty imposed by the FINRA panel is to pay for legal fees and damages to the clients of Worden Capital. It includes $35.85 million in damages to the 102 clients; general costs to Axos of $72,000; and attorneys’ fees of $12.3 million.
As is customary, the arbitrators did not detail the reasons for their decision.
“At the end of the day Axos served as the clearing firm for a notorious Wall Street boiler room,” said Scott Silver, a plaintiff’s attorney. “Axos had full transparency into Worden’s business.”
The causes of action cited by the investors included fraud, churning, unauthorized trading, excessive trading, breach of fiduciary duty, unsuitability, breach of contract, negligence, and unjust enrichment.
A spokesperson for Axos did not immediately return calls requesting comment on the ruling, but Axos filed a motion in federal court in Manhattan to vacate the arbitration award.
“The entire arbitration was infected by fatal error after fatal error after fatal error,” according to the Axos court filing. “The award cannot stand.”
In 2020, FINRA fined Worden Capital Management $350,000 and ordered it to pay restitution of $1.25 million after the firm was accused of failing to have in place the oversight to catch brokers’ excessive trading.
The following year Worden Capital shut down, and its owner and CEO, Jamie Worden, was barred from the securities industry.
Disputes within the securities industry are typically resolved through FINRA’s securities arbitration process. This is true for disputes involving any combination of investors, financial professionals and financial institutions. It is important to work with a securities law firm that understands the complexities of FINRA’s securities arbitration process. Hyman Cotter PC represents investors, financial professionals and firms in FINRA arbitration proceedings nationwide. Our attorneys have handled hundreds of arbitrations before FINRA, the Chicago Board Options Exchange, the Chicago Board of Trade, JAMS, the American Arbitration Association and other self-regulatory organizations. For more information about our arbitration and litigation services, please contact us at 833) 665-0784 or through our online contact form.
