The CEO of a brokerage firm used a “secret agreement” to get hundreds of thousands of dollars in undisclosed extra commissions for sales of private placements, according to FINRA.
Jamie J. Worden, the barred chief and member of a New York-based firm called Worden Capital Management whose FINRA membership has been canceled, violated the company’s own due diligence policies in selling $10.6 million worth of costly membership interests in five private funds investing in pre-IPO stock shares, the regulator’s Feb. 28 disciplinary
The case comes after FINRA’s fines reached
Worden’s CEO “approved the offerings on behalf of WCM, and he knowingly or recklessly failed to disclose this secret compensation to WCM’s brokers who, at [his] direction, sold the offerings,” according to FINRA’s disciplinary complaint. “Therefore, the WCM brokers did not disclose this secret commission to investors when they recommended the investments.”
Although the case mentions the CEO by his initials, it only names the brokerage as a defendant and not Worden himself. An attorney who has represented Worden and his brokerage in the past didn’t respond to inquiries seeking comment. A call to the brokerage’s official listed number in its FINRA filings went straight to a voicemail which said the mailbox was full.
Asked whether FINRA has any concerns about the potential restitution being paid in this case or the 10 client claims, FINRA spokeswoman Michelle Ong declined to comment on pending litigation but referred Financial Planning to a
“FINRA has taken a number of steps to address the issue of unpaid awards to date, including by suspending member firms or individuals who do not pay their awards from the industry, and FINRA is continuing to pursue a number of proposals to further address this issue within the scope of its jurisdiction,” the discussion paper said. “Fully addressing the issue of customer recovery requires an approach that takes into account the different channels through which customers receive financial services and prevents regulatory arbitrage between them.”
In its overall enforcement efforts, fines ordered by FINRA jumped by 60% year-over-year in 2021 while restitution surged by 96%,
“The big bump was primarily related to one case that was very significant,” he said. “FINRA had a very active year in terms of enforcement issues. They haven’t slowed down, and I anticipate that we will see more of the same this year.”
Worden’s brokerage did pay the fines and restitution of $1.6 million ordered by the regulator in its last significant case, which the firm
As part of the latest case, investigators allege that the firm’s entire due diligence of the private placements amounted to the CEO signing a partially completed checklist that the firm’s compliance team and designated principal for such products had refused to sign. Worden reached a secret “oral agreement” with the issuer before the firm sold any of the private placements, according to FINRA. As a result, most of the 170 sales included a commission rate of 18% after the extra 8 percentage points as a result of the agreement, according to FINRA.
Worden “decided if, when and how much of the secret compensation he would distribute to others at WCM,” the document states. “For instance, [he] distributed part of the secret compensation to WCM brokers who referred [the] manager to WCM. He also distributed part of this compensation to WCM compliance staff. The remainder of the secret compensation went to the firm’s general fund, from which [he] drew his own compensation.”
The case accuses the brokerage of fraud, failure to supervise private placement offerings, violations of the suitability rule and failures to make required filings. FINRA’s department of enforcement seeks a finding that the brokerage committed the violations, disgorgement of “any and all ill-gotten gains,” and an assessment of its investigative costs to the firm.
