Securities Arbitration Lawyers BlogScott Silver Speaks Out On Axos Clearing Arbitration Award
![In a recent article on InvestmentNews, Silver Law Group founding attorney Scott Silver spoke about FINRA's decision to award $49.2 million to 102 investors with accounts with Worden Capital Management, LLC. The investors alleged that their accounts were fraudulently churned and excessively traded for commissions. The company and its founder, Jamie Worden, were found to have used the investor's money as “personal slush funds.”
"At the end of the day, Axos served as the clearing firm for a notorious Wall Street boiler room,” Scott said. “Axos had full transparency into Worden’s business."
As the clearinghouse for all of Worden’s transactions, Axos knew what Worden was doing but did nothing to stop any activity they knew (or should have known) was illegal.
FINRA’s award stated that Worden Capital and its brokers were engaged "in egregiously unsuitable and excessive trading and churning, garnering over $16 million in commissions and fees while costing nearly all of [clients] out-of-pocket losses of over $12 million.”](https://www.silverlaw.com/blog/wp-content/uploads/2021/10/FiverrLossesSmall.jpg)
In a recent article on InvestmentNews, Silver Law Group founding attorney Scott Silver spoke about FINRA’s decision to award $49.2 million to 102 investors with accounts with Worden Capital Management, LLC. The investors alleged that their accounts were fraudulently churned and excessively traded for commissions. The company and its founder, Jamie Worden, were found to have used the investor’s money as “personal slush funds.”
“At the end of the day, Axos served as the clearing firm for a notorious Wall Street boiler room,” Scott said. “Axos had full transparency into Worden’s business.”
As the clearinghouse for all of Worden’s transactions, Axos knew what Worden was doing but did nothing to stop any activity they knew (or should have known) was illegal.
FINRA’s award stated that Worden Capital and its brokers were engaged “in egregiously unsuitable and excessive trading and churning, garnering over $16 million in commissions and fees while costing nearly all of [clients] out-of-pocket losses of over $12 million.”
In response, Axos filed a motion in a Manhattan federal court seeking to vacate the award, claiming it contained “fatal errors.” However, as the article stated, the likelihood of a federal judge overturning FINRA’s award is very low.
Worden Capital closed in 2021, and FINRA expelled the firm in 2022. FINRA also barred CEO Jamie Worden from the securities industry. Three of his other previous employers have also been expelled. The investors filed their arbitration against Axos instead, since they could not collect from Worden Capital.
The Brokerage Firm – Clearinghouse Relationship
As a clearinghouse, Axos is an intermediary between a broker-dealer and their retail customer, ensuring that both parties honor their obligations. It also ensures that trades are handled accurately and efficiently. These clearinghouses also contain some market disruptions and absorb some of the risks involved, including the default of either the broker-dealer or the customer.
The clearinghouse plays a vital role in the integrity of financial transactions. For the customer, a clearinghouse is the “middleman” between them and their broker-dealer.
While the broker-dealer handles the transactional trades and is a “face” to their clients, the clearinghouse handles the trade validation and other “back-office” functions and ensures that the trade is cleared. Clearinghouses also impose margin requirements to ensure enough capital to cover potential losses in a trader’s account.
When Can a Clearing Firm be Held Responsible for the Acts of an Introducing Firm
Clearing firms are essential to small brokerage firms to operate and provide significant support to their operations. Clearing firms have amazing transparency into brokerage firms operations and frequently help brokerage firms grow by providing financial and back office support. While they may not be customer facing, clearing firms may be found to have aided or assisted misconduct by an introducing brokerage firm when it has knowledge of actual misconduct.
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses from stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.