Waddell & Reed Ordered to Pay $776,000 Over Reverse Churning

Posted on October 6th, 2022 at 2:48 PM
Waddell & Reed Ordered to Pay $776,000 Over Reverse Churning

From the Desk of Jim Eccleston at Eccleston Law.

Waddell & Reed has agreed to pay nearly $776,000 to settle charges of misconduct over one of its wrap fee programs, according to the Securities and Exchange Commission (SEC).

Waddell & Reed breached its fiduciary duty by failing to take appropriate action after the firm flagged certain client accounts for potential “reverse churning”, according to the SEC’s order. Specifically, the flagged accounts each belonged to certain clients participating in the MAPLatitude wrap fee program at Waddell & Reed. Waddell & Reed agreed to a cease-and-desist order and a censure without admitting or denying any of the SEC’s findings. The firm additionally agreed to pay disgorgement of $484,645, prejudgement interest of $90,944, and a $200,000 civil penalty, according to the SEC.

Reverse churning typically occurs when a client is charged a wrap fee covering all advisory services and transaction costs despite the fact that the client trades infrequently, according to the SEC’s order. Waddell’s compliance policies and procedures required the firm to conduct quarterly reviews to determine whether the wrap fee program continued to be suitable for certain clients. Between January 2015 and July 2021, Waddell & Reed flagged 737 MAPLatitude accounts that should have been converted from fee-based to brokerage accounts under firm policy, according to the SEC. However, the SEC alleged that Waddell failed to complete any follow-up reviews or appropriately convert the accounts.

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, regulatory and disciplinary matters.

Tags: eccleston, eccleston law, advisors, sec, churning

Return to Archive

TESTIMONIALS

Previous
Next

I am so blessed to have you and your dynamic team defending me. Your ethics, forward thinking and strategies are amazing.  You guys are the best group of attorneys in the country that I could hire to handle this complicated case.

Cindy C.

LATEST NEWS AND ARTICLES

September 16, 2025
Former Morgan Stanley Advisors Win Partial Court Victory in Client Solicitation Dispute

Two former Morgan Stanley advisors in Hackensack, New Jersey have defeated Morgan Stanley’s initial effort to block them from soliciting clients, according to an August 15 order from New Jersey Superior Court.

September 15, 2025
California Young-Gun Investor Charged in Alleged $6 Million Ponzi Scheme

Federal prosecutors have accused Mihir Deepak Sukthankar, a California resident once celebrated as a teenage trading “prodigy,” of orchestrating a multi-million-dollar Ponzi scheme.

September 12, 2025
LPL Broker Fined and Suspended for Recommending Risky Investments to Elderly Client

An LPL Financial broker in Elizabethtown, Kentucky, has agreed to sanctions after FINRA found he violated Regulation Best Interest (Reg BI) when recommending unsuitable investments to an elderly customer.