Texas-Based Brokerage Firm Accused of Overconcentration & Supervisory Failures
NEXT Financial Group has arrived at a $750K settlement with the Financial Industry Regulatory Authority (FINRA) to resolve claims that the Texas-based broker-dealer overconcentrated customer accounts in Puerto Rico municipal bonds and did not have the kind of supervisory system that could have identified unsuitable trades.
The self-regulatory organization (SRO) also contends that from January 2012 to February 2019 NEXT Financial Group did not set up, maintain, or enforce supervisory systems and written procedures that could have identified and stopped the short-term trading of Puerto Rico bonds and mutual funds when they were unsuitable for customers.
Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) is speaking to NEXT Financial Group customers who were unsuitably sold Puerto Rico bonds, closed-end bond funds, mutual funds, and other investments. If you are one of these investors, call our securities attorneys at (800) 259-9010 today.
Puerto Rico Bond Investors Lost $4.1M
FINRA’s case involves an ex-NEXT Financial Group broker who, from 2012 to 2019, purportedly caused 19 mutual fund customer accounts to sustain about $925K in unnecessary sales fees through the short-term trading of Class A mutual funds.
The former registered representative’s short-term trading of Puerto Rico bonds in 16 customer accounts, as well as his alleged overconcentration of these investments in five of the accounts, purportedly caused clients to lose about $4.1M.
The SRO contends that not only did Puerto Rico bonds carry risks that other municipal bonds don’t have to deal with but also, the frequent trading of the bonds resulted in upfront charges. Any overconcentration only served to compound the risks.
Considering that Puerto Rico bond funds and closed-end bond fund investors suffered significant losses when the island’s municipal bonds and the economy took a plunge in 2013, the NEXT Financial Group broker should have known better than to engage in the short-term trading of these investments. However, this individual allegedly did just that from June 2013 to November 2016 in customers’ accounts.
The firm should have also been properly supervising these transactions and identified that they may not have been suitable for their clients.
Ex-NEXT Financial Group Broker Kept Trading in Customer Accounts
FINRA said that the ex-NEXT Financial Group financial advisor continued to engage in risky trading for customers because of the firm’s insufficient supervisory systems, but this individual wasn’t barred from associating with any other FINRA members until last year. Even after this then-broker was asked about his actions as far back as 2016 and he gave misleading answers, the broker-dealer failed to examine this person’s activities until a customer filed an arbitration claim in 2018.
FINRA said part of the problem stemmed from NEXT Financial Group depending on an automated system to identify possibly unsuitable trades. While supervisors were tasked with analyzing alerts that surfaced, the SRO found that the firm failed to provide these managers with the “critical data” they needed to properly assess the alerts.
A failure to properly address red flags when they arose led to NEXT Financial Group customers sustaining investment losses.
Seasoned Broker-Dealer Negligence Lawyers
Our brokerage firm misconduct attorneys represent investors who have suffered losses because of their financial advisors’ careless or wrongful actions. SSEK Law Firm represents investors throughout the US. Call us at (800) 259-9010 or reach out to us using our contact form today.