Publicly available records provided by the Financial Industry Regulatory Authority (FINRA) indicate that broker-dealer, NEXT Financial Group, Inc. (CRD # 46214) was recently sanctioned by FINRA’s Department of Enforcement after an investigation into its failure to adequately supervise for excessive and unsuitable short-term trading (“churning”) of mutual funds and municipal bonds.
The Law Office of Kevin J. Deloatch, Esq. is interested in speaking to investors who have complaints regarding NEXT Financial Group, Inc.
Registration Background for NEXT Financial Group, Inc.
NEXT Financial Group, Inc. has been a member of FINRA (formerly the NASD) since 1999 with its main office located in Houston, TX. It is a broker-dealer with approximately 540 registered representatives.
FINRA’s Allegations Against NEXT Financial Group, Inc.
According to FINRA Letter of Acceptance, Waiver and Consent (AWC) dated July 13, 2021, NEXT Financial Group, Inc. consented to, without either admitting to or denying, the following findings by FINRA’s Department of Enforcement:
- “From January 2012 through February 2019, [NEXT Financial Group, Inc.] failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to detect and prevent unsuitable short-term trading of mutual funds and municipal bonds in customer accounts and over-concentration of customer accounts in Puerto Rican municipal bonds”;
- “In addition, from approximately March 2013 through February 2017, the firm failed to establish a reasonable system of supervisory controls to test and verify that its supervisory procedures were reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules”;
- “From January 2012 through February 2019, [NEXT Financial Group, Inc.] relied upon an automated surveillance system to identify and flag for review Class A Share switches. This system generated alerts, and firm supervisors were responsible for reviewing the alerts to determine whether flagged transactions were suitable.
- The surveillance system was not reasonably designed to achieve compliance with applicable FINRA rules because it did not provide critical data to assist the supervisors in evaluating the transactions for suitability”;
- “From January 2012 through February 2019, [NEXT Financial Group, Inc.’s] supervisory system was not reasonably designed or enforced to detect and prevent short-term trading of municipal bonds or over-concentration of these bonds in customer accounts.
- Additionally, the WSPs did not discuss suitability reviews specific to municipal bonds, address or provide any guidance regarding holding periods for municipal bonds, or address factors to be considered in determining appropriate levels of concentration. The WSPs also did not have any other additional suitability guidance that would be applicable and assist supervisors in analyzing the suitability of municipal bonds.”; and
- By virtue of his it’s actions, NEXT Financial Group, Inc. violated FINRA Rule 3120, NASD Rules 3010(a) and (b) regarding supervision; FINRA Rule 3110, regarding supervision; MSRB Rules G-27(b) and (c), regarding supervision; and FINRA Rule 2010, regarding standards of commercial honor and principles of trade.
FINRA’s Sanctions
FINRA’s July 13, 2021 AWC also indicates that as a result of NEXT Financial Group, Inc.’s failure to supervise excessive and unsuitable short-term trading of mutual funds and municipal bonds, it consented to the following sanction(s):
- A censure;
- A fine in the amount $750,000 ($225,000 of which pertaining to the violations of MSRB Rule G- 27); and;
- A certification within no later than 120 days of the date this AWC is accepted, by a senior officer and principal of NEXT that the firm has implemented supervisory systems and written supervisory procedures reasonably designed to address unsuitable short- term trading of mutual funds and municipal bonds in customer accounts and over-concentration of customer accounts in Puerto Rican municipal bonds.
NEXT Financial Group, Inc. Has A History of Regulatory Actions
In addition to NEXT Financial Group, Inc. being censured and fined for its failure to adequately supervise excessive and unsuitable short-term trading of mutual funds and municipal bonds, as described in the July 13, 2021 AWC, FINRA BrokerCheck for NEXT Financial Group, Inc. reveals it has a prior history of regulatory actions, including but not necessarily limited to the following:
- On December 5, 2017, NEXT Financial Group, Inc. entered into FINRA Letter of Acceptance, Waiver and Consent (No. 2015043319901), in which it was censured, fined $750,000 and required to retain an independent consultant for, among other things, systemic supervisory failures relating to excessive trading and variable annuities.
- On February 13, 2020 the Texas State Securities Board initiated an an action against NEXT Financial Group, Inc. alleging it failed to adequately supervise and prevent an agent’s short-term trading of class A mutual funds. NEXT Financial Group, Inc. agreed to refund customers $500,000.00 and to pay an administrative fine in the amount of $100,000.00.
NEXT Financial Group, Inc. Has A History of Customer Complaints
FINRA BrokerCheck for NEXT Financial Group, Inc. also reveals it has a history of customer complaints and/or customer-initiated arbitrations, including but not necessarily limited to the following:
- On November 22, 2010, a customer-initiated arbitration was filed naming NEXT Financial Group, Inc. as a respondent. The customer alleged churning, misrepresentation, omission, suitability, failure to supervise and negligence. The customer further alleged damages in the amount of $250,000.00. On May 8, 2012, the arbitration panel issued an award in favor of the customer in the amount of $225,000.00.
- On December 10, 2012, a customer-initiated arbitration was filed naming NEXT Financial Group, Inc. as a respondent. The customer alleged misrepresentation, breach of contract failure to supervise, negligence and failure to execute. The customer further alleged damages in the amount of $50,673.51. On March 27, 2014, the arbitration panel issued an award in favor of the customer in the amount of $15,310.82.
If you or someone you know has or had a brokerage account with NEXT Financial Group, Inc. and have concerns regarding losses from failure to supervise excessive and unsuitable short-term trading of mutual funds and municipal bonds or other sales practice violations including fraud, you may be entitled to recover lost funds. The Law Office of Kevin J. Deloatch, Esq. has an extensive securities law practice and over 30 years of experience on Wall Street. Call today at (646) 792-2156 for a free consultation. The time to file your claim may be limited so you should call today to avoid delay.
