FINRA fined NEXT Financial Group, Inc. $750,000 for inadequate oversight and supervisory deficiencies related to excessive trading detection, failure to perform reviews, and additional compliance failures. The present settlement follows years of prior disciplinary actions concerning related violations totaling over $3.5 million in fines and restitution, and specifically cites systematic failures regarding NEXT Financial Group's variable annuities (VA) business.
For instance, FINRA in 2016 barred ex-NEXT Financial broker Tye Calvin Williams for converting over $1 million from customer accounts, unauthorized transactions, and mismanaging assets in unsuitable investments like a venture called "Smashburger"; Williams and/or NEXT Financial settled an associated dispute for $1.5 million.
Also in 2016, FINRA barred former longtime NEXT Financial representative Douglas P Simanski after he sold fictitious investments and then converted funds for personal use. A handful of settled customer disputes in Simanski's file alleged misappropriation, selling away and selling unapproved products, and unfulfilled "guaranteed" returns.
A Securities Litigation & Consulting Group study in October 2017 found that NEXT Financial Group has the seventh-highest rate of pending customer complaints for the number of brokers it employs—the six higher firms on that list are Santander Securities; Newbridge Securities Corp; Berthel, Fisher & Co; UBS Financial Services; National Securities Corp; and Aegis Capital Corp.
AWC #2015043319901 (NEXT Financial Group $750k fine)
In its report, FINRA concluded that NEXT Financial Group failed to implement a system reasonably designed to detect excessive trading in customer accounts, and that these failures resulted from an inadequate response to previous discipline imposed by FINRA.
Citing "lack of clarity regarding supervisory responsibilities," FINRA wrote that NEXT Financial continued its failure to monitor trades and, thus, failed to supervise excessive trading. For example, even though an auditor in 2014 marked a specific group of accounts as possessing "an unusually large number of transactions," the firm failed to follow up, escalate, or review the results, and the account continued to be excessively traded until 2016, when the firm terminated the representative and settled with its customer for $386,646.
Investigators called NEXT Financial's VA supervisory problems "systematic failures" and found that the firm consistently failed to implement adequate supervisory systems and procedures for VA exchange transactions, dating back to a 2010 settlement in which FINRA found that NEXT did not provide reasonable supervision of VA transactions.
In February 2017, an OHO decision found that former NEXT Financial Group broker Dion Rey Padilla effected an unauthorized VA purchase while misrepresenting for nine months that the investment was not a VA, despite Padilla's customer's preference that none of his funds be invested in a variable annuity. That investigation found that although Padilla wrote an e-mail stating "We are NOT investing any of your funds...into a Variable annuity—of any sort," he nonetheless invested the customer's funds in the "Jackson National Life Perspective L Series Variable Annuity," while misrepresenting to his customer that the Jackson National Life VA was actually a management money investment.
The present discipline cites continued VA deficiencies and supervisory failures pertaining to multi-share class VAs, including B-share and L-share VA contracts, and related properties, including associated fees, income riders, and surrender charges, including suitability or the impact of what might occur if, for instance, an L-share contract were to be held by the customer for a long term.
For instance, FINRA in 2016 ordered NEXT Financial Group to pay $341,000 in fines and restitution for failing to apply applicable sales charge discounts for eligible unit investment trust (UIT) purchases.
FINRA also cited NEXT Financial for failing to reasonably supervise non-cash compensation and contributions, and for publishing materially misleading information on its website, including that which omitted material facts that violated FINRA rules regarding fair and balanced communication standards.
In regards to misleading information, for example, FINRA barred ex-NEXT Financial Group broker Jerry Dewayne McCutchen in 2016 over allegations that he made unsuitable recommendations in alternative investments such as non-traded real estate investments trusts (REITs); McCutchen has over 30 customer complaints in his BrokerCheck file alleging misconduct ranging from suitability violations and NEXT Financial's failure-to-supervise to breach of fiduciary duty and common law fraud.
If you have invested with NEXT Financial Group or with any broker, financial adviser, or firm whose material misrepresentations, unsuitable recommendations, or supervisory failures—including deficiencies that allowed for excessive trading or churning to occur—and these systematic violations or fraudulent conversions have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.