FINRA Fines Next Financial Group for Misconduct In Connection with Short-Term Trading of Class-A Mutual Funds

Stoltmann Law Offices is investigating cases where brokers have overtraded to generate commissions in risky investments. FINRA, the federal securities industry regulator, has fined Next Financial Group, a broker-dealer owned by Atria Wealth Solutions, $750,000 to settle charges that it failed to supervise ‘unsuitable’ trading of mutual funds and municipal bonds by one unnamed broker, according to

FINRA found that the broker “engaged in short-term trading of Class A mutual fund shares in 19 client accounts, resulting in ‘unnecessary’ front-end sales charges of $925,000 from 2012 until February 2019.” All told, the broker racked up some $5 million in sales charges in the seven-year period. Additionally, FINRA found that “from June of 2013 to November of 2016, the broker engaged in short-term trading of Puerto Rican municipal bonds in 16 customer accounts, concentrating five of the accounts in these bonds.”

‘These bonds carried risks not associated with other municipal bonds because of concerns about the Puerto Rican economy and subsequent restructuring of Puerto Rican debt. The risk of such concentration was compounded by frequent trading in the PR Bonds because of the repeated payment of upfront costs that would decrease any investment returns,” FINRA said in its complaint. The investors in the Next case lost more than $4 million from their Puerto Rican bond investments.

Puerto Rican bonds, which were sold in various vehicles by brokers, have been a nightmare for investors, racking up billions of dollars in losses in recent years. The bonds were sold as ultra-safe investments, but tanked in value more than four years ago.

Despite revealing the broker’s apparently poor behavior, the review led to no further investigation or disciplinary action, FINRA said. It wasn’t until arbitrations were filed by two customers in June and September of 2018 that the firm once again addressed the broker’s activity. “While FINRA does not name the broker,” citywireusa notes, “the account appears to match the disciplinary history of Charles Doraine, who was barred earlier this year for refusing to testify in connection with a FINRA investigation.”

FINRA also noted “Next Financial was made aware of the broker’s mutual fund and bond trading activity in late 2016 when a trading desk employee raised questions leading to a performance review.” Next did not “admit or deny the findings, but agreed as part of its settlement to build out compliant supervisory systems capable of flagging suspicious trading.”

In the past, Next has been fined for alleged supervisory lapses. Last year, regulators in New Hampshire and Massachusetts fined the firm a combined $475,000 for allegedly failing to reasonably supervise the sale of non-traded real estate investment trusts.

If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!

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