Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm NEXT Financial Group, Inc. (NEXT Financial) concerning allegations that: 1) between March 17, 2009, and August 26, 2011, NEXT Financial failed to timely and accurately amend registered representatives’ Forms U4 and U5 to disclose customer complaints, judgments and liens; 2) from January 1, 2010, through August 26, 2011, NEXT Financial permitted its former general counsel to directly supervise registered persons without a principal registration; and 3) from March 17, 2009, through August 10, 2012, NEXT Financial failed to establish and maintain a supervisory system that was reasonably designed to prevent and detect unsuitable sales of structured products to retail customers.
NEXT Financial is a general securities broker-dealer located in Houston, Texas and a member of FINRA since 1999. The firm currently has approximately 900 registered persons and 590 registered branch locations.
FINRA Rules require that every application for registration (Form U4) filed with FINRA shall be kept current at all times by supplementary amendments. Supplementary amendments must be filed within 30 days after learning of facts or circumstances that would require an amendment. FINRA also requires that a notice of termination (Form U5) be filed with FINRA within 30 days after an individual’s association with a member firm is terminated and the form must be kept current at all times by supplementary amendments.
FINRA found that between March 17, 2009, and August 26, 2011, NEXT Financial failed in 22 instances to timely and/or accurately amend a registered representative’s Form U4 or Form U5 to disclose a customer complaint, judgment, and/or lien.
Under FINRA Rules a person associated with a member who actively engages in the management of the member’s investment banking or securities business, including supervision, solicitation, conduct of business, or training of persons are designated as principals. All persons who act as principals must qualify by passing an examination. FINRA found that from January 1, 2010, through August 26, 2011, NEXT Financial’s former general counsel was actively engaged in the supervision of the firm’s Chief Compliance Officer and of the Compliance Department but the general counsel lacked a principal registration at all times during the stated time period.
FINRA also found that between March 17, 2009, and August 10, 2012, NEXT Financial offered and sold various categories of structured products to retail customers without having in place a supervisory system, including written procedures, that were reasonably designed to detect and prevent unsuitable sales. Specifically, FINRA alleged that the firm’s written supervisory procedures did have sufficient guidance on supervision or suitability for structured products nor did the firm have a system in place to detect or flag for review potential over-concentrations in structured products in customer accounts.
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