Investigation: Complaints Against Next Financial Group

Our law office is investigating customer complaints against Houston based broker-dealer NEXT Financial group.  If you have a complaint regarding NEXT Financial, please contact us at (212) 203-9300 to speak with an attorney now for free.  Our attorneys have experience handling cases involving financial mismanagement, fraud and negligence.

Massachusetts Securities Division: NEXT Financial Missed 10 Years of Potentially Unsuitable REIT Sales

In 2017, the Massachusetts Securities Division launched an investigation into NEXT Financial’s sale of non-traded real estate investment trusts (REITs) to several Massachusetts investors. What regulators found, according to a 2019 consent order, was that a firm representative made hundreds of REIT sales over about 10 years, at least 51 of which exceeded the firm’s own liquid net worth concentration guidelines.

In the majority of those transactions, NEXT Financial allegedly “processed multiple simultaneous non-traded REIT transactions in a customer’s account without accounting for the corresponding reduction to the customer’s liquid net worth that occurred for each transaction.” This meant that the firm’s calculations of the investments’ concentration in customer accounts were incorrect. In three cases, the customers were also over the age of 80, which further violated the firm’s written supervisory procedures for non-traded REIT transactions.

The responsibility for these unsuitable transactions ultimately lay with NEXT Financial, regulators found. Due to the firm’s failures to make accurate concentration calculations, it was unable to determine whether the transactions were suitable for the customers, resulting in numerous trades that exceeded its concentration guidelines. The Massachusetts Securities Division ordered NEXT to pay a fine of $150,000 and to offer restitution to affected customers.

NEXT Rep’s Excessive Trading Costs Elderly Customers

William Bailey was registered with NEXT Financial Group in Mesa, Arizona when he made unsuitable, excessive mutual fund and variable annuity trades in the accounts of seven unsophisticated investors, according to a 2011 FINRA action against him. Some of the underlying transactions involved short-term mutual fund switches in which he sold mutual fund products “less than one year after purchasing them, and purchased new mutual funds with the proceeds.” (Other transactions involved short-term variable annuity switches.) The seven customers were between 66 and 93 years old and incurred fees of $147,000 from the transactions while Bailey generated commissions of $120,000. Had he sold them Class C mutual fund shares—which could have been more suitable for short term trading—rather than Class A and B shares, he could have saved them $90,332 in fees and charges.

Bailey’s unsuitable trades were often made without the customers’ approval, according to FINRA, which found he even “improperly completed customer account forms to make it appear the customers approved        of the trading.” FINRA’s order issued him a two-year suspension and required him to pay $166,914 in restitution to his customers, plus a fine of $25,000. His records show that he was suspended from FINRA again in  2015 after he failed to comply with an arbitration award or settlement agreement, or to satisfactorily respond to a FINRA request for information regarding his compliance.

Unsuitable Puerto Rico Bond Sales to NEXT Customers

NEXT Financial’s supervisory failures led to massive losses for customers of a broker whose unsuitable trading activity raised red flags internally, according to a 2021 FINRA action. For a period of seven years, the broker allegedly conducted short-term trading of Class A mutual fund shares in 19 customer accounts, “many of which belonged to seniors,” incurring about $925,000 in unnecessary sales charges. From 2013 to 2016, that same broker allegedly “engaged in short-term trading of PR Bonds in 16 customer accounts and concentrated five customer accounts in PR Bonds,” exposing those customers to unique risks given the particular circumstances of the Puerto Rican economy. Those 16 customers, according to FINRA, sustained losses of more than $4 million.

Questions about the broker’s conduct were elevated to supervisory personnel in 2016, according to FINRA, when a trading desk employee “raised questions” about their trading. When the firm conducted a review of the broker’s short-term trades and asked him about his activities, he allegedly responded with “misleading explanations.” In spite of these red flags, NEXT did not conduct any further inquiry; FINRA deemed this failure “reasonable given the inconsistency of those explanations with the multitude of red flags in the customers’ account information and in the firm’s blotter.” The firm was censured for its failures and ordered to pay a fine of $750,000.

As a CityWire report noted at the time, the unnamed broker described by FINRA appeared to be Charles Doraine, a NEXT Financial broker from 2007 to 2019 whose FINRA records show three settled customer complaints during that time period First, A 2019 complaint alleged that as a NEXT Financial representative, Doraine made improper mutual fund switches, sold unsuitable variable annuities, and “took advantage of the diminished capacity of one of the claimants.” The complaint reached a settlement of $352,564. Second, a 2018 complaint alleged that as a NEXT Financial representative, Doraine made excessive trades of bonds and mutual funds, and recommended an unsuitable concentration of Puerto Rico municipal bonds. In 2020 the complaint reached a settlement of $3.05 million. And finally, a 2018 complaint that alleged that as a NEXT Financial representative, Doraine made unsuitably risky mutual fund trades. The complaint reached a settlement of $375,000.

In 2020, FINRA requested Doraine’s testimony in connection with an investigation into his “suspected unsuitable recommendations of short-term trading in mutual fund A shares, short-term trading of Puerto Rican municipal bonds, and overconcentration of customer accounts in Puerto Rican municipal bonds.” He refused, according to a FINRA order, and was barred from the industry.

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