FINRA says NEXT Financial Group Inc. has agreed to a one million dollar fine for its alleged failure to properly supervise a number of client accounts and over 100 office of supervisory jurisdiction (OSJ) branch managers. The managers are in charge of overseeing sales and trading activities for branches and brokers. As a result of the alleged inadequate supervision, FINRA says that broker misconduct was able to take place, resulting in Texas securities fraud.
FINRA charges that between 1/05 and 11/06, the broker-dealer allowed its OSJ branch managers supervise to themselves. Even when NEXT Financial Group implemented a new Regional Manager supervisory system, FINRA says that this too continued to prove unreasonable for at least another year. Each month, three regional managers who were unable to adequately access client suitability data were in charge of reviewing thousands of transactions.
FINRA mandates that firms appoint at least one principal to set up, maintain, supervise, and enforce “a system of supervisory control policies and procedures.” FINRA says that because of Next Financial’s inadequate procedures and policies, the broker-dealer failed to notice that excessive markdowns and markups on corporate bond trades and the churning of customer accounts were taking place. Investors ended up losing some $768,000, FINRA contends. The funds have been reimbursed.
NEXT Financial Group’s former chief operating officer and chief compliance officer Karen Eyster has agreed to sanctions for failing to fulfill her obligations as a supervisor. FINRA fined her $35,000. She also has to undergo 15 hours of supervisory training and serve a 2-month suspension as a principal.
Also, FINRA says that the broker-dealer’s systems and procedures regarding variable annuity exchanges were unreasonable and did not give enough guidance about what needed to be looked at when making variable annuity exchange recommendations to clients.
By agreeing to settle, the broker-dealer and Eyster are not admitting to or denying the charges that FINRA has made against them.
Related Web Resources:
FINRA Fines NEXT Financial Group $1 Million for Supervisory Failures That Led to Churning of Customer Accounts, Excessive Commissions, FINRA, July 22, 2009
NEXT fined $1 million for churning accounts, Chron.com, July 22, 2009 Continue reading