In the five customers' accounts, Mr. Thornburg repeatedly purchased or switched UITs, corporate debt, and mutual funds less than one year after purchasing them. On average, Mr. Thornburg switched the products almost every two months. He often used a strategy where he caused a customer to sell one UIT, mutual fund, or corporate bond and invest all or part of the sales proceeds in another UIT, corporate bond, or mutual fund. The switching strategy was contrary to the design of the UITs, corporate debt and mutual funds. These investments are generally intended to be held long-term and carry substantial transaction fees which can become excessive in an actively traded account. During the time period that Mr. Thornburg churned the customer's accounts there were approximately 200 short-term UIT, corporate debt, and mutual fund transactions.
As a result of the approximately 200 short-term transactions, none of which were held for more than ten months, Mr. Thornburg's customers incurred unnecessary sales charges amounting to over $332,000. By looking the other way the supervisors at NEXT Financial allowed Mr. Thornburg to improperly generate over $301,000 in gross commissions for the firm. During the same time period the five customers collectively lost over $983,000.
Mr. Thornburg was found to have made these recommendations to buy and sell UIT's, corporate debt, and mutual funds without having reasonable grounds for believing that such recommendations were suitable in view of the size and frequency of the transactions, and based upon the facts known to him regarding the five customers' financial situations, objectives, and needs. As a result, the pattern of short-term trading in switching of these investments was undoubtedly unsuitable for all five customers and a violation of NASD Rules 2110 and 2310 and FINRA Rule 2010.
It was further found by FINRA that Mr. Thornburg misrepresented and omitted information concerning the costs of the products, leading these elderly investors to believe that they would not be charged sales charges or commissions. In fact, they were charged duly for the transactions and Mr. Thornburg violated NASD 2110 and FINRA Rule 2010 for his misrepresentations and omissions. Additionally, and in furtherance of his short-term strategy, Mr. Thornburg engaged in discretionary trading in all of the five accounts without prior written authorization, in violation of NASD Rules 2110 and 2510 (b) and FINRA Rule 2010.
To top it off, this unscrupulous stockbroker also forged or caused to be forged the names of at least three customers or their representatives on 19 mutual fund disclosure forms. Mr. Thornburg's forgery and falsification of documents further violated NASD Rule 2110 and FINRA Rule 2010. These forged documents caused NEXT Financial to maintain inaccurate books and records in violation of NASD rules 3110 and 2110 and FINRA Rule 2010.
All of the foregoing begs the question: Does NEXT Financial have a reasonable supervisory system in place and if it does why didn't the brokerage firm detect Mr. Thornburg's egregious violations of industry rules and regulations at an earlier stage and prevent the fraud? Further, why hasn't the firm been sanctioned for its negligent supervision of Mr. Thornburg? Could it be that FINRA is unwilling to take on a fight with a brokerage firm? Too often, brokerage firms receive a pass when their employees engage in an egregious fraud. It's wrong and the FINRA practice of free passes must be stopped by investors and their attorneys!
Have you suffered losses resulting from stockbroker misconduct at NEXT Financial? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at firstname.lastname@example.org for answers to any of your questions about this blog post and/or any related matter.