NEXT FINANCIAL GROUP INVESTOR ALERT - LAX SUPERVISION OF INDEPENDENT BROKERS CAN CAUSE LOSSES

Next Financial Group, Inc. is a subsidiary of the Next Financial Holdings, Inc. It is one of the largest independent broker-dealers whose business model is akin to a franchise operation. Next Financial Group is headquartered in Houston, Texas and reportedly has over 900 registered representatives across the United States operating in one or two person offices. Its growth in recent years can largely be attributed to layoffs at the major wire houses due to the most recent financial market meltdown. Most of the Next Financial Group registered representatives' gross production of revenues is less than $300,000 per year. Its branch offices are largely comprised of small producers earning commissions at higher pay out rates than the major full-service brokerage firms, a recipe for disaster when it comes to protecting investors' rights.
Independent broker-dealers are notorious for their lax supervisory practices and procedures. The business model of these franchise type operations is to open many offices nationwide for steady growth of fixed monthly revenues without the costs attendant to a full-service branch office with on-site manager, compliance officer and operation personnel. The registered representatives of these independent broker-dealers generally operate as separately incorporated businesses. They are not employees of the broker-dealer and therefore not controlled in the same manner as full-service brokerage firm representatives. The registered representatives control their structure and costs to maximize profits and often leave the protection of investors' rights and interests as their lowest priority.
The typical supervisory organization of independent broker-dealer operations is to have other independent contractors operate Offices of Supervisory Jurisdiction (OSJs) to monitor the registered representatives from geographically remote offices and then report to the main franchisor's compliance office at national headquarters. The supervisors at the OSJs are not employees of the franchisor and often run their own brokerage, insurance and other businesses. They are not devoted full-time supervisors of the smaller branch offices. Consequently, OSJ managers cannot and do not supervise the day-to-day operations of the registered representatives of these Independent broker-dealers.
Generally, there is no immediate review of new accounts opened, securities transactions, business records, cash or securities receipts and deliveries, correspondence and business activities unrelated to the securities brokerage operation at these independent brokerage firms. The lax supervision leaves investors who have transferred their accounts to the smaller independent broker-dealer vulnerable to sales of securities that have not been reviewed or authorized by anyone other than the sales representative earning a commission. There may be no one onsite to detect forgeries of clients' signatures on documents, the placement of inaccurate information about a client's investment objectives and financial condition to document the suitability of a particular investment recommendation. Oftentimes there is no daily review of sales literature and client correspondence to protect against misrepresentations and misleading statements being made to investors. In fact, it is not unusual for there to be only one compliance audit visit per year at many of these offices. These Independent brokerage business operations are worrisome to the North American Securities Administrators Association (NASAA), which has documented more instances of sales abuse and consequently investor losses at these firms.
Have you suffered losses in your Next Financial Group brokerage account? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against any Next Financial Group stockbrokers who engaged in stock brokerage misconduct and caused investors losses.
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 pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

CLYDE THORNBURG OF NEXT FINANCIAL PERMANENTLY BARRED FROM BROKERAGE INDUSTRY FOR CHURNING AND FORGERY AND NEXT FINANCIAL RECEIVES A PASS AGAIN!

According to an Order recently issued by the Financial Industry Regulatory Authority (FINRA), Clyde Thornburg, formerly employed by NEXT Financial, has been permanently barred from working as a stockbroker in the securities industry. Mr. Thornburg was charged earlier this year with violations of NASD Rules 2110, 2310, 2510(b) and 3110 and FINRA Rule 2010 for engaging in a pattern of unsuitable short-term trading in switching of unit investment trusts ("UITs"), corporate debt, and mutual funds in accounts owned by five customers, four of whom were elderly and unsophisticated investors, including a mentally incapacitated 91-year-old widow under the care of a guardian and an 82-year-old widow who was beginning to experience the effects of the Alzheimer's disease.
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 pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.