Tag Archives: adviser

NEXT Financial Supervisory Problems

NEXT Financial Group recently entered into a regulatory settlement with FINRA, the regulator that oversees securities brokerages, concerning lapses in supervision that have allegedly led to fraud in investor accounts.  This is part of a continuing and ongoing series of supervisory lapses of NEXT to ensure that its brokers do not commit fraud or other misdeeds.  These lapses may serve as a basis for investors to recover losses.

On December 6, 2017, entered into its most recent regulatory settlement.  Under that settlement, NEXT was censured and received a $750,000 fine.  The current allegations leading to the action included the failure to monitor and control investment churning and inappropriate sales of variable annuities.  The size of the fine was do to the ongoing and continuing supervisory deficiencies and regulatory violations that NEXT continued to commit.  The supervisory problems extend not just to these investments but extend to other supervisory issues.  This is evidenced by the string of regulatory violations that NEXT has been accused over the past several years.

On November 22, 2011, FlNRA issued a Letter of Acceptance, Waiver and Consent (an “AWC” is a regulatory settlement ), in which NEXT was censured, fined $50,000 and ordered to pay $2,000,000 in restitution to investors for violations of FINRA Rule 2010 and NASD Rules 2110, 2310 and 3010 arising out of its sales of certain private offerings and related supervisory deficiencies.  Additionally, NEXT was censured and fined again for supervisory issues in 2010, 2011 and 2012.

In response to prior disciplinary actions, NEXT adopted new measures in an attempt to correct prior supervisory deficiencies. The new procedures, however, employed flawed methodologies and allowed misconduct to occur. The current regulatory action involves various supervisory and other violations during the period August 2012 through September 2015 that arose in part from NEXT’s inadequate response to prior FINRA disciplinary actions.

The primary violation in the current regulatory action occurred between May 2014 and September 2015 when NEXT used faulty exception reports, reports of potentially fraudulent activity, to detect excessive trading (commonly referred to as “churning”), failed to perform any review of those exception reports for a 14-month period, and allowed churning to continue due to inadequate oversight. The failure by some compliance personnel to fulfill their job duties was not detected due to an absence of procedures requiring follow-up on delegated supervisory tasks. These supervisory failures allowed a registered representative to excessively trade a senior investor’s accounts, resulting in losses of approximately $391,893.

NEXT had similar deficiencies between August 2012 and April 2014 concerning its supervision of variable annuities (VA). The Firm failed to have a surveillance system that monitored for problematic rates of exchange regarding VAs. In addition, NEXT also had inadequate exception reports, reports used to detect fraud, and NEXT’s procedures ignored risks associated with multi-share class VAs. The Firm also had information on its website.

William P. Carlson of Elhert

On February 21, 2017, he Securities and Exchange Commission charged William P. Carlson, Jr., a Deerfield, IL investment advisor with misappropriating more than $900,000 from a client’s account through more than 40 unauthorized transactions.  Deerfield is in the Chicago-area.

The SEC alleges that Carlson, an investment advisor representative associated with the Ehlert Group in Lincolnshire, forged a client’s signature on checks and journal requests and caused checks to be issued from the client’s account to a third party who gave the proceeds to Carlson.

Carlson had discretionary authority to place trades in the victim’s accounts. Such trades, involving the purchase and sale of mutual fund shares, were supposed to be made pursuant to a model asset allocation portfolio selected by the client based on advice from Carlson. When requested by the client, Carlson could direct disbursement of funds held in the accounts to the client. In order to disburse funds held in the accounts for the benefit of a third party, the Broker-Dealer holding the funds required a written request signed by the client.

On at least sixteen different occasions from November 2012 to April 2014, Carlson directed that a check made payable to the client be issued from the client’s account, purportedly based on instructions Carlson had received from the client. The check amounts ranged from $6,500 to as much as $97,000, and collectively totaled $437,000.

In approximately June 2014, Carlson changed his method of making unauthorized withdrawals from the client’s account. Carlson began forging the vicitm’s signature on “Check and Journal Request” forms that directed the Broker-Dealer to make disbursements of funds held in the client’s account to a third party who was a friend of Carlson’s.

In March 2015, Carlson forged the vicitm’s signature on a letter of authorization and a notarized signature sample letter permitting the firm holding the funds to issue checks from the victim’s account to Carlson’s same friend, without the need for further check and journal requests that required additional client signatures.

Between approximately June 2014 and December 2016, through the use of these forged authorizations, Carlson caused at least 25 checks—ranging in amount from $10,000 to $35,000 and collectively totaling $474,000—to be issued from the client’s account to Carlson’s friend, who in turn gave the proceeds to Carlson.

The Complaint of the SEC can be found at the following link.