Massachusetts Charges Former Next Financial Rep Over Improper REIT Sales
The Massachusetts Securities Division has charged former NEXT Financial Group representative Charles C. Kulch for over-concentrating his customers in illiquid investment products.
The Massachusetts Securities Division has charged former NEXT Financial Group representative Charles C. Kulch for over-concentrating his customers in illiquid investment products including non-traded real estate investment trusts and variable annuities.
According to the administrative complaint, Kulch is accused of using dishonest sales practices to sell non-traded REITs and other alternative investments to customers for whom they were unsuitable and in violation of his own employer’s stated policies.
“While NEXT put policies in place to protect investors from schemes like Kulch’s, Kulch took steps to manipulate the calculation of key figures NEXT monitored, circumventing such policies and rendering them meaningless,” the complaint states.
The complaint further alleges that Kulch wrongly calculated the percentage of customers’ liquid net worth, while also failing to account for the reduction in liquid net worth for each transaction. Kulch purportedly generated nearly one million dollars in commissions over a five-year period.
In the same five-year period, Kulch sold non-traded REITs to more than 100 Massachusetts investors, including nearly 50 transactions which violated NEXT Financial’s own policies pertaining to over-concentration and prohibiting the sale of non-traded REIT’s to customers over the age of 80, according to the complaint.
“By disregarding or circumventing established concentration limits, Kulch generated hundreds of thousands of dollars in commissions at the expense of Massachusetts investors,” the complaint added.
Last December, the Massachusetts Securities Division fined NEXT Financial $150,000 over unsuitable sales of non-traded REIT sales and its alleged failure to supervise the agent who sold the investments. The agent was not named.
In January 2020, the New Hampshire Bureau of Securities fined NEXT Financial $235,000 for similar conduct after the state regulators initiated a formal investigation after receiving a complaint about Kulch.
The Massachusetts Securities Division is seeking an order requiring Kulch to provide restitution to compensate investors, as well as an administrative fine and an order to have Kulch permanently barred from acting as a registered investment adviser.
