Texas-based broker-dealer Next Financial Group Inc. has agreed to refund $500,000 to customers of a former broker who moved clients in and out of mutual funds to generate commissions over a five-year period.
According to the Texas Securities Commission, from 2014 through 2018, the broker purportedly made hundreds of trades involving Class A shares of mutual funds that typically carry an upfront sales charge of up to 5 percent or higher, which is paid to the broker as a commission.
The regulators said that the broker consistently bought and sold the higher cost mutual funds for clients, claiming it was part of a “research-based mutual fund trading strategy.”
Next Financial Group also paid a $100,000 fine for failing to properly supervise the broker, who worked for the firm from 2007 until September 2019.
“Next Financial Group failed to rein in the agent even though it received hundreds of alerts from the regulatory system it had set up to detect mutual fund switching,” the Texas Securities Commission said in a statement.
While the broker’s name was not disclosed, the Texas Securities Commission said that he is no longer registered to sell securities in the state.
Next Financial Group will apportion the $500,000 to the former broker’s customers based on the amount of mutual fund trading in their accounts.
Last December, the Massachusetts Securities Division fined NEXT Financial $150,000 over unsuitable sales of non-traded real estate investment trusts and its failure to supervise the agent who sold the investments.