Charles Kulch and Next Financial Face Severe Penalties
In a major financial blow, Charles C. Kulch and Next Financial Group Inc., have recently been hit with penalties exceeding $1 million. The punitive action came about as a result of allegations of overcharging clients through a practice known as ‘consulting service agreements’. The repercussions included a whopping fine of $325,000, $100,000 to recoup investigation costs, and restitution to clients totalling $633,000.
Embodying the proverb of ‘innocent until proven guilty’, Kulch, in his settlement with New Hampshire, neither admitted nor denied these charges. However, the strong hand of justice exercised by regulatory bodies serve as a clear message – finra violations won’t go unnoticed or unpunished.
Massachusetts Adds Fuel to the Fire
Further trouble awaited Kulch in July 2020 when William Galvin, Secretary of Commonwealth of Massachusetts, charged him with making unsuitable sales of illiquid, high-commission commodities, including non-traded REITs and variable annuities. During a span of five years, Kulch reportedly bagged close to $1 million in commissions from these sales.
The Massachusetts Securities Division maintained a vigilant eye on broker-dealers’ sales of non-traded REITs over the past few years. Its active stance resulted in penalties for firms accused of neglecting to supervise the sales of this typically high-commission and illiquid product.
Next Financial Finds Itself In Hot Water
In January 2020, Next Financial fell under scrutiny when it was hit with a $150,000 penalty for alleged sales practices violations, including unsuitable sales of non-traded REITs. Kulch was reportedly at the helm of these infractions, selling these products to more than 100 Massachusetts investors, including nearly 50 transactions that conflicted with Next Financial Group’s policies regarding selling to customers over the age of 80.
The domino effects of these actions were echoed in New Hampshire with Next Financial Group receiving a $235,000 fine for its alleged failure to supervise the sale of specific alternative investments.
Beware the Risks of Non-Traded REITs
Non-traded real estate investment trusts (REITs) are not your typical investments. Compared to more familiar trading commodities like stocks, bonds, and mutual funds, they pack a lot more punch in terms of complexity, making them more suited for astute and institutional investors.
These high-risk investments often carry heavy sales commissions that can lure brokers into making unsuitable investment recommendations. This problem is further compounded by the fact that non-traded REITs often lack liquidity, making it hard for investors to find a buyer and causing significant financial losses when they do.
Brokers – Cross Your Ts and Dot Your Is
When it comes to due diligence, broker-dealers must be thorough in their vetting of any investment they recommend. This responsibility extends to ensuring that their recommendations align with their clients’ risk tolerance, net worth, investment objectives, and market experience. Irresponsible firms that neglect this duty may find themselves liable for any losses in a FINRA arbitration claim.
A Final Word of Caution
For those who may have experienced financial setbacks with Charles Kulch and Next Financial, it might be possible to file a complaint against the brokerage firm. Navigating the financial industry can be complex and challenging, especially with the ever-evolving landscape of financial regulations. Therefore, it’s vital to make informed decisions and hold those in positions of financial responsibility accountable for their actions.