William Bailey, a former broker for NEXT Financial Group Inc., was suspended for two years in Financial Industry Regulatory Authority (FINRA) securities arbitration. Bailey’s official cause for suspension, according to FINRA, was “unsuitable and excessive trading of mutual funds and variable annuities.” In addition, Bailey was charged with discretionary trading without prior written approval.
Bailey’s broker misconduct took place over the span of nearly two years, from January 2006 to December 2007. His misconduct affected seven investors between the ages of 66 and 93. In addition, three customers were convinced by Bailey to hold their variable annuities for only a short time before switching them to new ones. FINRA determined that this was a violation to the broker’s suitability standard because it did not improve their financial situations and was not in keeping with their needs and financial objectives.
During this time period, Bailey recommended 484 “short-term mutual fund switch transactions,” according to FINRA. The average turnover for Bailey’s trades was only 60 days — a practice known as "churning." Sales charges and trading fees for these 484 transactions amounted to $147,000 and Bailey’s commissions for these transactions amounted to more than $120,000. Currently, there is no mention of financial restitution and Bailey did not admit or deny wrongdoing.
With or without admission of fault, Bailey’s suspension does set an example, according to FINRA Executive Vice President and Chief of Enforcement Brad Bennett.
“Brokers who engage in excessive trading will be held accountable," Bennett stated. "In this case, Mr. Bailey rapidly switched his elderly and unsophisticated customers in and out of mutual funds with high costs, providing a benefit to Bailey instead of to his customers.”
Churning is excessive trading of an investor’s account in order to generate broker commissions. If you believe that you, like William Bailey’s seven customers, are a victim of churning or unauthorized trading, you may have a valid securities arbitration claim and should contact Christopher J. Gray, P.C., for a no-cost, confidential consultation.