Private-placement lawsuits and investigations continue to make their presence known, much to the chagrin of the broker/dealers that touted some soured deals involving Provident Royalties. The latest B-D to face the music is Next Financial Group, which will pay $2 million in restitution to customers who purchased oil and natural gas private placements of Provident Royalties.
According to the Financial Industry Regulatory Authority (FINRA), Next Financial sold $20 million of three separate Provident private placements from July 2008 to January 2009. During that time, Next Financial’s due diligence was lacking, FINRA said.
“Despite the fact that Next received a specific fee related to the due diligence that was purportedly performed in connection with each offering, beyond reviewing the private-placement memorandum for the offerings, [Steven Nelson, vice president of investment products and services] did not perform adequate due diligence on the [Provident] offerings,” according to FINRA.
Two years ago, the Securities and Exchange Commission (SEC) charged Provident with fraud.
As reported Nov. 28 by Investment News, outside due diligence reports highlighted a number of red flags regarding the Provident offerings, as well as the fact that Next Financial and Steven Nelson “should have scrutinized each of the [Provident] offerings, given the purported high rate of returns.”
About 50 broker/dealers sold private placements in Provident, which raised $485 million from 7,700 investors between 2006 to 2009. At least 20 broker/dealers that sold Provident private placements have shut down or declared bankruptcy.
FINRA also levied fines of $50,000 on Next Financial and $10,000 on Nelson, who was suspended as a principal for six months.