Next Financial Group, Inc. (Next) submitted a Letter of Acceptance, Waiver and Consent (AWC) to settle claims by the Financial Industry Regulatory Authority (FINRA) that Next’s due diligence was lacking in connection with its sale of more than $20 million of Provident Royalties, LLC private placements. In 2009, the Securities and Exchange Commission (SEC) accused Provident Royalties, LLC of fraud.
According to the AWC, Next received a specific fee for purportedly performing due diligence on each offering. However, the principal of Next responsible for performing the due diligence did nothing beyond reviewing the private placement memoranda. He did not travel to Provident’s headquarters and failed to review any financial information beyond what was contained in the offering memoranda. Due diligence reports prepared by outside sources raised numerous red flags about the Provident offerings which he would have discovered had adequate due diligence been done.
In the AWC, Next agreed to pay $2 million in restitution to investors in the Provident offerings as well as pay a $50,000 fine.