The following are summaries of administrative enforcement actions the Texas State Securities Board took from Jan. 1 through March 31, 2020.
Next Financial Group: Fine, Refunds
Next Financial Group Inc. of Houston agreed to refund $500,000 to customers of a former Texas agent who for five years moved clients in and out of high-cost mutual funds to generate commissions.
Next Financial Group also paid a $100,000 fine to the State of Texas for failing to properly supervise the agent, who worked for the brokerage from 2007 until Sept. 27, 2019. He is no longer registered to sell securities in Texas.
The sanctions are part of a Disciplinary Order that Texas Securities Commissioner Travis J. Iles entered on Feb. 13.
Next Financial Group will apportion the $500,000 to the former agent's customers based on the amount of mutual fund trading in their accounts during the five-year period.
From 2014 through 2018, the agent made hundreds of trades involving the Class A shares of mutual funds, which typically cost investors more than other mutual fund share classes because they carry an upfront sales charge of up to 5% or higher. The charge, known as a front-end sales load, is paid to the broker as a commission.
The agent consistently bought and sold these high-cost mutual funds for clients, claiming it was part of a research-based mutual fund trading strategy.
Woodland Resources: Fine, Refunds
Woodland Resources LLC, the oil and gas company once led by a Fort Worth oilman with a history of regulatory sanctions and running companies into bankruptcy, paid a $20,000 fine to the state and will offer to refund $1.49 million to investors in two of its drilling projects.
Under the terms of an Agreed Order and Undertaking entered by Texas Securities Commissioner Travis J. Iles on Feb. 20, Woodland will offer refunds to 27 investors who purchased interests in either of two oil well projects in Seminole County, Okla. Those investments total $1,497,519.
Woodland constered to the entry of an order that found it violated state law by offering unregistered securities for sale and by not being registered to offer securities in Texas.
The company said it is no longer associated with Fort Worth oilman Michael E. Patman, a former Woodland Resources principal who sold investments in Woodland’s oil and gas projects.
Gary N. Beasley, Merchant Growth & Income Funding: Emergency Cease and Desist Order
Texas Securities Commissioner Travis J. Iles on Feb. 25 ordered Austin insurance agent Gary N. Beasley to stop offering promissory notes tied to a Philadelphia, Pa. company that has been sanctioned by two states and sued for predatory lending to small businesses.
According to the Emergency Cease and Desist Order, Beasley, a former Austin investment adviser and currently licensed insurance agent, has sold at least $300,000 in unregistered promissory notes through his company, Merchant Growth & Income Funding LLC, in the past three months.
Neither Beasley nor Merchant Growth are registered to sell securities in Texas, according to the order.
The order alleges that Merchant Growth is a sales agent for Philadelphia-based Par Funding, a company with a history of regulatory sanctions and lawsuits alleging illegal lending practices.
The Pennsylvania Department of Banking Securities in November 2018 fined Par Funding $499,000 for the unregistered sale of promissory notes.
In December 2018 the New Jersey Bureau of Securities issued a Summary Cease and Desist Order against Par Funding. Par Funding’s unregistered agents were receiving commissions of 5% to 25%, depending on the interest rate promised to investors, the order found.
According to the order, Par Funding claims it uses sales agents such as Merchant Growth and that it raised $270 million from more than 1,200 investors in the past year.
Beasley’s connection to Par Funding starts with his Austin companies, Senior Asset Protection Inc. dba Encore Financial Solutions, and Merchant Growth.
Beasley has advertised the investments on local radio in Austin, urging listeners to contact Encore Financial Solutions to learn about investments that supposedly would protect them against a stock market decline. Beasley also solicits investors through Encore Financial websites.
According to the order, potential investors who contacted Beasley and Encore Financial were actually offered investments issued by Merchant Growth. Beasley said Merchant Growth generated high rates of return by loaning money to businesses with cash-flow problems.
Beasley is claiming he makes all investment decisions for Merchant Growth, but according to the order he has limited experience in commercial lending. Still, Beasley allegedly told investors they could earn annual rates of return from 8% to 14%, depending on the amount of money they invested – the higher the amount, the higher the return.
Merchant Growth, according to the order, is one of 44 entities recruiting investors and sending their money to A Better Financial Plan, a company headquartered in Pennsylvania and New Jersey. A Better Financial Plan supposedly uses the money to invest in short-term lending securities issued by Par Funding.
According to the order, Par Funding supposedly pays returns to investors. Beasley also receives commissions for recruiting investors.