A broker who was recently booted from the securities industry has cost Next Financial Group Inc. and Raymond James Financial Services Inc. dearly — with the two firms paying out almost $850,000 to settle cases involving clients who got burned.
And both independent-contractor broker-dealers could be on the hook for more.
The broker, Gregory Horton, was barred from the securities business last month by the Financial Industry Regulatory Authority Inc. of New York and Washington. He was affiliated with St. Petersburg Fla.-based Raymond James Financial Services from 1999 to 2004, and then joined Next Financial of Houston, where he was an affiliate until March.
So far, the two firms have settled eight arbitration claims involving Mr. Horton, with at least seven more claims pending, according to FINRA records.
Raymond James Financial Services has paid $685,000 in settlements involving five claims.
"There is one case pending about which we cannot comment," said Anthea Penrose, a spokeswoman for Raymond James.
Meanwhile, Next Financial has settled three claims that total $162,000, according to FINRA records.
Barry Knight, Next Financial's chief executive, didn't return telephone calls seeking comment.
Two arbitration claims resulted in no action against Next Financial and Raymond James Financial Services.
Mr. Horton, who was based in Shrewsbury, N.J., allegedly churned a number of customer accounts and made unauthorized trades. Some of the claims involved variable annuities, according to records on FINRA's central registration depository system.
'PERFECT STORM'
"This is a perfect storm of cases," said Jeffrey Kaplan, a partner with Dimond Kaplan & Rothstein PA of Miami, who has filed one arbitration claim against Next Financial involving one of Mr. Horton's clients and who expects to file at least two more claims that may also include Raymond James.
Mr. Kaplan's client, Barbara Hock, is a widow living in Lake Worth, Fla. She and her late husband had been investing through Mr. Horton since the 1980s, according to the claim.
In 2004, soon after her husband died, Ms. Hock, a manager at a fast-food restaurant, transferred $60,000 from a Raymond James account to Mr. Horton, who had moved to Next Financial that year. She also gave him $70,000 in life insurance proceeds to invest.
That year and into 2005, Mr. Horton allegedly invested 66% to 88% of Ms. Hock's money in individual stocks. Among the companies that he invested in were Level 3 Communications Inc. of Broomfield, Colo., Lucent Technologies Inc. of Murray Hill, N.J. (since acquired by Paris-based Alcatel) and Loudeye Corp. of Seattle (since acquired by Nokia Corp. of Espoo, Finland).
The value of her account fell to about $50,000.
"Concentrating such large percentages of Ms. Hock's savings in such speculative securities was patently unsuitable. There simply was no reasonable basis for creating such a highly concentrated, speculative portfolio for Ms. Hock," according to the claim.
"There was no rhyme or reason for the trading," Mr. Kaplan said. The fact that FINRA has barred Mr. Horton strengthens his client's claim, he said.
The pending claims against Mr. Horton range from $75,000 to $1 million, according to FINRA records.
Bruce Kelly can be reached at [email protected].
