FINRA Fines NexPoint Securities $50K for Net Capital, Reporting Violations

The Financial Industry Regulatory Authority has censured and fined Dallas-based broker-dealer NexPoint Securities Inc. $50,000 for serious violations of net capital, books and records, and supervisory rules stretching from late 2021 into early 2022.

The regulatory action stems from an investigation that found NexPoint conducted a securities business while its capital fell below the required minimum for 44 days between November 2021 and February 2022. The firm’s net capital deficiencies were substantial, ranging from a low of $8,511 to a high of over $1.48 million.

NexPoint, which primarily distributes its affiliates’ mutual funds and investment company shares, attributed the capital shortfalls to the misclassification of non-allowable assets. Specifically, the firm incorrectly: classified deferred tax assets and federal tax prepayments as liabilities instead of non-allowable assets; and treated certain commissions owed to its registered representatives as allowable assets.

These accounting errors led the firm to incorrectly calculate and significantly overstate its net capital. The miscalculations triggered several further violations:

• From February 2021 through March 2022, the firm maintained inaccurate general ledgers and net capital computations, which resulted in overstating its net capital on 14 monthly FOCUS Reports by amounts ranging from $74,000 to over $814,000.
• NexPoint failed to file required notices with FINRA and the U.S. Securities and Exchange Commission on 18 days when its net capital fell below the minimum requirement and on an additional 12 days when its capital declined below 120% of the minimum.

FINRA also found that NexPoint violated rules by failing to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with net capital and financial reporting requirements. The firm’s written procedures reportedly lacked sufficient guidance on performing net capital computations and ensuring the accuracy of financial notifications.

NexPoint accepted and consented to FINRA’s findings without admitting or denying them. In addition to the $50,000 fine and a formal censure, NexPoint has also agreed to a significant undertaking to overhaul its compliance systems.

NexPoint has been a FINRA member since November 2013. It has 48 registered representatives in one branch office.

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