Charles C. Kulch, who has been in the crosshairs of state regulators for pumping sales of pricey nontraded real estate investment trusts, last month was barred from selling securities in New Hampshire for allegedly overcharging clients, according to a settlement posted this week on the website of the state's Bureau of Securities Regulation.
Kulch and his former broker-dealer, Next Financial Group Inc., are on the hook for more than $1 million in penalties: $663,000 in restitution to clients; a fine of $325,000; and $100,000 for the cost of the investigation.
Kulch has been the target of state securities investigators for several years. In 2020, Secretary of the Commonwealth of Massachusetts William Galvin said that he had charged Kulch with violations of state securities laws as a result of his alleged practice of overconcentrating customers in illiquid, high-commission products, including nontraded REITs and variable annuities.
According to the New Hampshire order, Kulch was overcharging clients with fees called "consulting service agreements," or CSAs.
After interviewing former clients and employees, as well as reviewing Next Financial Group's policies and procedures, the New Hampshire Bureau of Securities Regulation alleged that most of the CSA fees in question were unlawfully charged.
In his settlement with New Hampshire, Kulch neither admitted nor denied the facts alleged in the matter. A call on Thursday morning to his business, Kulch Financial Services, could not be completed.
Kulch has worked in the securities industry in Nashua, New Hampshire, since 1993, and was registered with Next Financial Group from 2006 until 2020, according to his BrokerCheck report. He has 17 disclosure items on his BrokerCheck report and is no longer registered with a firm.
In 2019, New Hampshire investigated Kulch and Next Financial over the sales of nontraded REITs, with the New Hampshire Bureau of Securities Regulation alleging that the sales were unsuitable because they exceeded the firm's concentration guidelines for the product, according to the settlement. States typically place a limit on the amount of illiquid alternative securities a financial advisor can sell to clients.
A year later, New Hampshire began its investigation into the alleged overcharging of CSA fees.
According to the settlement, the state "alleged that Kulch engaged in several violations of the New Hampshire securities law, including misrepresenting the nature of CSA fees he charged to those clients.
"Additionally, the Bureau alleged that from January 2014 to May 2020, Kulch engaged in a practice which caused a number of clients to pay both advisory fees and separate, quarterly CSA fees, sometimes on multiple accounts, for services nearly indistinguishable from what clients were supposed to be receiving from the advisory relationship," according to the settlement.
Charging clients two types of fees on the same account, or double-dipping, is particularly unusual, said Jeff Erez, a plaintiff's attorney.
"We’ve seen churning and using leverage to increase assets, so there’s more assets to charge the clients fees," said Erez. "But this kind of double-dipping is highly irregular. You’d think the firm would have systems in place to prevent that from happening."
LPL Financial Holdings Inc. last month said it was acquiring Atria Wealth Solutions Inc., which launched as a broker-dealer aggregator in 2017 and acquired Next Financial Group in 2019. Atria has 2,400 financial advisors and registered reps who work with $100 billion in client assets across seven broker-dealers.
A spokesperson for LPL said the firm declined to comment on the matter as the Atria deal is still working its way through regulatory approvals. "We also refrain from commenting on pending legal activity," the spokesperson added.
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