NexPoint Securities, Inc has agreed to pay a fine of $50,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

NexPoint conducted a securities business while under its minimum net capital requirement on 44 days between November 2021 and February 2022.

The firm’s net capital deficiencies ranged between $8,511 and $1,486,435. The deficiencies occurred because the firm misclassified certain non-allowable assets.

First, the firm misclassified deferred tax assets and federal tax prepayments as liabilities rather than as non-allowable assets. Second, the firm misclassified commissions that it was to receive for its registered representatives’ sales of the firm’s affiliates’ mutual fund products as allowable assets rather than as non-allowable assets. These misclassifications caused the firm to incorrectly calculate and overstate its net capital.

Therefore, NexPoint violated Exchange Act § 15(c)(3), Exchange Act Rule 15c3-1, and FINRA Rules 4110(b)(1) and 2010.

Further, from February 2021 through March 2022, NexPoint prepared and maintained inaccurate general ledgers, net capital computations, and other financial books and records. NexPoint’s inaccurate books and records were caused by the firm’s misclassification of certain non-allowable assets.

As a result, the firm also inaccurately recorded certain financial information, including its assets, liabilities, expenses, and net capital, on 14 monthly FOCUS reports for the period February 2021 through March 2022.

During this period, the FOCUS reports overstated the firm’s net capital in amounts that ranged from $74,000 to $814,337.

Also, between November and December 2021, NexPoint failed to file with FINRA and the SEC the required notices for 18 days on which the firm’s net capital declined below the firm’s required minimum amount. Between October and December 2021, NexPoint failed to file with FINRA and the SEC the required notices for 12 additional days on which the firm’s net capital declined below 120% of the firm’s required minimum amount.

Therefore, NexPoint violated Exchange Act § 17(a), Exchange Act Rules 17a-3, 17a-5, and 17a-11, and FINRA Rules 4511 and 2010.

In addition, since at least February 2021, NexPoint has failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with net capital and financial reporting rules. The firm’s supervisory system and WSPs do not include written guidance, in the WSPs or elsewhere, addressing how net capital computations should be performed.

Further, the firm has unreasonable supervisory processes and WSPs designed to achieve compliance with FINRA Rule 4110(b)(1), despite the firm’s historical net capital deficiencies.

Finally, the firm had unreasonable processes and procedures to confirm the accuracy of the firm’s financial notifications, including for verifying whether the firm has included all dates on which the firm was net capital deficient.

Therefore, NexPoint violated Rules 3110 and 2010.

On top of the $50,000 fine, the firm has agreed to a censure and an undertaking that a member of its senior management who is a registered principal of the firm will certify in writing that the firm has remediated the issues and implemented a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with Exchange Act §§ 15(c)(3) and 17(a), Exchange Act Rules 15c3-1, 17a-3, 17a-5, and 17a-11, and FINRA Rules 4110(b)(1) and 4511.

NexPoint has been a FINRA member since November 2013 and is headquartered in Dallas, Texas. The firm has 48 registered representatives in one branch office. The firm’s business primarily involves the distribution of the firm’s affiliates’ mutual funds, investment company shares, and the sale of unregistered self-offerings.