FINRA Fines Investment Network and CEO for Misleading Investors
According to a letter of acceptance, The Financial Industry Regulatory Authority (FINRA) has reportedly imposed fines, censure, and suspensions on Investment Network Inc., a general securities broker-dealer, and its CEO, for alleged misconduct and supervisory failures related to private placement offerings of pre-initial public offering (pre-IPO) funds sold to retail customers.
Investment Network reportedly received a fine of $210,000 and was ordered to disgorge $63,769.60 plus interest. The company’s chief executive was reportedly fined $10,000.
FINRA’s investigation found that between October 2020 and May 2021, Investment Network allegedly misled investors by falsely stating that it would only receive a 10% sales commission from the sale of pre-IPO offerings.
In reality, the firm purportedly had an undisclosed agreement with the issuer to receive an additional 5% in selling compensation, as well as purportedly a share of any carried interest. This additional compensation and arrangement were allegedly never disclosed to investors, constituting a deceptive business practice.
Regulation Best Interest Violations
Furthermore, FINRA allegedly found that Investment Network lacked a reasonable basis to believe the offerings were in the best interests of some retail customers. Before recommending the pre-IPO offerings, the firm allegedly failed to verify whether the issuer had access to the pre-IPO shares listed in the offering documents or whether the prices and markups were reasonable.
The firm also reportedly failed to implement an adequate customer identification program and did not make the necessary filings with FINRA in connection with these offerings.
Investment Network – Failure to Supervise
Investment Network and the executive allegedly failed in their supervisory duties, neglecting to maintain a sufficient supervisory system or appropriate written supervisory procedures.
These violations reportedly breached multiple FINRA regulations, elements of Regulation Best Interest (Reg BI), and the Bank Secrecy Act.
In addition to the fines, Investment Network has reportedly been suspended from conducting private placement activities for 60 days and allegedly must certify that it has addressed and corrected the identified issues, including the implementation of a supervisory system designed to ensure compliance with Reg BI.
The firm’s CEO has reportedly been suspended from serving in a principal capacity at any FINRA member firm for three months and must requalify as a general securities principal by passing the required examination before resuming his duties.
Investment Network Inc., based in Canton, Ohio, operates as a general securities business with around 20 registered representatives and five branch offices.
Fiduciary Duty
Investment advisors have a fiduciary duty to act in the best interest of their clients. Regulation Best Interest enforces this duty by requiring that advisors make decisions that serve their clients’ best financial interests, with full transparency.
FINRA member firms must have supervisory systems in place to prevent and detect broker misconduct. This rule emphasizes that firms must supervise advisors’ activities to ensure they do not violate client trust or regulatory standards.
Broker dealers are required to supervise their representatives. Firms that fail to do so, may be held responsible for any losses in a FINRA arbitration claim.
Free Consultation
If you have suffered investment losses, the securities attorneys at The White Law Group may be able to help you. For a free consultation to learn about your options, please call The White Law Group at 888-637-5510.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington.
Last modified: October 21, 2024
