A New Jersey-based broker-dealer has been penalized by the Financial Industry Regulatory Authority over violations involving Regulation Best Interest, reports ThinkAdvisor.
According to a letter of acceptance, waiver and consent, FINRA ordered Network 1 Financial Securities to pay a $200,000 fine as well as restitution of $533,587 plus interest. The firm was also censured. Network 1 accepted and consented to the findings by FINRA without admitting or denying them:
FINRA determined that from January 2016 through March 2022, Network 1 did not establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111 and the Care Obligation of Rule 15l-1 of the Securities Exchange Act of 1934 (Reg BI) as they pertain to excessive trading in violation of FINRA Rules 3110 and 2010
As of June 30, 2020, Network 1 also violated Reg BI’s Compliance Obligation by not establishing, maintaining, and enforcing written supervisory procedures reasonably designed to achieve compliance with Reg BI. FINRA stated that the supervisory failures resulted in Network 1 not addressing red flags of excessive trading in eight customer accounts. The company’s representatives recommended the customers place frequent trades and the customers relied on the recommendations.
According to FINRA, “The level of trading in each account, which resulted in a cost-to-equity ratio in excess of 20%, and in some cases, cost-to-equity ratios in excess of 50%, was inconsistent with the customers’ investment profiles and was not in the customers’ best interest. Collectively, the recommended trading caused these eight customers to pay more than $533,500 in commissions and trading costs.”
The SEC’s Reg BI establishes a “best interest” standard of conduct for broker-dealers when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, requiring that they act in the customer’s best interest.
The attorneys at Lewitas Hyman understand the complexities that come with being the subject of a regulatory inquiry by the SEC, FINRA and other self-regulatory organizations, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact us at (888) 655-6002 or through our online contact form for a free consultation.