FINRA Hits Another BD With Reg BI-Related Fine
What You Need to Know
The firm and its chief compliance officer failed to establish, maintain and enforce a supervisory system to comply with Reg BI as it pertains to excessive trading.
As a result, the firm failed to identify issues of excessive trading in eight client accounts, according to FINRA.
These trades resulted in cost-to-equity ratios in excess of 50% in some cases.
The Financial Industry Regulatory Authority has fined and censured another broker-dealer, as well as its chief compliance officer, over Regulation Best Interest violations.
According to FINRA’s order, from January 2016 through March 2022, Network 1 Financial Securities “did not establish, maintain and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111 and the Care Obligation” of 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 WSPs reasonably designed to achieve compliance with Reg BI, which took effect on June 30, 2020.
From July 2017 through March 2022, according to the order, Network 1′s chief compliance officer, Michael Molinaro, “violated FINRA Rules 3110 and 2010 by not establishing, maintaining and enforcing a supervisory system, including WSPs, reasonably designed to achieve compliance with FINRA Rule 2111 and, as of June 30, 2020, Reg BI, as they pertain to excessive trading.”
Network 1, headquartered in Red Bank, New Jersey, has 14 branch offices and approximately 100 registered reps.
Molinaro’s Background
Molinaro first registered with FINRA in 1993, FINRA states.
In February 2014, Molinaro registered as a General Securities Representative and General Securities Principal, among other registrations, through an association with Network 1. In July 2017, he became Network 1’s chief compliance officer.
In 2015, Molinaro entered into a letter of acceptance, waiver and consent in which he consented to findings, including that he failed to enforce a reasonably designed supervisory system with respect to private placements while associated with another broker-dealer.
The AWC suspended Molinaro from association with any FINRA member firm in any principal capacity for 45 days.
According to FINRA’s order, “In 2009, the State of Idaho entered an Order and Agreement finding that Molinaro, while associated with another broker-dealer, had failed to disclose on a Uniform Application 2 for Securities Industry Registration or Transfer (Form U4) registering another employee in Idaho, an Iowa order establishing heightened supervision for that employee.”
