Alleged Misconduct of Network 1 Financial Securities, Inc.

Network 1 Financial Securities, Inc. allegedly violated FINRA Rules 3110, 2210, and 2010 by failing to reasonably supervise a sales representative’s activity in connection with a private placement and by distributing offering materials that contained erroneous or misleading information. FINRA stated that the firm permitted the distribution of promotional materials that misrepresented collateralization of the investment and omitted key risk disclosures.

Network 1 Financial Securities, Inc., a FINRA member firm since 1983, is headquartered in Red Bank, New Jersey, operates 13 branch offices, and employs approximately 100 registered representatives. The firm has a regulatory history that includes a 2023 settlement over inadequate supervisory systems related to suitability and Regulation Best Interest compliance. At the time of the alleged violations in 2021–2022, the firm acted as placement agent for a private placement involving Company A, which planned to operate a blockchain-integrated exchange for fractionalized fine art interests.

Under FINRA Rule 3110, firms must establish and maintain a supervisory system reasonably designed to ensure compliance with securities laws and regulations. This includes investigating and acting on red flags. Rule 2210 requires all communications to be fair, balanced, and not misleading, with material risks clearly disclosed. For example, a firm cannot circulate a marketing document claiming an investment is “fully secured” if no such security exists, nor can it omit the fact that the issuer has no operating history if that information is material to an investment decision.

According to FINRA, Network 1 failed to prevent a representative from sending documents to over a dozen potential investors that falsely stated the offering was “contractually collateralized by debt-free blue-chip artwork” when no such collateralization existed. The promotional materials also exaggerated the issuer’s business prospects and omitted significant risks, including its limited operating history and novel business model. These deficiencies occurred despite the firm’s own unresolved concerns about the issuer’s assets—concerns that later caused the firm to withdraw from the offering.

Lufrano Law, LLC is a national investment litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. Please contact us at (800) 627-2179 for more information if you have been the victim of investment negligence or fraud.

The content on this site reflects personal opinions and does not constitute statements of fact. No findings have been made against the firms or individuals mentioned. This blog is intended solely for educational purposes, drawing on publicly available information to provide general insights and a basic understanding of the law. It is not a substitute for legal advice.