Network 1 Financial Securities Inc. (CRD #13577, Red Bank, New Jersey) and Michael Robert Molinaro (CRD #2358346, Staten Island, New York)

August 31, 2023 – An AWC was issued in which the firm was censured, fined $200,000, ordered to pay $533,587, plus interest, in restitution to customers, and required to remediate the issues identified in the AWC and implement a supervisory system, including WSPs, reasonably designed to achieve compliance with Rule 15l-1 of the Exchange Act of 1934 (Reg BI) and FINRA Rules 3110 and 2010. Molinaro was fined $5,000 and suspended from association with any FINRA member in any principal capacity for three months. Without admitting or denying the findings, the firm and Molinaro consented to the sanctions and to the entry of findings that they did not establish, maintain, and enforce WSPs reasonably designed to achieve compliance with FINRA Rule 2111 and the Care Obligation of Reg BI as they pertain to excessive trading. The findings stated that the firm’s WSPs did not set forth how the firm’s supervisors should apply certain listed factors to identify potentially excessively traded accounts; did not identify what cost-to-equity ratio or turnover rate was suggestive of excessive trading; and did not provide supervisors with reasonable guidance about what steps they should take after identifying an excessively traded account. The WSPs also did not specify whether, or in what circumstances, supervisors should consider restricting the commissions that could be charged in a customer’s account. Furthermore, the firm and Molinaro did not revise the firm’s WSPs to reference Reg BI until eight months after the rule became effective. After Molinaro revised the firm’s WSPs, they provided no guidance about what steps the firm’s principals or representatives should take to prevent, detect, or promptly correct violations of, or to otherwise achieve compliance with, Reg BI. The findings also stated that the firm and Molinaro did not establish and maintain a reasonably designed supervisory system and did not identify and respond to red flags of excessive trading. The firm received exception reports from its clearing firm that were relevant to identifying excessive trading—including a monthly report that flagged accounts with high cost-to-equity ratios. Instead of reviewing those reports, the firm limited its reviews to an internal report identifying the 100 accounts with the largest year-to-date aggregate commissions. However, that report excluded smaller accounts that had high commission amounts relative to their equity value. Moreover, even when the firm identified an excessively traded account, it did not take steps to further investigate the excessive trading and to act upon the results of the investigation. Molinaro, as the designated principal responsible for determining what actions the firm took upon identifying red flags of excessive trading, did not require the firm to take any steps until nearly two years after taking over this responsibility. As a result, in some instances representatives continued charging high commissions even after the firm had notice of excessive trading. Furthermore, after the firm began restricting the commissions that representatives could charge on individual trades in certain accounts, the restrictions often were not effective because they did not limit the number or frequency of trades or aggregate costs and commissions that could be charged to the affected accounts. As a result, representatives were not prevented from placing frequent trades in a customer’s account after a restriction was in effect, thus earning commissions on a higher number of trades. The firm’s representatives recommended that the customers place frequent trades, and the customers routinely relied on those recommendations. Collectively, the recommended trading caused these customers to pay more than $533,500 in commissions and trading costs. The suspension is in effect from September 18, 2023, through December 17, 2023. (FINRA Case #2021070851501)