The Financial Industry Regulatory Authority (FINRA) has imposed fines on Investment Network, Inc. (INI) and its CEO Gary L. Arnold.
In connection with the recommendation and sale of a pre-initial public offering (pre-IPO) fund private offering (the Offer) between October 2020 and May 2021 to retail clients, INI has involved in some kind of wrongdoing.
INI offered investors a 10% sales commission from the sale of the public product, even though INI actually had an agreement with the issuer of the public product (Issuer) to receive an additional sales commission. He engaged in a deceptive business in which he falsely represented that he would only receive commissions. 5% of sales commission and half of retained interest. INI never disclosed this agreement or the additional compensation it would receive to investors.
As a result, INI independently and in violation of FINRA Rules 2010 in violation of Section 17(a)(3) of the Securities Act of 1933. INI also intentionally violated the Best Interest Rule (Reg BI) set forth in the Securities and Exchange Act Regulations. 15l-1(a)(1) did not comply with Reg BI’s disclosure requirements set forth in Rule 15l-1(a)(2)(i)(B), violating FINRA Rule 2010.
INI had no reasonable basis to believe that the Product was in the best interests of at least some of its retail customers. INI requires that, prior to the recommendation and sale of the new shares, the issuer owned or had access to the pre-IPO shares identified in the issue document, or that the issuer’s prices and markups were reasonable and not excessive; could not be confirmed.
As a result, INI failed to comply with the Reg BI duty of care set forth in Exchange Act Rule 15l-1(a)(2)(ii)(A), knowingly violated Reg BI, and was subject to FINRA Rule 2010. It would also be a violation.
In violation of the Bank Secrecy Act and its implementing regulations, INI did not implement a reasonable customer identification program (CIP) for customer accounts opened by representatives who sold products. INI authorized the opening of these accounts without receiving sufficient information to verify the customer’s identity. As a result, INI violated FINRA Rules 3310(b) and 2010.
INI failed to make required filings with FINRA in connection with the Offering. As a result, INI violated FINRA Rules 5123 and 2010.
Additionally, INI and Arnold failed to establish, maintain, and enforce a reasonable supervisory system, including written supervisory procedures (WSPs).
From October 2020 to May 2021, INI and Arnold established, maintained and enforced a reasonable oversight system, including WSP, to achieve compliance with Reg BI’s duty of care with respect to the Company’s private placement offering. failed. The Company did not have a WSP in relation to its private placement offering, including compliance with the Care Obligation of Reg BI, and did not appoint a supervisor with responsibility for overseeing such offering.
In fact, the company failed to conduct reasonable due diligence on its products and failed to exercise oversight to ensure that its product recommendations were in the best interests of its customers.
Finally, the Company did not have a WSP associated with its private placement filing with FINRA under FINRA Rule 5123.
As a result, INI did not comply with its Reg BI compliance obligations as set forth in Exchange Act Rule 15l-1(a)(2)(iv), intentionally violated Reg BI, and INI and Arnold were subject to FINRA Regulations. 3110 and 2010.
From at least February 2019 to the present, INI and Arnold have failed to establish, maintain, and enforce a supervisory system, including WSP, that is reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111. I did. Also, as of June 30, 2020, BI’s duty of care regarding overregulated transactions.
As a result, INI did not comply with its Reg BI compliance obligations set forth in Exchange Act Rule 15l-1(a)(2)(iv), violated Reg BI, and INI and Arnold were subject to FINRA Rules 3110 and 2010. Violated.
From June 30, 2020 to the present, INI and Arnold have failed to establish written regulatory procedures for Reg BI and, therefore, have failed to establish and maintain a WSP reasonably designed to achieve compliance with Reg BI. , could not be enforced.
As a result, INI failed to comply with its Reg BI compliance obligations and intentionally violated Reg BI, and INI and Arnold violated FINRA Rules 3110 and 2010.
In order to resolve matters with FINRA, Investment Network, Inc. has agreed to:
Censure; suspending conduct of any private placement activity for 60 days; Fine of $210,000. Disgorgement of $63,769.60 plus interest as shown below. Businesses that require certification of the company’s supervisory system.
Gary Arnold agreed:
Suspend any relationship with a FINRA member firm in any major capacity for three months. $10,000 fine. Before acting as a FINRA member and acting as a general securities principal, you must pass the necessary exams and re-qualify as a general securities principal.
