(Photo by Brian Donohue. Click to enlarge.)
By BRIAN DONOHUE
A copy of the consent order announced can be found here.
“Investors work hard to build financial security and plan for an affordable future. But those investments are jeopardized when firms ignore their duty to protect the market from illegal conduct, manipulation, and abuse,” said Attorney General Jennifer Davenport in press release announcing the penalties. “We will protect investors’ hard-earned money by ensuring financial firms operating in New Jersey comply with our laws, which require them to maintain strong supervision and anti-money laundering controls.”
A message left at the company by a reporter seeking comment was not immediately returned.
The investigation by the New Jersey Bureau of Securities (“Bureau”) within the Division of Consumer Affairs (“Division”) found that Network 1 failed to establish and implement reasonable and adequate procedures related to anti-money laundering, failed to maintain an adequate program to identify customers, and failed to establish whether it had performed reasonable due diligence on the companies whose shares it was offering and selling in private placements, among other things.
Here’s more verbatim from the AG’s press release:
Based on its investigation, the Bureau found that Network 1 violated the Securities Law by not reasonably supervising its agents who:
- opened and maintained several hundred accounts of customers in the People’s Republic of China and Hong Kong without proper proof of customer identification in violation of its anti-money laundering and customer identification program procedures;
- failed to establish whether the firm had performed reasonable due diligence in connection with its offer and sale of private placements of three companies for which it acted as placement agent; and
- failed to detect and report potentially manipulative trades that may have been intended to artificially increase the stock price of one of these three companies.
Network 1 also violated the Securities Law by failing to make and keep required books and records, including those:
- documenting the due diligence undertaken by the firm in its offer and sale of private placements in three companies;
- documenting whether it verified the identity of new clients and obtained proper documentation for hundreds of accounts from the People’s Republic of China and Hong Kong; and
- documenting whether it reviewed red flags of potentially manipulative customer trades in the shares of a company for which the firm acted as a placement agent.
Network 1 is no stranger to regulatory scrutiny. In March 2025, the Financial Industry Regulatory Authority (“FINRA”) censured Network 1, fined it $400,000, and required it to retain a third-party consultant to examine and make recommendations regarding the firm’s procedures.
Today’s Consent Order requires the consultant to report to the Bureau whether Network 1 has adequately implemented the FINRA-related recommendations and to also review and make recommendations on procedures and operations relevant to the Bureau’s investigation.
Additionally, Network 1 has relieved Michael Molinaro of his responsibilities as the firm’s Chief Compliance Officer and Anti-Money Laundering Compliance Officer. The Consent Order provides that he will not be reappointed to those positions or any other supervisory, compliance, or securities principal positions.
The Bureau’s investigation was handled by Supervising Investigator Irwin Slotnick, Investigator Isaac Reyes, and Investigator Elizabeth Lugo. The Bureau was represented in this matter by Assistant Attorney General Brian F. McDonough and Deputy Attorney General Paul J. McEnroe of the Securities Fraud Prosecution Section in the Division of Law’s Affirmative Civil Enforcement Practice Group.
redbankgreen editor Brian Donohue may be reached via email at [email protected] or by calling or texting 848-331-8331.
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