Firm Violated Securities Laws By Opening Hundreds of Accounts for Customers in Hong Kong and People’s Republic of China Without Proper Proof of Identification

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TRENTON – Attorney General Jennifer Davenport and the New Jersey Bureau of Securities (“Bureau”) within the Division of Consumer Affairs (“Division”) announced today that a New Jersey-based broker-dealer has agreed to pay a $375,000 civil penalty and implement remedial measures after a Bureau investigation found that the firm violated the law by failing to establish and maintain reasonable anti-money laundering procedures and other supervisory procedures.

Network 1 Financial Securities, Inc. (“Network 1”) of Red Bank, New Jersey, entered into a Consent Order with the Bureau today to resolve findings that it violated the New Jersey Uniform Securities Law (“Securities Law”). The Bureau 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.

“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 Davenport. “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.”

“For many people, every dollar invested represents years of hard work and careful planning,” said Jeremy E. Hollander, Acting Director of the Division of Consumer Affairs. “New Jersey’s financial markets must be kept fair, transparent, and trustworthy—so investors can participate with confidence and security. Today’s announcement demonstrates the Division’s continuing commitment to that goal.”

“Broker-dealers and their agents perform the critical role of gatekeepers in our financial markets,” said Bureau Chief Keith A. Alt. “They have a clear obligation to conduct meaningful due diligence of the securities they offer and sell, know the identity of their customers, and identify red flags that may signal fraud or market manipulation. When those safeguards break down, investors and market integrity are placed at risk.”

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.