Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Michael Molinaro (Molinaro), currently associated with Network 1 Financial Securities Inc., has at least 2 disclosable events. These events include 2 tax liens, alleging that Molinaro recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on March 04, 2025.
Without admitting or denying the findings, the firm and Molinaro consented to the sanction and to the entry of findings that they developed and implemented an AML compliance program (AMLCP) that was not reasonably designed to achieve compliance with the requirements of the Bank Secrecy Act (BSA) and its implementing regulations. The findings stated that the firm’s Customer Identification Program (CIP) was not reasonably designed to verify the identity of foreign customers opening accounts at the firm who did not appear in person at the firm or to reasonably verify the identity of many customers who opened accounts to invest in initial public offerings (IPOs) for small-cap issuers. In addition, the firm and Molinaro did not establish and implement policies and procedures that could be reasonably expected to detect and cause the reporting of suspicious transactions concerning the firm’s investment banking business. As a result of these deficiencies, the firm did not detect or reasonably investigate AML red flags across multiple areas of its investment banking business. Molinaro was designated as the firm’s AMLCO and was responsible for all aspects of its AML program. Despite having knowledge of the AML red flags, Molinaro never conducted an AML investigation concerning any of this activity.
FINRA BrokerCheck shows a final customer complaint on August 31, 2023.
Without admitting or denying the findings, Molinaro and his member firm 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 Rule 15l-1 of the Exchange Act (Reg BI) as they pertain to excessive trading. The findings stated that Molinaro was designated as the principal responsible for developing supervisory procedures for the firm with respect to all products, services, or line functions that need to be the subject of written compliance policies and WSPs. The WSPs did not set forth how 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, did not provide reasonable guidance about what steps to take after identifying an excessively traded account, and did not specify whether, or in what circumstances, supervisors should consider restricting the commissions that could be charged in a customer’s account. In addition, the firm and Molinaro did not revise the firm’s WSPs to reference Reg BI until 8-months after its effective date. After Molinaro revised the firm’s WSPs, the WSPs provided no guidance about what steps to 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. When the firm did identify 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, such as restricting the commissions that representatives could charge in accounts, until later. As a result, in some instances, representatives continued charging high commissions even after the firm had notice of excessive trading. 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. As a result of these supervisory failures, the firm did not identify or address red flags of excessive trading in 8 customer accounts. In each account, the firm’s representatives recommended that the customers place frequent trades, and the customers routinely relied on those recommendations. The level of trading in each account, which resulted in a cost-to-equity ratio in excess of 20%, and in some cases in excess of 50%, was inconsistent with the customers’ investment profiles and was not in the customers’ best interest. Collectively, the recommended trading caused these customers to pay more than $533,500 in commissions and trading costs.
Brokers are required to adhere to the SEC’s Regulation Best Interest (Reg BI) standard of care under the Securities Exchange Act of 1934 which establishes a ‘best interest’ standard for broker-dealers and associated persons. This Reg BI standard of care applies to registered representatives making recommendations to customers in the purchase, sale, or exchange of securities or the implementation of investment strategies involving securities and non-securities. The rule also applies to the handling of opening accounts such as account transfers and types of accounts being recommended to be opened. Reg BI is drawn from fiduciary principles that include an obligation to act in the retail investor’s best interest and the broker is prohibited from placing their own interests ahead of the investor’s interest.
There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which requires brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations includes three components. First, the advisor must have an understanding of the potential risks, rewards, and costs associated with a product, investment strategy, account type, or series of transactions. Next, the advisor must have a reasonable understanding of the specific retail investor’s investment profile. The customer’s profile information generally includes an investor’s financial situation and needs; investments; assets and debts; marital status; tax status; age; investment time horizon; liquidity needs; risk tolerance; investment experience; investment objectives and financial goals; and any other information the retail investor may disclose in connection with the recommendation or advice. Finally, the advisor must use their knowledge of the first two elements to consider reasonably available investment option alternatives and come to the conclusion that there is a reasonable basis to believe that the recommendation or advice being provided is in the retail investor’s best interest.
Brokerage firms and advisors must also understand the features and limitations of various account types as part of meeting Reg BI’s care obligations. Firms typically offer a variety of account options and services with different trading costs, services, such as account and activity monitoring. An advisor’s recommendation as to what type of securities account to open can alter the customers’ overall costs and investment returns. The advisor must determine that the client can benefit from the type of account being recommended to be opened and in the investor’s best interest taking into account the costs, benefits, and needs of the client.
Molinaro entered the securities industry in 1996. Molinaro has been registered as a Broker with Network 1 Financial Securities Inc. since 2014.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.
