FINRA Fines Investment Network for Misconduct in Pre-IPO Sales

​Investment Network, Inc. (INI) and its CEO, Gary L. Arnold, have faced penalties from FINRA for their involvement in misleading private placement sales of pre-IPO funds between October 2020 and May 2021. The regulatory body uncovered a range of violations tied to both deceptive sales practices and failure to meet critical supervisory and compliance standards.

One of the main issues identified was INI’s concealment of its actual earnings. Investors were told the firm would only earn a 10% commission on the sales of these pre-IPO funds. In reality, INI had an undisclosed agreement to receive extra compensation, which included an additional 5% and a share in carried interest. This crucial information was kept from investors, violating key disclosure rules intended to maintain transparency.

Furthermore, INI did not conduct the necessary due diligence on the pre-IPO shares it recommended to clients. The firm failed to verify the availability of these shares and did not ensure the offering prices were fair. As a result, it breached rules designed to protect investors from potential risks and exploitation.

Alongside these issues, INI's supervisory system was found severely lacking. The firm did not implement proper procedures to oversee its private placements, leaving significant gaps in compliance with financial regulations. Arnold himself also failed to enforce effective oversight, further compounding the violations.

In addition, INI failed to comply with anti-money laundering regulations by neglecting to implement adequate customer identification procedures.

As part of the settlement, INI will face a 60-day suspension from private placement activities, a $210,000 fine, and disgorgement of over $63,000. Arnold will serve a three-month suspension from his principal role and must requalify for his position. Both parties accepted FINRA's penalties to resolve the matter.