Behind some of the most bizarre IPOs in the US market is a little-known brokerage firm operating out of an office in a red building near railway tracks and fifty miles from Manhattan Midtown.
Network 1 Financial Securities Inc., based in Red Bank, New Jersey, were underwriters to six IPOs in the microcap segment. The shares of these companies surged by an average of 2190% on the first day it was listed and traded.
The performance is 250 times better than those IPOs underwritten by JPMorgan & Chase Co, Goldman Sachs, and Morgan Stanley, as per data compiled by Bloomberg.
Grand Debut
Despite a mind-boggling debut, the fall was equally dramatic for the Network 1 listing. Though the price is still in the positive zone, the average offering has plunged by 75% from the peak in only a month.
It is common to see big movements in small stocks on Wall Street. However, what was glaring was that deals underwritten by Network 1 have been consistent in the wild price swings. Network 1 was founded in 1983, and the company positions itself as a full-service brokerage firm for sophisticated investors.
The volatile firms that are gut-wrenching are part of the IPO market in New York, and most of these companies are from China. These companies have baffled investors and observers and drawn US securities authorities’ attention.
An astonishing example of underwriting by Network 1 was Addentex Group Corp., a Chinese garment manufacturer. The shares soared 13,000 % To $656.54 on their listing debut on august 31. It briefly became bigger than more than a third of stocks listed in the S&P 500 index. The revenue of this company was less than $13 million for the year ending march 2022. The next day in Trading, the price fell to $ 30.
Bloomberg News reporter’s visit to the Network1 office in New Jersey, nobody was available to talk. The company declined to comment on phone calls and did not respond to mail. Network 1 so far has not been guilty of any wrongdoings about the Initial Public offerings it had underwritten.
Chairman Damon D. Testaverde of Network 1 had said in a recent video that his clients were sophisticated high-net-worth clients in the US and other countries.
Regulatory Issues
Network 1 has a track record of skirmishes with regulators. It was censured for breaches that ranged from a lack of policy for detecting suspicious trading and anti-money laundering programs.
In 2007 it was fined $100,000 for influencing a customer who was a controlling shareholder of a company to sell stocks in a quantity that exceeded regulatory caps. Network 1 had to buy back the shares and resell them, and Chairman Testerverde was suspended from trading for four months.
Network 1 carried out private placements for companies like Space Exploration Technologies Corp. and Grab holdings ltd as per their marketing brochures.
Out of the 49 stocks handled by Network 1 since 1995, 17 are trading at 80% below the offer price. Only seven of them are in positive territory.
