FINRA Alleges Gustave J. Schmidt Hid Compensation on Pre-IPO Private Placements

The Financial Industry Regulatory Authority (FINRA) has filed a disciplinary complaint against broker Gustave J. Schmidt (CRD #2709698). The complaint claims Schmidt steered customers into private placement investments marketed as pre-initial public offering (IPO) opportunities while withholding key details about his compensation, including arrangements that reportedly went beyond what investors were told.

The complaint, filed in November 2025, claims Schmidt recommended these offerings while associated with Investment Network Inc. (INI) and failed to provide full written disclosure of conflicts tied to additional fees and profit-sharing. The matter remains pending, and FINRA’s allegations have not been proven.

Alleged Conflicts of Interest in Private Placements

Between December 2020 and April 2021, Schmidt allegedly recommended private placement offerings involving interests in pre-IPO companies to 10 retail customers, resulting in 18 investments totaling $437,100 in principal.

According to the complaint, the offering documents provided to investors disclosed that Schmidt and INI would receive “up to ten percent” in placement fees. FINRA alleges, however, that the issuer had promised additional compensation beyond that disclosure, specifically, an extra 5% fee plus 50% of any carried interest (profit share) collected by the manager.

FINRA claims Schmidt ultimately received $59,664.15 in commissions, including at least $19,888.05 tied to the undisclosed 5% fee, and that INI also received $32,005.42 in undisclosed carried interest compensation.

FINRA Raises Reg BI Care Obligation Concerns

FINRA also alleges Schmidt failed to meet Regulation Best Interest’s Care Obligation because he did not have a reasonable understanding of the private placement offerings before recommending them. According to the complaint, FINRA claims Schmidt did not exercise reasonable care, diligence and skill to evaluate the products’ risks, potential rewards and costs — and specifically lacked a sufficient understanding of how the offerings were structured, how the pre-IPO interests were acquired, and what the total investor costs were.

That matters because pre-IPO private placements are typically complex and illiquid, and regulators expect a broker to do enough due diligence to understand how the investment works and what investors are paying (including fees and any markups) before presenting it as a recommendation. FINRA alleges Schmidt’s lack of product understanding meant he lacked a reasonable basis to recommend the offerings to any retail customer.

Understanding Pre-IPO Private Placement Offerings

The investments at the center of FINRA’s complaint involve private placement offerings marketed as a way to gain exposure to pre-IPO companies, meaning companies that are not publicly traded yet and are typically only available through private, limited-access deals. In this case, FINRA describes these as offerings that allowed investors to indirectly invest in privately held pre-IPO companies through a fund “series” tied to a specific company.

For many investors, the biggest issues with private placements are structural. They often come with limited liquidity (you may not be able to sell when you want), limited transparency (less public reporting than a public company investment) and layered fees (multiple compensation streams that can reduce returns and create conflicts). Those features are why regulators often focus on whether investors received full, clear disclosures about how the product works and what it costs before a recommendation is made.

Why These Allegations Matter for Investors

Undisclosed compensation can create a meaningful conflict of interest. When a broker stands to earn more than what was described to the client, it can raise questions about whether the recommendation was influenced by incentives that the investor did not fully understand.

Private placements are also typically illiquid and harder to value than publicly traded securities. That makes fees, commissions and compensation arrangements especially important — because costs can directly impact performance, and investors may have fewer practical ways to exit if the investment underperforms.

A FINRA complaint is not proof of wrongdoing, and these claims are still allegations. However, allegations involving conflicts of interest and misrepresentation or omissions are significant because they go to the core of whether investors received the information they needed to evaluate the recommendation.

If you purchased any of the offerings at issue, it may be worth gathering and reviewing the paperwork tied to the transactions, including subscription documents, offering materials, fee and compensation disclosures and any written account communications (emails, texts or notes) that describe the strategy and costs.

Speak With Our Securities Law Team Today

If you invested in pre-IPO private placements recommended by Gustave J. Schmidt (or through Investment Network Inc.) and have questions about disclosures, compensation or account losses, it may be worth getting a clear read on your potential recovery options.

Sonn Law Group represents investors nationwide in FINRA disputes involving private placements, conflicts of interest and misrepresentation or omissions. We work on a contingency fee basis, so you pay nothing unless we recover compensation for you.

Call 833-912-3000 or complete our online contact form to schedule a confidential consultation.