If your stockbroker sold you an investment or security that was not approved for sale by your brokerage firm, it’s likely your broker is guilty of ‘selling away.’ Selling away fraud usually involves the sale of direct private placements (and other kinds of non-publicly traded securities). However, selling away could involve any kind of investment that isn’t on your brokerage firm’s approval list.
The Financial Industry Regulatory Authority (FINRA), which polices the actions of stockbrokers, prohibits the selling of unapproved investments.
Whenever a stockbroker commits selling away, his employing brokerage firm may be liable for failing to supervise his actions. If you suspect that you’ve been the victim of selling away fraud and you lost money because of it, you may be able to file an FINRA arbitration claim against your brokerage firm and/or stockbroker to try and get your money back.
How Selling Away Happens
Imagine an 80-year-old retiree entrusts his multimillion-dollar retirement portfolio to an unscrupulous stockbroker. A dishonest stockbroker with a gift for ‘making the sale’ could convince this man to buy just about anything, including securities that have not been approved for sale by his brokerage firm.
When a stockbroker is ‘selling away’ from his employing brokerage firm, it’s particularly dangerous because your brokerage firm hasn’t evaluated the trustworthiness of the investment, i.e., the investment could be a scam.
Here are the most common ways that selling away happens:
- Your stockbroker intentionally or unintentionally recommends that you purchase any investment that has not been approved for sale by your brokerage firm.
- Your stockbroker wants to benefit personally in some way from an ‘under the table’ transaction. This could be as simple as recommending you buy a collection of gold coins, or it could be a private placement or limited partnership that benefits your broker’s personal business venture.
- Your broker sells you an unapproved investment by accident out of negligence, if the broker didn’t properly research the investment to make sure it was on his firm’s approval list.
- A stockbroker sells you an unapproved investment on the side because he wants to keep all the commissions for himself rather than splitting the commission with your brokerage firm.
- A stockbroker sells you a promissory note loan that promises a high rate of interest. However, as soon you agree to make the loan, you never receive payments and/or the payments stop early. In other words, it was just a scheme to steal your money.
Selling away transactions typically happen on the side, and your brokerage firm may not be aware of the transactions. However, in many cases, you can file a complaint against both your stockbroker and your brokerage firm, especially if your brokerage firm neglected its duty to supervise the actions of your stockbroker.
Know Your Rights
Selling away fraud is a violation of Financial Industry Regulatory Authority (FINRA) Rule 3270 and National Association of Securities Dealers (NASD) Rule 3040. A selling away case will involve other legal claims as well.
FINRA Rule 3720 (Outside Business Activities of Registered Persons) states:
No registered person may be an employee…or partner of another person, or be compensated…as a result of any business activity outside the scope of the relationship with his or her member firm [brokerage firm]…
NASD Rule 3040 (Private Securities Transactions of an Associated Person) states that prior to making any outside sale, a stockbroker must obtain permission from his employing brokerage firm. If approved, the employing brokerage firm is required to supervise the transaction and treat it as if it were any normal transaction.
If selling away took place, then a stockbroker’s actions may also constitute a breach of fiduciary duty, especially if your stockbroker benefited from the sale while harming you in the process. Another issue will be your brokerage firm’s failure to supervise the actions of your stockbroker. Make sure to visit the CIRC’s articles on these topics if you’d like to learn more.
Try and Get Your Money Back!
If you suffered financial damages because your stockbroker sold you an investment that wasn’t approved for sale by your brokerage firm, you may qualify to receive full or partial compensation for the money you lost.
Regardless of whether your stockbroker intentionally tried to defraud you or sold you an unapproved investment by accident, it’s important for selling away victims to realize this is not your fault!
Pursuing a stock fraud claim will not only teach Wall Street brokerage firms the importance of supervising the actions of their employees, but it could even prevent other consumers from suffering as you have by forcing Wall Street investment companies to act with honesty, integrity, and responsibility.
You may be eligible to receive compensation, even if you sold or continue to hold the securities at issue. Contact us today to set up a free consultation. We will listen to your story, answer any questions you may have and discuss your legal rights and options.