Stockbrokers Selling Away Securities Arbitration Claims

If your financial advisor recommends an investment that is not approved by his firm, he may be selling away. Do you trust him or her to make the right investment decisions for you? Do they consult with you and allow you the freedom to review information on your own, and encourage you to communicate with him on a personal e-mail? Or do you just take it on faith, and wonder if you’ve been convinced with a winning smile, charming demeanor or an official-looking prospectus? Dishonest brokers do this every day, and are only found out when they slip up and do something wrong or the investor learns his money is gone.

Many people have a “side hustle” outside of their “day job” that they do for extra money, personal satisfaction or both. It may be as a part-time job in retail, freelancing after hours or starting a small business. You may even know someone holds parties to sell products directly. While there’s nothing inherently wrong with most side jobs, it’s entirely different when your broker does “something on the side.”  These outside business activities, at a minimum, are supposed to be disclosed to the firm and approved for sale to the customer.

Anytime a broker does something else, they’re required to notify the firm and get permission, in case there is a conflict of interest and other reasons. (Most large companies require notification for any kind of “moonlighting.”) Some brokers have been known to sell securities outside of their firm—even legitimate ones—without notifying their firm of this outside business interest. A concept frequently referred to as selling away.  That’s why research is so important.

This recent article explains in detail about unregistered investments and other red flags to watch for when a broker offers you something new or unusual.

While many unregistered brokers are the cause of dishonest activity, some registered brokers have also been known to act unethically. The SEC recently file criminal charges against a former registered broker in a case that saw several of his longtime clients defrauded of a total of over $8 million. The broker was selling something that wasn’t approved by or sold through his employer firm. His clients trusted him when he described his “land development company.”

If you’re starting to invest with a new broker, or your firm has assigned you a new one, FINRA (Financial Industry Regulatory Authority) offers a free tool, BrokerCheck, to find out more about the individual. You can find out where a broker has worked, where they may be working now, what kinds of disputes or other issues they have to disclose, and if they have been subjected to any kind of sanctions or disciplinary measures during their tenure. You’ll also know immediately if they’ve been banned from the securities industry.

The SEC’s website Investor.Gov offers a wealth of information to help you find out more about your broker, about investing safely, and what to do if there is something wrong. Whether you chose to invest on your own or work with a broker, the website offers information to help you do research, as well as additional tools and resources.

The SEC’s site also has resources for fraud victims. Do you know someone who has been the victim of elder fraud? This page offers important information just for you.

How do you know if your investment may not be registered with the firm?

• If you’re asked to send money (check, money order, wire transfer, etc.) to a different company or person than you normally do
• Transactions don’t appear on your regular brokerage statement
• You receive statements from a different company for these investments
• Your broker tries to sell you something without any of the usual paperwork that investments require

This is not to say that every broker is dishonest, nor that every new or unusual investment is a bad one. But as an investor, you should always exercise due diligence (including research) before investing into any kind of securities.

Silver Law Group represents the interests of investors who have been the victims of investment fraud.  Please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.