Private Securities Transactions / Selling Away

Brokerage firms research, underwrite and sell countless securities. It makes sense that brokerage firms review and approve of certain specific investments, types of investments, or classes of investments to exert greater control over the quality of investments their customers put their money into. Consequently, there are rules that forbid brokers from investing customers’ money into outside business transactions, also known as “selling away.”

Selling away occurs when a broker solicits a customer to purchase securities not held, offered or approved by the employing brokerage firm. The Financial Industry Regulatory Authority (FINRA) has implemented Rule 3280 to govern selling away and private securities transactions. FINRA Rule 3280 states that no persons associated with a member brokerage firm shall participate in any manner in a private securities transaction except under limited circumstances. In a nutshell, those circumstances include disclosing the outside business activity to the member firm and getting approval.

Approved outside business activities are then disclosed on the broker’s CRD report, also known as FINRA’s BrokerCheck tool. FINRA’s BrokerCheck tool allows a customer to verify whether or not a recommended investment is approved or unapproved by the broker’s brokerage firm. If outside business activities are not on the broker’s CRD report, this may indicate that the brokerage firm is unaware of the activity and it is unapproved.

When presenting these outside business activities to customers, brokers describe them in exclusive terms to create a sense of urgency to invest. Motives for selling away may be due to conflicts of interest and are usually sold through the use of misrepresentations and omissions of material facts concerning an investment’s risk, future profitability and the compensation paid to the broker.

Brokerage firms are responsible for monitoring and overseeing their financial advisors’ business activities. This entails monitoring the broker and taking affirmative action to uncover unapproved business activities, including private securities transactions. Under most circumstances, brokerage firms react harshly and swiftly to brokers that have sold customers outside, unapproved investments. Usually, the brokerage firm automatically terminates the violating broker. Unfortunately, this often times leaves customers out of their initial investment in the private transaction.

Silver Law Group and its attorneys have extensive experience seeking and recovering losses due to selling away. If you’ve been the victim of selling away, you may be able to recover your investment through FINRA arbitration. Our attorneys will evaluate your case at no cost to you and, if we take your case, you pay nothing unless we secure a recovery. Contact our firm for a free consultation.