FINRA requires employees of FINRA-member firms to disclose all outside business-related activities and all investments recommended to customers to the member firm. The unlawful business practice of recommending investments outside of a financial advisor’s firm is referred to as “selling away.” FINRA’s Department of Enforcement investigated Johnson and alleged he recommended that two investors purchase $425,000 worth of private securities transactions involving a farm-related business (Virginia Farm Properties, LLC).
In connection with this recommendation, FINRA alleged Johnson made numerous material misrepresentations and omissions. For example, FINRA asserted Johnson failed to disclose to the investors that one of the farm venture’s original investors was indicted on Ponzi scheme charges and sold his interest in the venture at the request of the other owners. FINRA also alleged Johnson misrepresented the financial condition and potential profits that could be derived from the business. For example, one of the farm’s loans was in arrears at the time the aforementioned clients invested their funds; yet, Johnson failed to disclose this information to the investors.
Based upon the foregoing misconduct, FINRA alleged Johnson violated numerous FINRA rules and regulations, including but not limited to NASD Conduct Rules 3030 and 3040, as well as FINRA Rules 2010 and 2110. For example, NASD Rule 3040 states no FINRA registered person may be an employee or receive compensation for outside business transactions unless he or she has provided prior written notice to their employer. Outside business transactions and selling away are prohibited activities because they serve to undercut the supervisory system implemented by FINRA-member firms and FINRA itself to protect the investing public.
Lufrano Law, LLC is a national securities litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. If you suffered investment damages investing with Johnson while he worked for Commonwealth Financial, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please contact one of our attorneys at (800) 627-2179 to schedule a free consultation.