FINRA requires employees of FINRA-member firms to disclose all outside business-related activities, private transactions and all investments recommended to any customers to the member firm. The unlawful business practice of recommending investments outside of a financial advisor’s firm is often referred to as “selling away.” 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.
FINRA’s Department of Enforcement investigated Estes and alleged he invested in and participated in several outside real estate business. According to FINRA, during the period May 2012 through March 2014, Estes personally invested in three limited liability corporations, referred to as AL, PE, and QU, and a corporation, DQ, each of which was formed in the state of Indiana. Estes also solicited an investor to purchase PE ownership interests from other investors. In total, Estes participated in private securities transactions of approximately $1,229,060, $652,060 which he personally invested and $577,000 which was invested by one J.J.B. Hilliard customer and two other customers.
FINRA additionally found that Estes engaged in outside business activities from 2009 through 2014. Specifically, with regard to the aforementioned LLCs, Estes was involved with arranging space and leases, dealing with issues pertaining to equipment purchases, and hiring of personnel. According to FINRA, Estes also worked in the capacity of a director for DQ since 2013. Estes was allegedly involved in the creation and management of a company, BT, as well as BB, which provided transportation services.
Based upon the foregoing misconduct, FINRA alleges Estes violated NASD Conduct Rules 3030 and 3040, as well as FINRA Rules 2010 and 3270. 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. Here, Estes did not disclose his participation in the real estate companies to J.J.B. Hilliard, and therefore, violated FINRA rules.
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 Estes while he worked for J.J.B. Hilliard, 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 or complete our free case evaluator.