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 Sadler that while associated with LPL, Sadler engaged in private securities transactions without providing prior written notice to LPL. Specifically, in 2008, Sadler allegedly invested $200,000 in PRS who was a company that proposed to build a movie studio in Plymouth, Massachusetts. To make matters worse, Sadler also collected $249,000 of his clients’ money to invest in the venture. According to FINRA, PRS ultimately failed and all of the investors lost their money.
Based upon the foregoing misconduct, FINRA alleges Sadler violated NASD Conduct Rules 2110 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, Sadler did not disclose his participation in the movie studio company to LPL, 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 Sadler while he worked for LPL, 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.