Selling Away and Outside Business Claims.
What is "Selling Away"?
"Selling away" refers to the inappropriate and unethical practice in the financial industry where a financial advisor buys, sells, or solicits investment of securities not held with or offered by the brokerage firm. Selling away usually involves the sale of investments that are not on the brokerage firm’s approved product list. Typically, these investments include private placements and promissory notes − but selling away claims can involve any type of security sold outside of the firm.
Selling away is prohibited under the rules of the Financial Industry Regulatory Authority (FINRA), including FINRA Rule 3040, as well as other securities laws. Likewise, financial advisors are required to disclose all outside business activity to their employer. FINRA Rule 3030 provides that a brokerage firm adviser may not engage in any outside business activity, unless the financial advisor has provided prompt written notice to his or her brokerage firm.
Brokerage Firms May be Held Liable for Selling Away
A brokerage firm's duty to supervise is a critical component of the securities regulatory system. In many instances, the brokerage firm is the first line of defense for investors against securities fraud committed by financial advisors independently. As a result, the brokerage firm must be aware of every aspect of the financial advisor's business and investment activity with clients.
In furtherance of this supervisory structure, financial advisors are required to execute all transactions with their clients in the client's brokerage account, unless given prior express authorization to execute transactions outside of the account. This is true even for investors who may be clients of the financial advisor, but not the brokerage firm. Moreover, even where financial advisors are given permission to conduct outside business activities, the brokerage firm still must supervise these private securities transactions.
Selling away and outside business activities undermine a brokerage firm's ability to supervise their employees conduct, but does not absolve the brokerage firm of liability in the event the investor suffers losses. Indeed, selling away claims can be brought against brokerage firms even where the firm was unaware of the outside business activities if an investor can show that the brokerage firm failed to establish and/or implement reasonable supervisory procedures or failed to properly investigate red flags.
A successful claim for selling away requires an experienced securities attorney who can establish that a brokerage firm's supervision of the financial advisor in question was inadequate and caused the investor harm. We have experience bringing selling away claims and recovering money on behalf of our clients. Please contact us today for a free, no-commitment consultation.
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