Outside Dealings Pose Risks
Brokers who have bought, sold, or solicited securities that were not approved by their brokerage firms engage in an improper practice known in the securities industry as “selling away” from the firms. These securities are generally not recorded on the books of the brokers’ firms. Selling away violates FINRA rules and other securities laws, because it poses significant risks to the investors involved. Frequently, selling away schemes involve sales of promissory notes or private placements.
Brokerage Firms May Not Examine Unapproved Offerings
Given the nature of selling away from a brokerage firm, securities offered in this manner do not undergo the same necessary oversight procedures that, ideally, all securities do that are approved by the firm. Brokerage firms have duties they must fulfill on behalf of their investors, including performing due diligence on all offerings and supervising their brokers. Because selling away schemes are clandestine and not approved by the firms, brokerage firms do not perform their due diligence investigation for the securities that are sold, which means that no one at the firms examined the offering to confirm it was being truthfully represented or was even worth what it was said to be worth. This lack of investigation and supervision is, in part, why selling away can cause such damage to investors. Investors are unable to discern fact from fiction and are swindled into believing their registered brokers are acting with the backing of the brokerage firm. This belief is entirely logical in view of the brokers’ position and affiliation with the firm.
Reasonable Supervision Could Prevent Harm
Because selling away from the firm involves acting without the knowledge or approval of the firm, the question may follow: How is a brokerage firm held accountable for selling away schemes? Liability can result from several sources, but one important source is the duty to supervise. Brokerage firms have strict duties to supervise all of their representatives. In most selling away scenarios, red flags exist which the brokerage firm should have noticed with normal supervision, before the brokers were able to cause the damages that ultimately resulted. Many claims to recover losses from selling away schemes involve lack of supervision, and this element has been a basis for many of our past successful recoveries.
Contact Us If You See Red Flags
Red flags can indicate that your broker is involved in selling away from the broker’s firm. For example, your broker may offer a security that is “special” or “secret” and cannot be discussed with others at the firm. The broker might ask you to make a payment for a particular security to someone other than the brokerage firm, including to the broker or someone outside the firm. The broker may work from the broker’s house or call from places other than the brokerage firm. Your broker might communicate with you on stationery that does not have the brokerage firm’s name on it. The broker may also claim to have special insight or personal knowledge about the company that offers the security or about its officers. If any of these red flags exist or if you are otherwise suspicious of your broker’s activities, contact us now for a free, confidential consultation to discuss your potential case. We are here to help, and are eager to discuss your potential recovery.Back to Practice Areas