Douglas Szempruch (CRD# 4159318), previously a stockbroker in Melville, New York, was sanctioned by the Financial Industry Regulatory Authority over...Read More
Selling away occurs when a financial advisor sells an investment that is not approved by the advisor’s firm. Often, these investments are in private (non-publicly traded) companies. Selling away is dangerous to investors because the firm has not researched or performed due diligence on the investment, and most financial advisors are not properly trained on conducting due diligence themselves. These investments are often risky and become worthless.
Brokerage and wealth management firms are liable for the acts of their employees who are involved in the selling away of investments from the firm. Brokerage firms are liable to the customers, even where the firm is not aware its broker is selling away, under several distinct theories: (1) direct liability for failure to supervise the activities of the advisor, (2) vicarious liability under the respondeat superior doctrine, and (3) vicarious liability under the apparent authority doctrine.
Selling away is typically a violation of both FINRA Rule 3280 (Private Securities Transactions of an Associated Person) and Rule 3270 (Outside Business Activities of Registered Persons).
An advisor can be held responsible for selling away with even small amounts of involvement. FINRA has explicitly stated that, for the purposes of FINRA rule 3280, “participation” in a private securities transaction is enough and “participation” is to be broadly construed to include: (i) referring customers; (ii) introducing customers to the issuer; (iii) arranging and/or participating in meetings between the customers and the issuer; or (iv) receiving a referral or finder’s fee from the issuer.
FINRA Rule 3270 states that no financial advisor can be paid for any business activity other than the work the advisor does for his or her brokerage or wealth management firm. This rule strictly prohibits financial advisors from engaging in outside business activities for payment or compensation.
Between rules 3270 and 3280, financial advisors essentially cannot have anything to do with outside investment opportunities. Brokerage firms owe a duty to the public to supervise the activities of their employees. Typically, a proper supervision system will alert the firm to an advisor’s selling away activities.
We have successfully represented investors who lost money due to selling away. Please contact us for a free and confidential case evaluation if you believe that you are a victim of selling away.