PROTECT YOURSELF AGAINST SELLING AWAY FRAUD
Whether you’re buying investment securities through brokerages, banks or directly from the company that issues them, you’ve made a great step toward investing for your future. However, when a broker sells you a product that isn’t approved by their firm and without the firm’s knowledge or supervision, you’ve been a victim of investment fraud. This is a practice known as “selling away”. The broker may have you believe that this outside investment is endorsed by their firm, when in reality, it’s not. This puts you at risk of losing your money because the firm is not supervising the sale according to certain rules.
Sometimes, a broker will sell an investment product that hasn’t been approved by their firm because the client wants to purchase this unapproved product. The broker breaks the rules in order to earn a commission. So before making any investment decisions, you must do your research so that you can protect yourself against selling away fraud.
If you suspect that you’ve been a victim of selling away fraud, you should take action right away. You may be able to file a FINRA (Financial Industry Regulatory Authority) arbitration claim against the brokerage firm to try and get your money back. A qualified securities arbitration attorney can help you with this process. At Price Armstrong, we have attorneys who possess the resources and expertise to represent investors in stockbroker fraud cases.
WHAT IS SELLING AWAY?
Selling away fraud occurs when brokers sell investment security products that aren’t offered by their firm. Selling away can be a legal practice when brokers give their firm written notice of the transaction. Then, the firm must sign off on any such transaction. Once the firm approves the unregistered transaction, the firm must then supervise the transaction. However, a broker might bypass the firm’s compliance department to take part in very risky investments.
To prevent selling away fraud, brokerage firms must have reasonable supervisory procedures in place that can detect selling away and other violations. FINRA has a few rules in place that address brokerage firm supervision. To prevent fraud, firms must:
- Perform pre-hire broker screening
- Broker training
- Broker-investor transaction oversight.
FINRA also has key rules in place that deem selling away illegal:
- FINRA Rule 3280: Investment professionals should not engage in private securities transactions unless they provide written notice to the firm first and disclose whether or not they will be compensated for the proposed transaction.
- FINRA Rule 3270: Individuals registered with FINRA are prohibited from engaging in any outside business activity and private securities transactions unless they have provided written notice to the firm first. This rule also specifies the obligations of the firm who has been given such notice by a broker.
So why would a broker choose to engage in selling away fraud when they can gain approval from their firm for outside transactions? Because not all private securities transactions will be approved by their firm. Also, if a client desires to purchase security products that aren’t offered by the brokerage firm, brokers, with the intent to make a sale any way they can, will sell these products without the approval of their firm.
A broker might partake in selling away fraud to bypass their firm’s compliance department. A firm doesn’t want to be held liable for the client’s possible loss of money and will not approved certain risky investments—this can lead to a broker selling away.
EXAMPLES OF SELLING AWAY
Perhaps to get a better understanding of selling away, you need to read about some real-world examples of this practice:
- John is a broker at Merrill Edge. He has a client, Tom, who wants to purchase stock from a private company that isn’t traded on public exchanges. Unfortunately, John’s firm doesn’t have the company’s private stock on their list of approved products for sale. John still wants to earn his commission from this sale but doesn’t want to go through the process of gaining approval from his firm. So, he “sells away” from Merrill Edge and completes the transaction.
- Peter is a broker at Lightspeed. His client, Jill, wants to buy stock from a company that isn’t on his firm’s list of approved products. Peter actually does provide written notice of the transaction, but his firm doesn’t approve of it because it’s too risky. Yet, Peter completes the transaction because he desperately wants to make a sale.
HOW BROKERS TRICK PEOPLE
Brokers have many ways they can trick investors. They include:
- Using the brokerage firm’s email or letterhead to make it seem like the transaction is approved by the firm.
- Indicating that your funds are being placed with a third-party bank in the attempt to convince you that you’re investing in a bond sold by the bank.
- Making you lose track of your investment because it no longer appears on the firm’s account statements.
- Making excuses or finding ways to avoid your questions about your funds.
HOW TO DETECT SELLING AWAY
Although it may be difficult to detect selling away as some brokers have become quite skilled at tricking their clients, there are some signs to look out for. Possible signs of selling away include:
- Your account statement has unusual transactions.
- The investment doesn’t appear on your account statements managed by your account custodian (i.e. third party).
- You haven’t received a letter from the compliance department.
- A broker tries to get you to sign a “comfort letter” that indicates you are generally happy about how the account is being handled or that you understand a certain investment is outside the brokerage firm.
WHY YOU NEED A SELLING AWAY FRAUD LAWYER
With your money at stake and the sheer number and complexities of securities laws themselves, it’s important to consult with a securities attorney who is skilled and experienced in protecting the interests of investors and advising them of their rights. A securities lawyer can assist you with any issues related to your investment and help you file a claim against the broker (as well as the broker’s firm) who has committed securities fraud against you.
CONTACT US FOR A FREE CASE EVALUATION
If you have suffered financially because of selling away, contact the attorneys at Price Armstrong. We can help you seek justice and protect your rights throughout the process. Call us today at (205) 208-9588 for a free initial consultation and review of your case. Let us fight for you – call now!