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Our Selling Away Lawyer Will Fight for Your Rights After Investment Fraud
Under the rules of the Financial Industry Regulatory Authority (FINRA), brokers may only sell securities that their brokerage firms offer. When a broker sells a security his or her firm doesn’t offer, this is referred to as “selling away.” Selling away is prohibited for several reasons—all focused on investor protection. Yet, it remains a common practice, and many investors don’t know when their brokers are breaking the rules. Selling away is attractive to unscrupulous brokers for the reasons discussed below; and, when the benefits of selling away seemingly outweigh the risks of violating FINRA’s rules, many brokers will not hesitate to put their personal interests ahead of those of their customers. When the worst happens, you need to protect your rights with an experienced selling away lawyer who is accomplished in securities fraud crimes.
Why Do Brokers Sell Away?
If selling away is prohibited, and if brokerage firms have plenty of securities their brokers can offer, why do they do it? In most cases, brokers sell away for two primary reasons:
- To avoid oversight. Brokers sell away when they don’t want their brokerage firms to know what they are doing.
- To earn high commissions. The types of securities that brokers sell away typically offer high commissions.
These securities offer high commissions because they have to in order to entice brokers who are willing to sell away. In turn, brokers have to avoid oversight from their brokerage firms—because there is a reason why the firm won’t approve the security the broker wants to sell. This raises obvious concerns for investors, but most investors won’t know that their brokers are selling away unless they know how to ask the right questions.
Common Examples of Selling Away
Selling away is particularly common with certain types of securities. While a broker isn’t necessarily selling away if he or she offers one of the following to a customer, these investments will involve selling away in many cases:
Private Placements (Unregistered Securities)
When a company is not registered to sell its shares on the open market, it must sell its shares through private placements. Investing in a private company through an unregistered offering inherently involves substantial risk, and companies seeking to raise capital through private placements will often offer substantial commissions to brokers who promote their shares.
Promissory Notes
Similar to private placements, promissory notes are high-risk investments. While brokerage firms will offer certain promissory notes after conducting thorough due diligence, many promissory notes are sold away.
Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are another type of investment that brokers frequently sell away because of the substantial commissions they offer. REITs are illiquid investments that often involve high fees, and it is not uncommon for investors’ fees and commissions to consume their returns.
Our Selling Away Attorneys Know the Risks for Investors
These examples highlight the primary risks of selling away for investors—specifically (i) the risk of incurring substantial fees and commissions, and (ii) the risk of suffering investment losses as a result of putting their money into high-risk securities. Combined with the fact that brokers only sell away when it is in their best interests, these risks make selling away extremely dangerous for retail investors.
When Is Selling Away Permitted?
Selling away is never permitted. If a broker wishes to sell a security that his or her firm doesn’t offer, the broker must obtain the firm’s approval prior to doing so. If the firm approves the sale, then the broker is technically no longer selling away, and the firm assumes responsibility for the transaction.
What Are Investors Rights When Their Brokers Improperly Sell Away?
Investors have clear legal rights when they suffer losses as a result of selling away. FINRA Rule 3280 prohibits brokers from selling away, and brokers that violate FINRA’s Rules can be held liable in arbitration. Additionally, if a brokerage firm fails to take adequate steps to prevent its brokers from selling away, investors who lose money as a result of selling away may have claims against the firm. These claims may be based on inadequate supervision (in violation of FINRA Rule 3110) and other statutory and regulatory violations.
Did You Suffer an Investment Loss? Call for a Free Consultation a Selling Away Lawyer at Zamansky, LLC
If you have questions about pursuing a FINRA arbitration claim for selling away, we encourage you to contact us for a free consultation. To speak with one of the investment fraud attorneys at Zamansky LLC about your legal rights in confidence, please call 212-742-1414 or tell us about your losses online today.