What is Selling Away?
FINRA Rule 3280 prohibits brokers or registered representatives from participating in a private securities transaction, unless they provide prior written notice to their brokerage firm employer.
Selling away occurs when a broker sells securities away from their brokerage firm, instead of following investor protection rules that require them to only sell securities to investors through the brokerage firm where they are employed. Typically, brokers conceal from their firm that they are selling away securities. As a result, brokers also ignore the brokerage firm’s policies that require them to only sell investments approved by the firm, sometimes brokers sell away securities to the brokerage firm’s clients after the brokerage firm did not approve the investment, and the brokers receive transaction-based compensation in the form of commissions. By improperly selling away from their firm, a broker acts as an unregistered broker in violation of the federal securities laws.
Recover Investment Losses Involving Selling Away of Private Securities
For help concerning selling away private securities, contact Riera Law at 305-204-9779. Our team may be able to help you recover your investment losses due to selling away.
Rules Governing Sale of Securities by Brokers
A brokerage firm is a firm that is in the business of buying and selling securities on behalf of its clients (as broker), for its own account (as brokerage firm), or both. The brokers who work for brokerage firms are known as registered brokers (or registered representatives).
Section 3(a)(4)(A) of the Exchange Act defines a “broker” broadly as “any person engaged in the business of effecting transactions in securities for the account of others.” Individual registered representatives must register with FINRA, and be licensed by a state securities regulator before they can do business with customers.
FINRA Rule 3280 prohibits brokers or registered representatives from participating in a private securities transaction, unless they provide prior written notice to their brokerage firm employer. This means that brokers are required to sell all securities to customers through the FINRA member firm with whom they are associated, unless the registered representative first has provided the firm with required notice of a proposed transaction to be effected away from the firm, and unless the firm then has authorized the transaction to take place away from the firm. The Rule require a brokers to provide prior notice of their participation in a private securities transaction irrespective of whether they will receive selling compensation FINRA established this rule to safeguard the investing public against fraud and improper sales practices.
Selling away is a serious violation. According to the Securities and Exchange Commission (SEC), the prohibition on private securities transactions is fundamental to an associated person’s duty to their customers and their firm. FINRA Rule 3280 is designed not only to protect investors from unsupervised sales, but also to protect securities firms from liability and loss resulting from such sales. Such misconduct deprives investors of a firm's oversight, due diligence, supervision, and protections investors have a right to expect. This type of misconduct illustrates the potential for harm to investors through unsupervised securities transactions.
Securities Law Firm Experienced in Investment Fraud
Contact Riera Law at
305-204-9779 to discuss your fraudulent matter related to selling away. Our team may be able to help you pursue a FINRA arbitration claim to recover your investment losses.
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