No Compliance Review
The investment was never evaluated by the firm's compliance or due diligence team. The only review it received was from the broker who was being paid to sell it.
What Selling Away Is
Your Broker Used Your Trust to Sell You Something Their Own Firm Would Have Rejected.
Selling away occurs when a registered broker sells securities outside the scope of their employment with their broker-dealer firm, without the firm's knowledge or authorization. These are not products on the firm's approved list. They have never been reviewed by the firm's due diligence team, never evaluated for investor suitability, and never subjected to the compliance oversight that protects investors from unsuitable or fraudulent offerings.
Brokers engage in selling away for one primary reason: the outside investment pays them more than anything available through their firm. Commissions on selling away transactions frequently run 10 to 15 percent. The investor funds a high-commission vehicle that no independent compliance function has ever reviewed, and when the investment fails, the broker may attempt to disclaim all responsibility by pointing to their firm's lack of involvement.
Critical point: The firm's lack of knowledge about a selling away transaction does not necessarily eliminate the firm's liability. A firm that failed to implement adequate supervisory procedures to detect and prevent outside business activities may be independently liable for the harm caused by its registered representative's selling away activity.
Why Selling Away Is Dangerous
Four Reasons Selling Away Creates Disproportionate Risk for Investors
No Supervisory Oversight
The transaction does not appear on the firm's books and records, meaning no supervisor ever reviewed it, no principal ever approved it, and no compliance system ever flagged it as potentially unsuitable.
Undisclosed Compensation
The broker's compensation on selling away transactions is never disclosed through the firm's normal processes and is typically far higher than what the firm would permit on approved products.
Frequent Association with Fraud
Many selling away cases involve outright fraudulent investments. Without firm supervision, there is no institutional check on the quality or legitimacy of what the broker is recommending.
The Rules
FINRA Rules Your Broker Violated by Selling Away
- FINRA Rule 3280 (Private Securities Transactions): Prohibits associated persons from participating in any private securities transaction outside the scope of their employment without prior written notice to and approval from their member firm. This rule exists specifically to ensure that every investment sold by a registered representative passes through the firm's supervisory and compliance systems.
- FINRA Rule 3270 (Outside Business Activities): Requires registered persons to provide prior written notice to their firm before engaging in any outside business activity. A broker who sold you an investment through an outside entity without disclosing that relationship to their firm violated this rule independently.
- FINRA Rule 3110 (Supervision): Requires broker-dealer firms to maintain supervisory systems that detect outside business activities and private securities transactions by their registered representatives. A firm whose supervisory system failed to detect selling away may be independently liable for that supervisory failure.