Failure to Supervise Can Result in Broker-Dealer Liability in "Selling Away" Cases
When a broker sells, or solicits the sale of, securities or investment products that may not be authorized by the member firm with which the broker is registered, the brokerage firm may be held liable under certain circumstances for financial damages that result.
Brokers sometimes engage in selling away in order to chase large commissions in high-risk investments. Brokers in independent branches or satellite offices who may be inadequately supervised are often the culprits in selling away cases.
Why Brokers Engage in Selling Away
Commissions from transactions involving these high-risk products can total two to three times the commissions received from traditional registered products. The temptation of receiving a substantial amount of money in a short amount of time is simply too irresistible for some advisors to pass up. Without adequate supervision from member firms, some brokers market their high-risk investment products to vulnerable investors. Unsuspecting customers often end up taking the fall, sometimes losing significant amounts of money without never knowing that the products were not approved.
Sold Away Products Are Generally Unsuitable for Most Investors
Products with high-risk profiles frequently erupt, causing substantial harm to clients' entire investment portfolio. Although selling away transactions can sometimes be connected to legitimate financial products, this type of activity is also often associated with fraudulent activities, Ponzi schemes, and fictitious issuing companies. Some of the securities linked to selling away transactions are private placements, real estate deals, promissory notes, and those that are inappropriately deemed "can't miss investments" by the broker with unusually high or "guaranteed" returns.
Brokerage Firm Liability in Selling Away Cases
Brokerage firms can be held liable in selling away cases. Under FINRA rules, firms are required to adequately supervise the actions of their brokers and associates. These rules extend to the detection and monitoring of all activities even when transactions are off the books. When member firms fail to establish, maintain and enforce an effective supervisory system to ensure compliance with the securities regulations, they may be held liable for selling away transactions that result in financial harm to clients.
Selling away occurs when brokers solicit sales of, or sells securities or investment products that are not sold or authorized by the brokerage firm. When financial losses occur due to selling away, brokerage firms may be held liable for damages. Call the investment loss attorneys at Meyer Wilson at (888) 390-6491 to set up a free case evaluation.