There’s no shortage of laws, rules, and regulations when it comes to the securities industry. And thanks to things like market crashes, Ponzi schemes, and other securities fraud, the number of these rules only increases in an effort to protect investors and the market. Some of these rules relate to a practice called “selling away” where investment professionals sell securities that aren’t offered by their brokerage firm. Read on to learn more about the practice of selling away and why it’s generally prohibited.
Who Can Sell Securities?
As mentioned, the buying and selling of securities is a highly-regulated industry, and not just anyone can sell securities. FINRA, or the Financial Industry Regulatory Authority, requires firms and individuals to be registered and meet certain requirements in order to conduct securities transactions. Additionally, individuals must pass qualification exams in order to sell different types of securities, so not all brokers are authorized to sell every type of security, and some firms only offer certain categories of securities.
What Is Selling Away?
“Selling away” refers to the practice of selling securities in a private transaction, that is, outside the regular course or scope of business of one’s firm. Any investment professional (such as brokers or financial advisors) who sells or solicits the sale of securities that the firm doesn’t or cannot offer may be guilty of selling away from the firm.
Selling away is generally prohibited because of its susceptibility to fraud, deception, and increased risk to investors. One danger is that an investor will mistakenly believe that an outside investment is endorsed by the broker’s firm, lending the investment a false sense of legitimacy and security. Additionally, since the firm is not supervising the sale according to certain rules, investors are more at risk for losing their money. It’s important to do some research before making any investment decisions.
Regulations Pertaining to Selling Away
As the lead organization that oversees all stock market operations, brokerage firms, and securities representatives, FINRA enforces the rules and regulations of the SEC. In that role, FINRA provides rules and guidance for complying with securities regulations. The key rules pertaining to selling away are the following:
Potential Punishments for Selling Away
An investment professional who engages in selling away can be sanctioned, suspended, or barred from selling securities altogether. The extent of the penalty varies depending on a number of factors, including the volume of sales, the number of customers, the length of time over which selling occurred, the financial benefit to the professional, whether the sales injured investors, and whether the professional tried to conceal the sales from the firm. Firms can also be sanctioned if they received notice of the sale but failed to provide written approval, disapproval, or acknowledgment of the notice.
Understand Your Options with the Help of a Local Securities Lawyer
After working hard and investing your money through a trusted professional, the last thing you want to hear is that you’ve been deceived into throwing that money away. With so much at stake, and with the sheer number and complexity of securities laws themselves, it’s a good idea to consult an experienced securities attorney who can advise you of your rights and protect your interests.
Contact a securities lawyer to assist with any issues related to securities laws and financial instruments.