Selling Away

If your broker wants you to buy an investment that seems unusual or unfamiliar, and wants to talk about it only on their cell phone or an email address that doesn’t have their firm’s name in the address, look out! They are likely engaging in “selling away,” or unauthorized sale of securities.

They do this to avoid sharing commissions with their broker-dealer and to sell you something their firm wouldn’t recommend to you under any circumstances in the first place. Generally, these unauthorized investments tend to be much riskier, and are often illiquid and involve businesses that are poorly managed or fraudulent, even Ponzi schemes.

The penalties for selling away can involve significant fines, termination, and being barred from the securities altogether by FINRA and/or the SEC. Often, the broker will be insolvent as a result and a customer’s only recourse is to sue the broker-dealer in FINRA arbitration.

FINRA arbitration panels often find broker-dealers strictly liable, even when they have taken every reasonable precaution in supervising the broker.