Call Now For a Free Consultation:
(614) 502-6165

FINRA Focuses on Unsupervised Brokers Selling Fraudulent Securities

Recent statistics show that FINRA (the Financial Industry Regulatory Authority, Inc.) is keeping a much closer eye on unsupervised stockbrokers who are engaging in the illegal sale of private securities transactions that are not approved by their brokerage firm. This particular type of securities fraud is known as "selling away", meaning that the broker is , participating in private securities transactions and other business dealings "away from" their brokerage firms and the firms' supervision. This heightened regulatory oversight has been necessitated by that fact that the current low-interest rate environment breeds this type of investment fraud. People who are unable to live on the low-interest yields of today are particularly susceptible to pitches for promissory notes, private placement products and ponzi schemes that promise a higher and steady return over time. Unfortunately, as the general public has now become aware from prosecution of people like Bernard Madoff, if it sounds too good to be true, it probably is.

Although FINRA only took action against 45 people for private-securities transactions in all of 2008, that number increased to 56 people in 2009. For the first 4 months of 2010, FINRA has already announced actions against 21 individuals - if that trend continues for the remainder of the year then we could see over 60 FINRA disciplinary actions related to "selling away" this year alone. While it is not per se inappropriate for a registered representative to participate in an outside business activity, such activities are supposed to be fully disclosed to the brokerage firm for whom the registered representative works so that its compliance officers can conduct the necessary due diligence during office inspections and audits. Unfortunately, brokerage firms often do not have sufficient compliance and regulatory systems in place (or the procedures are not followed) and the fraud goes undetected.

In the end, it is often the FINRA brokerage firm that finds itself at the other end of a complaint by an investor who has lost money through one of the firm's brokers who sold products or investments that were not approved by the brokerage firm. If a brokerage firm permits its registered representatives to participate in outside business activities, then the firm needs to be up the supervisory challenge that comes with the territory. Also, the brokerage firm must be diligent in its compliance procedures to prevent its brokers from selling these "secret" investments. The more light that FINRA can shed on "selling away" and the large investment losses that result from it, the more that brokerage firms will be motivated to get it right and protect their customers from this illegal conduct.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

Share This Story
If you found the information provided by this article useful, consider sharing to your social media channels to help others in their search for reliable resources.
Consult with Our Legal Team
There is never a cost associated with a consultation
Columbus Office

614-224-6000
305 W. Nationwide Blvd
Columbus, OH 43215
Meyer Wilson
New Orleans Office

900 Camp Street 
Suite 337
New Orleans, LA 70130
Los Angeles Office

310-905-8688
2029 Century Park East,
Suite 400N
Los Angeles, CA 90067
Cleveland Office

216-600-1355
4781 Richmond Rd.
Suite 400
Warrensville Heights, OH 44128
Bloomfield Hills Office

248-817-8214
41000 Woodward Ave.,
Suite 350
Bloomfield Hills, MI 48304
Quick Links
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. Read More
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Read More
chevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram