This post was originally published on May 7th, 2024, and updated on May 20th, 2025.
Selling away refers to the practice where a financial advisor or broker offers or sells investment products that are not approved or overseen by their affiliated brokerage firm. These transactions typically occur outside the firm's official channels, bypassing its compliance and supervisory systems.
This unauthorized activity often involves private securities transactions, such as private placements, promissory notes, or other non-public investments. Brokers may engage in selling away to earn higher commissions or to offer products that their firm does not provide. However, such actions expose investors to significant risks, including fraud and financial loss, due to the lack of proper due diligence and oversight.
The Financial Industry Regulatory Authority (FINRA) addresses selling away under Rule 3280, which prohibits registered representatives from participating in private securities transactions without prior written notice to their firm. The firm must then approve the transaction and supervise it as if it were conducted through the firm.
Selling away often involves brokers promoting investments in private companies, real estate ventures, or other alternative assets that promise high returns. These investments may not be registered with regulatory authorities, increasing the risk of fraud. Investors may be unaware that these offerings are not sanctioned by the broker's firm, leading to potential financial losses.
Selling away can manifest in various forms, each presenting unique challenges and risks. Understanding these types helps in identifying and preventing unauthorized investment activities.
Brokers may engage in private securities transactions by selling investments not approved by their firm. These can include private placements or unregistered securities offered to a select group of investors. Without firm oversight, these transactions lack proper due diligence, increasing the risk of fraud.
Promissory notes are written promises to repay a loan with interest. Brokers may sell these notes without firm approval, often targeting investors with promises of high returns. However, these notes can be fraudulent or default, leading to significant investor losses.
Brokers may have undisclosed outside business activities, such as operating a separate investment firm or offering financial products independently. Engaging in these activities without firm approval constitutes selling away and violates regulatory requirements.
Some brokers may sell non-traded REITs outside their firm's offerings. These investments are illiquid and carry high fees, and without proper oversight, investors may not fully understand the associated risks.
Engaging in selling away exposes both brokers and investors to significant risks and potential penalties.
Investments sold away from the firm may lack proper vetting, leading to potential losses if the investment fails or is fraudulent. Without due diligence from a supervisory firm, these investments might be riskier than clients realize. The lack of an established safety net can leave investors fully exposed. Financial recovery in these situations is often difficult.
Since the investment is not sanctioned by the firm, investors may have limited options for recovery in case of misconduct. If the product fails, the investor cannot file a claim against the firm because it was not involved in the transaction. This can leave investors legally and financially stranded. The only recourse might be through direct litigation against the broker.
Brokers may misrepresent the nature or risks of the investment, leading to uninformed decisions by investors. These representations can include overstating potential returns, minimizing risks, or claiming firm endorsement. Such practices mislead clients into taking undue financial risk. Without oversight, there is no check on these claims.
Brokers found guilty of selling away may face substantial fines and sanctions from regulatory bodies. FINRA and the SEC regularly discipline brokers for unauthorized transactions. These penalties can be both financial and professional. Sanctions serve to deter other brokers from engaging in similar misconduct.
Regulatory authorities may suspend or revoke the broker's license, effectively ending their career in the securities industry. Losing licensure eliminates the broker’s ability to work in the regulated financial sector. These actions are typically reserved for egregious or repeated violations. They serve to protect the investing public from future harm.
Investors may pursue legal action against brokers and, in some cases, the brokerage firm for failure to supervise. If the firm failed to monitor the broker’s activities adequately, it may share liability. Civil litigation and FINRA arbitration are common routes. Legal remedies can include restitution and damages.
Brokerage firms are responsible for supervising their representatives. Failure to detect or prevent selling away activities can result in regulatory penalties and legal liability for the firm. Regulators expect firms to maintain strict compliance structures. Weak supervisory systems can lead to significant financial and reputational consequences.
Recognizing signs of selling away can help investors avoid unauthorized and potentially fraudulent investments.
Brokers offering investments not listed on the firm's approved product list may be engaging in selling away. Investors should always confirm that any offering has been cleared through official channels. This ensures that the product has passed due diligence standards. Unapproved investments may carry unrecognized risks.
Brokers asking investors to write checks directly to a third party or outside entity is a major red flag. Legitimate investments through a brokerage firm should always be processed through the firm itself. Direct payments bypass supervision and open the door to fraud. These practices signal potential misconduct.
The absence of official documentation or account statements from the brokerage firm for the investment may indicate selling away. Proper investments should appear on firm-generated statements and records. If an investment lacks traceable records, it's likely unauthorized. Investors should be wary of any transaction without formal paperwork.
Brokers using aggressive tactics to persuade investors to invest quickly may be selling away. Pressure to act fast often accompanies high-risk or fraudulent schemes. Responsible brokers provide time and information for informed decisions. Urgency without justification is a warning sign.
Both investors and brokerage firms play roles in preventing selling away.
Educate yourself about investment products and the approval process within brokerage firms. Being aware of how legitimate investment offerings work helps detect deviations. Knowledge empowers investors to ask the right questions. It reduces vulnerability to unauthorized pitches.
Inquire about the investment's approval status and the firm's oversight. A legitimate broker should be transparent about the firm’s role in any investment. If the broker avoids these questions, that's a red flag. Consistent questioning can deter misconduct.
If you suspect selling away, report it to the brokerage firm and regulatory authorities. Early reporting can prevent wider harm to others. Firms are obligated to investigate reported misconduct. FINRA’s complaint center is also an available channel.
Firms should establish comprehensive supervisory systems to monitor brokers' activities. This includes tracking communications, financial transactions, and outside business interests. Internal audits and control mechanisms must be in place. Strong systems detect unauthorized behavior early.
Perform periodic audits to detect unauthorized transactions. Reviews of client accounts and broker activities help identify red flags. Regular audits discourage misconduct by increasing the likelihood of detection. Proactive compliance measures protect both the firm and its clients.
Educate brokers about regulatory requirements and the consequences of selling away. Training ensures brokers understand firm policies and industry rules. Emphasis on ethical conduct strengthens a culture of compliance. Ongoing education keeps awareness high as rules evolve.
DISCLAIMER: Acquire.Fi is the listing and advertising platform for Web3 businesses and does not certify or verify the information provided to the platform by the business owners. Acquire.FI LTD (Acquire.Fi) does not hold itself out as providing any legal, financial or other advice. Acquire.Fi also does not make any recommendation or endorsement as to any investment, advisor or other service or product or to any material submitted by third parties to Acquire.Fi. Acquire.Fi is not a licensed crypto asset service provider for the purpose of EU regulation. The following list is compiled from Acquire Fi partners. Acquire fi is not a licensed crypto asset service provider for the purpose of EU regulation.
Have queries? Reach out to us on the email below!
team@acquire.fi
.webp)