What is Selling Away: Its Definition from (O-Z)


Key Takeaways:

  • Selling Away refers to a broker or agent selling securities without notifying or receiving approval from their employer. This is illegal and can result in regulatory, civil, and criminal penalties.
  • The types of Selling Away include Unauthorized Securities Transactions, Private Securities Transactions, Outside Business Activities, and Private Investments. These activities are prohibited because they pose risks for investors and can lead to conflicts of interest.
  • To identify Selling Away, investors and employers must conduct due diligence, monitor account activity, and report suspicious activity. It is important to avoid Selling Away to maintain trust and integrity in the securities industry.

As an investor, you know how important it is to research every investment you make. Selling away is an important concept to understand in order to protect your investments. Discover the definitions of selling away from O to Z.

Definition of Selling Away

Selling away refers to the act of a financial advisor or broker trading securities without the knowledge and authorization of their clients. This practice is illegal and can result in severe financial consequences.

When an advisor engages in selling away, they are typically seeking to earn commissions or fees from investments that are not approved or monitored by their firm or regulators. This breach of trust can lead to the loss of a client's money, damaged reputations, and potential legal action. It is important for investors to be vigilant and knowledgeable about their investments to avoid falling victim to this fraudulent practice.

Moreover, investors should be wary of investment opportunities that are presented outside of the scope of their financial advisor's typical offerings. Some advisors may tempt their clients with promises of high returns or exclusive investment opportunities, but these investments may be risky and not indicated for their specific investment goals or risk tolerance.

While selling away has been prevalent in the financial industry for decades, it has gained more attention in recent years due to high-profile cases of fraudulent activity. For example, a broker in Pennsylvania engaged in selling away, leading to over $8 million in losses for his clients. The broker was arrested and sentenced to prison, highlighting the severity of this illegal practice.

Investors must remain vigilant and take precautionary measures to ensure their investments are being managed legally and with their best interests in mind. Financial advisors must also adhere to industry regulations and ethical standards, providing transparent and honest investment advice to their clients.

Types of Selling Away

Let's explore the different types of selling away. We'll dive into "Types of Selling Away". Sub-sections include:

  1. Unauthorized securities transactions
  2. Private securities transactions
  3. Outside business activities
  4. Private investments

Get to know the solutions and approaches that can help mitigate the risks of selling away.

Unauthorized Securities Transactions

Those engaged in transactions involving securities without appropriate authorization or approval from regulatory agencies are committing unauthorized securities transactions. This includes any activity that involves buying or selling securities outside of the agreed-upon and established methods.

Common variations of unauthorized securities transactions include insider trading and selling away. Insider trading refers to individuals using confidential information to profit off securities trades, a practice that is both illegal and unethical. Selling away, on the other hand, is when a financial advisor sells securities not approved by their broker-dealer, putting investors at risk.

It is important to note that engaging in unauthorized securities transactions can result in significant fines and legal repercussions for all involved parties, including both the broker and investor. Brokers should ensure they are adhering to proper regulations when working with clients.

To avoid engaging in unauthorized securities transactions, brokers should regularly review their own compliance procedures and encourage clients to report any suspicious activity they may encounter. Additionally, brokers should seek out training and education opportunities related to current rules and regulations surrounding securities trading.

Warning: private securities transactions may lead to a decrease in bank account balance and an increase in regret.

Private Securities Transactions

Private securities transactions refer to the buying or selling of securities outside an individual's regular course of employment with a broker-dealer. These transactions are subject to regulation by financial industry regulatory authorities, and individuals engaged in such activities must disclose them to their employing broker-dealer. Failure to do so can result in disciplinary action.

Individuals must obtain prior written approval from their firm before engaging in private securities transactions. The disclosure process requires detailed information about the security being offered and the individual's role in the transaction. Firms may also require additional information related to investor suitability, risks involved, and compensation arrangements.

It is important to note that private securities transactions can involve significant risks, including fraud and violations of securities laws. For this reason, there are strict regulations governing these activities. Individuals engaging in such transactions without proper disclosures or approvals put themselves at risk of legal action by regulatory authorities.

A financial advisor was recently fined for failing to disclose his involvement in private securities transactions involving over $4 million worth of investments. The advisor's failure to obtain proper approval from his employer and disclose these transactions ultimately resulted in disciplinary action by financial regulators. This case highlights the importance of proper disclosure and approval procedures when engaging in private securities transactions.

Looks like the only outside business activity brokerages approve of is playing hooky from work.

Outside Business Activities

Engaging in other business activities outside of the primary employment is a deceptive practice known as 'Selling Away'. It is illegal and can harm both the employee involved and the investor. These activities include securities transactions that are not approved by their employer or registered with regulatory authorities.

Selling away often involves private securities deals, which can lead to financial losses for investors and legal repercussions for the seller. The SEC's Rule 3270 strictly prohibits engaging in selling away practices without prior consent from the employer through written notification.

It is essential to understand that a selling activity does not have to be specifically related to securities transactions. Any side job or business dealings that violate company policies or conflict with an employee's professional duties may constitute Selling Away.

According to Securities and Exchange Commission (SEC), in 2019, approximately $75 million was paid as compensation in fraud cases related to unauthorized investment sales by companies.

"Why invest in private companies when you can just throw your money into a wishing well and hope for the best?"

Private Investments

Investments not available to the general public are classified as non-public investments which cater to wealthy or sophisticated investors. These investments, also known as private placements, may involve securities or other financial assets sold directly by the issuer. Investment firms usually seek out these types of opportunities and offer it as part of their services to clients who qualify for them. This type of investment typically comes with a higher level of risk and less transparency than publicly traded securities.

Such investments offer greater potential returns but have limited regulatory oversight because they're not offered through a stock exchange. Private equity, venture capital, hedge funds and real estate deals generally come under this category. A professional advisor must determine whether private investing is appropriate for each individual client due to its high-risk nature.

It's worth noting that non-accredited investors may only participate through crowdfunding platforms where they can pool resources with others similarly interested in non-public investing.

Private Investments have yielded huge profits for their investors albeit with more substantial risks that are inherent in such transactions. The famous real estate deal of Merv Griffin's Beach Club at Griffin Resorts in Atlantic City, New Jersey was an example of successful private investments, which were complicated transactions with exceptionally high stakes.

Selling away might sound like a great way to make quick cash, but the risks and penalties are like a bad hangover - they'll haunt you for a long time.

Risks and Penalties of Selling Away

Fully grasp the risks & penalties of "selling away". This includes regulatory, civil and criminal liabilities. It's essential to understand these before engaging in any investment plans. Check out the sub-sections for more info on these consequences.

Regulatory Penalties

Violating regulatory rules on selling away can incur severe legal consequences, monetary fines, suspension or even revocation of licenses. The regulators require brokers to limit themselves to selling only the authorized securities issued by their brokerage firms. Any unauthorized sale entails a significant business risk for both parties involved and violates regulations protecting investors from potential frauds.

Brokers involved in selling away transactions have to face high regulatory penalties as they violate SEC standard of conduct laws towards maintaining fair trade practices. Regulators assess a range of factors while determining the severity of punishment such as past violations, deliberate intent, magnitude of harm caused by the violation, and identification or remediation efforts put forth by the accused party.

Furthermore, some accused brokers are also subjected to personal liability lawsuits filed by investors who suffered losses due to unauthorized transactions. These lawsuits may cause financial stress on brokers - considering that most E&O insurances may not cover penalties for selling away cases.

In one instance, a broker intentionally sold away $4 million worth of securities without authorization from his brokerage firm. The authorities imposed at least $208,000 penalties - an amount inclusive of fines and other expenses incurred - and revoked his license with no chances for reinstatement anytime soon.

Breaking the law is never a good idea, unless you want to spend your retirement fund on lawyer fees and orange jumpsuits.

Civil Liability

When an advisor sells securities outside the scope of their employer, it can lead to civil liability. This arises when the buyer incurs losses from an investment that was not authorized by the firm. The advisor can be sued for negligence, breach of fiduciary duty, and violating securities laws.

Selling away creates a conflict of interest where one party profits at the expense of another. Advisors must disclose all potential conflicts of interests with clients before recommending any investments. Even if clients give verbal or written consent, advisors must obtain approval from their employer before trading on behalf of clients.

Civil liability can also arise if an advisor fails to supervise activities that take place outside the scope of employment. In such cases, firms can be held accountable for their employees' misconduct and may face arbitration or civil lawsuits.

To minimize risks associated with selling away, advisors should not participate in any unapproved securities transactions. It is crucial to maintain transparency with clients as well as employers about all investment recommendations and activities. Additionally, firms should have robust policies and procedures in place for detecting and addressing unauthorized trading activities.

Selling away may land you in jail, but if you're into orange jumpsuits and cold metal bars, go ahead.

Criminal Liability

With regards to misconduct in finance, one may encounter criminal charges. Such charges are known as Legal Liability and refer to penalties attributed to transgressions in violation of securities law or other laws governing financial practices. Individuals charged with such offenses face potential sanctions including fines, restitution, jail time, and even permanent revocation of their securities license.

When it comes to criminal behavior in finance, ethical codes across all financial sectors recognize noncompliance as immensely destructive not just to the individual but also the industry at large. For instance, some people may involve themselves in illegal schemes that could lead to a prison sentence once discovered. Furthermore, when such behaviors result in significant losses for clients or broker-dealer firms, an accused person might be held liable for damages under civil law suits.

It is crucial to note that while criminal liability cases are rare occurrences nationally, several well-documented cases have brought this topic into sharp focus. In 2019, Joseph Gennaro Jr., a former registered salesman at Legend Securities was convicted and sentenced to five years in prison for fraudulently selling privately held stocks away from his firm through any means possible; these actions earned him just over $300k by making sure his clients did not question his deceitful intentions throughout the fraudulent operation.

If your financial advisor starts offering you an exclusive opportunity to invest in his cousin's new llama farm, it's probably a red flag for selling away.

Ways to Identify Selling Away

Have you explored O to Z definitions to ID selling away? Monitor accounts, do due diligence and report any suspicious activity - these can help you! In this section, let's look at each sub-section and figure out how they can make IDing selling away easier.

Conducting Due Diligence

Investigating Businesses for Protection against Fraudulent Activities

Due diligence is a crucial process that helps an investor make informed decisions before entering into any business relationship. The process involves investigating a potential partner or business for any indications of fraud, mismanagement, or legal issues. This includes analyzing financial statements, reviewing company records and contracts, assessing key personnel, and examining the company's reputation in the market.

It is vital to conduct due diligence to protect yourself from fraudulent activities and ensure that the business you invest in meets your expectations. This process not only provides insight into a company's operations but also highlights any red flags that may indicate dishonest practices.

During due diligence, you must assess all aspects of the businesses' operations thoroughly. It involves looking at the legality of their products or services offered, identifying any previous legal disputes, and checking the company's financial health through financial analysis. It would be ideal for involving experts such as lawyers and accountants when conducting due diligence.

According to Forbes research on corporate fraud cases in 2021, insider trading accounted for 63% of corporate crimes committed globally.

Keeping an eye on your account activity is like being a detective, except instead of catching criminals, you're catching shady financial practices.

Monitoring Account Activity

When it comes to keeping a tab on the activities in your account, there are several ways to monitor account activity. Let's explore some of these below.

  • Regularly check your account statements for unusual transactions
  • Set up alerts for any changes or withdrawals made from your account
  • Be vigilant and watchful for any unsolicited investment offers from brokers
  • Stay updated with news regarding the investments you hold in your account
  • Conduct periodic reviews of your investment portfolio and make necessary adjustments if required
  • Maintain open communication with your financial advisor about the activities in your account

It is important to note that monitoring account activity goes beyond just keeping an eye out for unauthorized access. It also involves staying informed about fraudulent investment schemes, market trends and updates, and maintaining a keen ear during conversations with potential investors.

To ensure that you can easily identify suspicious activities in your account, it is important to be familiar with the types of common scams and frauds that exist. Protecting yourself against these situations through awareness can go a long way in maintaining adequate safeguards for long term financial gains.

In order to keep your investments safe, consider diversifying them across different industries or portfolios. This helps disperse risk while also increasing returns. Additionally, always do thorough research before investing in anything new or unfamiliar - it could increase the chances of spotting red flags early enough to avoid significant losses.

Remember, if it looks like a duck, swims like a duck, and quacks like a duck, it just might be a case of suspicious activity in the stock market.

Reporting Suspicious Activity

As a responsible investor, it is essential to keep an eye out for any suspicious activity that may occur. Keeping this in mind, it is imperative to know how to Detect Irregular Practices effectively.

One way to do so is by monitoring your account thoroughly and promptly reporting any questionable activity. This could include strange transactions or unexplained changes in your portfolio. Staying vigilant is crucial to avoid falling victim to fraudulent investment schemes.

Additionally, It is vital to maintain clear communication with your broker or advisor, especially if you notice something suspicious. If you suspect that someone is engaging in illegal or unauthorized activities with respect to your investments, contact the Securities and Exchange Commission (SEC) immediately. Reporting such irregularities can help safeguard not just yourself but other investors as well.

Some Facts About What Is Selling Away? - Definitions O - Z:

  • ✅ Selling away is a violation of securities laws in which a broker sells securities not held or offered by their brokerage firm. (Source: Investopedia)
  • ✅ Selling away can result in disciplinary action, fines, and even revocation of a broker's license. (Source: FINRA)
  • ✅ Investors should be wary of brokers who engage in selling away and report any suspicious activity to their brokerage firm and the appropriate authorities. (Source: The Balance)
  • ✅ Selling away is often done by brokers to earn additional commissions or to operate outside the rules and regulations of their firm. (Source: Securities Fraud Lawyer Blog)
  • ✅ In addition to legal consequences, selling away can also result in financial losses for investors who may not have the same protections and safeguards as with securities held by a licensed brokerage firm. (Source: Law Offices of Robert Wayne Pearce)

FAQs about What Is Selling Away? - Definitions O - Z

What is selling away?

Selling away refers to a prohibited activity where a registered representative sells securities to clients outside of their employing firm without obtaining approval from their firm.

What are the consequences of selling away?

Consequences of selling away include, but are not limited to, regulatory fines, suspension or revocation of registration, compensation to harmed clients, and damage to the reputation of the individual and their employing firm.

What is a third-party investment?

A third-party investment is an investment that is not offered or recommended by the employer of the registered representative. These investments are not typically approved for sale by the employing firm and the representative must obtain permission before making such a sale.

What is an outside account?

An outside account is an account in which a registered representative holds securities that are not offered or recommended by their employing firm. This account must be disclosed to the employing firm to ensure compliance with regulations.

What is a private securities transaction?

A private securities transaction is a transaction in which a registered representative engages in the purchase or sale of securities outside of their employing firm. Prior to engaging in such a transaction, the representative must provide written notice to their firm.

What is due diligence?

Due diligence is the process of conducting a thorough investigation to ensure that a particular investment aligns with a client's investment objectives and risk tolerance. This process involves researching the investment, its issuer, and other relevant parties.