What Is Selling Away?

Investment fraud takes many forms in today's financial markets, and selling away represents one of the most deceptive practices that can harm unsuspecting investors. This prohibited activity occurs when financial advisors or brokers recommend or sell securities that are not approved by their brokerage firm, often leading to significant financial losses for clients who trust their professional guidance.

At Weltz Law, we have witnessed firsthand how selling away can devastate investor portfolios and retirement plans. Our nationwide legal counsel helps clients across the United States recover losses from these fraudulent schemes, providing comprehensive representation from our New York base while serving investors throughout the country.

If you've suffered investment losses due to your broker's undisclosed outside business activities or selling away violations, contact Weltz Law for securities arbitration representation. Request a free initial consultation to discuss possible legal options to recover your losses.

Defining Selling Away in Securities Law

Selling away occurs when a registered representative or investment advisor sells securities, investment products, or participates in private securities transactions outside the scope of their employment with a broker-dealer firm. This practice violates fundamental industry regulations because it bypasses the supervisory oversight and compliance procedures that brokerage firms must maintain to protect investors.

The Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) strictly prohibit this conduct because it removes crucial investor protections. When brokers engage in selling away, they typically promote investment opportunities that their firms have not vetted, approved, or authorized for sale to clients. These unauthorized transactions often involve high-risk investments, Ponzi schemes, or fraudulent offerings that can result in total loss of invested capital.

Securities arbitration lawyers frequently encounter cases where investors suffered substantial losses because their trusted financial advisors recommended investments without proper due diligence or regulatory oversight. The complexity of these cases requires thorough investigation to establish the advisor's breach of fiduciary duty and the resulting damages.

How Selling Away Works

Selling away involves brokers and financial advisors promoting unauthorized investments outside their firm's oversight, creating significant risks for investors. At Weltz Law, we help clients nationwide recover losses from these deceptive practices.

1. Initial Contact: The broker approaches clients with investment opportunities that appear exclusive or time-sensitive, often claiming limited availability to create urgency.
2. Bypassing Firm Oversight: Investment recommendations occur outside the brokerage firm's approved product list, avoiding required supervisory review and compliance procedures.
3. Private Investment Offerings: Selling away typically involves private placements, real estate deals, commodity investments, or alternative securities that lack proper regulatory oversight.
4. Direct Payment Arrangements: Investors are instructed to make checks payable to individuals or unfamiliar entities rather than established financial institutions or registered broker-dealers.
5. Off-the-Books Communications: Brokers conduct business through personal email accounts, private phone numbers, or meetings outside their office to avoid firm monitoring systems.
6. Misleading Documentation: Investment materials often lack proper SEC filings, regulatory disclosures, or comprehensive risk warnings required for legitimate securities offerings.
7. Circumventing Compliance: The broker fails to provide required written notice to their member firm about participation in private securities transactions, violating FINRA Rule 3280.
8. High-Pressure Sales Tactics: Advisors use urgency, exclusivity claims, or promises of guaranteed returns to pressure clients into immediate investment decisions without adequate consideration.
9. Lack of Due Diligence: The selling away process typically involves minimal or no proper investigation of the investment's legitimacy, financial backing, or business fundamentals.
10. Hidden Compensation: Brokers often receive undisclosed commissions or fees from investment sponsors, creating conflicts of interest that violate fiduciary duty obligations.
11. Inadequate Record Keeping: Transactions occur without proper documentation in client accounts or firm records, making it difficult to track investment performance or recover losses.
12. Delayed Discovery: Investors often don't realize they've been victims of selling away until investments fail to perform as promised or principal amounts cannot be recovered.
13. Regulatory Violations: The entire selling away process violates multiple securities laws, FINRA regulations, and professional conduct standards designed to protect investor interests.
14. Recovery Challenges: When selling away schemes collapse, investors face difficulties recovering losses due to lack of firm oversight, inadequate insurance coverage, or fraudulent investment structures.

Real-World Selling Away Examples

These actual selling away scenarios demonstrate how brokers violate securities regulations and harm investors through unauthorized investment schemes. Weltz Law has represented clients nationwide in similar cases involving these common fraudulent practices.

• Private Real Estate Ventures: Broker promotes exclusive commercial property developments or land acquisition deals outside the firm's approved offerings, promising guaranteed rental income or development profits.
• Oil and Gas Partnerships: Financial advisor sells interests in drilling operations or energy exploration projects without proper regulatory filings or firm authorization, claiming high returns from commodity investments.
• Promissory Note Schemes: Representative offers high-yield promissory notes from unfamiliar companies or individuals, bypassing firm oversight while promising fixed returns significantly above market rates.
• Restaurant Franchise Investments: Broker solicits funds for restaurant chain expansions or franchise opportunities that lack proper securities registration and due diligence documentation.
• Cryptocurrency Mining Operations: Advisor promotes investment opportunities in digital currency mining facilities or blockchain ventures outside traditional securities oversight and firm compliance procedures.
• Private Lending Programs: Financial professional offers participation in private mortgage lending or commercial loan portfolios without proper regulatory approval or risk assessment procedures.
• Entertainment Industry Deals: Broker sells interests in film production, music recording ventures, or celebrity endorsement projects that promise unrealistic returns from entertainment royalties.
• Agricultural Investment Schemes: Representative promotes cattle ranching operations, crop production ventures, or agricultural equipment leasing programs without adequate financial backing or regulatory compliance.
• Medical Device Startups: Advisor solicits investment in early-stage medical technology companies or pharmaceutical development projects that lack FDA approval pathways or proper securities documentation.
• Foreign Currency Trading: Broker offers participation in FOREX trading programs or international currency arbitrage schemes that operate outside regulated financial markets and firm supervision.
• Precious Metals Partnerships: Financial advisor promotes gold mining ventures, silver acquisition programs, or rare metals trading operations without proper commodity market oversight or firm authorization.
• Technology Startup Investments: Representative sells shares in unregistered software companies, app development ventures, or artificial intelligence startups that lack proper securities filings.
• Charitable Investment Programs: Broker offers investment opportunities tied to religious organizations or charitable causes, exploiting investor trust while avoiding regulatory scrutiny and firm compliance.
• Sports Team Ownership: Advisor promotes fractional ownership in professional sports franchises or athletic facility developments that lack proper securities registration and financial transparency.
• Collectibles and Art Funds: A financial professional sells participation in rare collectibles, artwork acquisition, or memorabilia investment schemes without adequate market analysis or regulatory approval.

Who Has to Follow FINRA Rule 3210?

FINRA Rule 3210 establishes comprehensive requirements for outside business activities that apply to various categories of securities professionals. Weltz Law helps investors nationwide pursue securities arbitration claims when these regulations are violated.

• Registered Representatives: All individuals registered with FINRA member firms must disclose outside business activities and obtain proper approval before engaging in non-securities business ventures.
• Investment Advisor Representatives: Dual-registered professionals who provide both brokerage and advisory services face Rule 3210 obligations for all outside business activities that could create conflicts of interest.
• Associated Persons: Any individual associated with a FINRA member firm, including sales assistants and back-office personnel with customer contact, must comply with outside business activity disclosure requirements.
• Branch Managers: Office managers and supervisory personnel are subject to Rule 3210 requirements and bear additional responsibility for monitoring and approving subordinate representatives' outside activities.
• Principal-Level Professionals: Series 24 and other principal-licensed individuals must disclose their outside business interests and obtain firm approval while maintaining supervisory oversight of others' activities.
• Research Analysts: Securities analysts and research personnel face Rule 3210 obligations when pursuing outside business ventures that could compromise their analytical independence or create conflicts.
• Financial Planners: Registered representatives who provide financial planning services must disclose outside planning activities, insurance sales, or fee-based advisory arrangements under Rule 3210.
• Compliance Officers: Chief compliance officers and regulatory personnel are subject to outside business activity restrictions to prevent conflicts with their oversight responsibilities.
• Sales Supervisors: Regional directors, district managers, and other sales management personnel must comply with Rule 3210 while ensuring their teams follow proper disclosure procedures.
• Training Personnel: Individuals who conduct securities training or continuing education programs must disclose outside educational or consulting activities that could present conflicts of interest.
• Technology Specialists: IT professionals and systems administrators with access to customer information or trading systems face Rule 3210 obligations for outside technology consulting or business ventures.
• Client Relationship Managers: Professionals who maintain ongoing client relationships, regardless of their specific registration category, must disclose outside business activities under FINRA regulations.
• Retired Representatives: Former registered representatives who maintain any ongoing relationship with their previous firm or continue receiving compensation may still be subject to Rule 3210 requirements.
• Independent Contractors: Registered representatives working as independent contractors with member firms must comply with Rule 3210 disclosure and approval requirements for all outside business activities.
• Temporary Personnel: Individuals working on temporary assignments with member firms may be subject to Rule 3210 if they have customer contact or access to confidential information.

FINRA Rule 3210 Violations in Selling Away Cases

Selling away schemes often trigger FINRA Rule 3210 violations when brokers fail to properly disclose outside business activities to their firms. Weltz Law represents investors nationwide in securities arbitration disputes involving these regulatory breaches.

• Undisclosed Investment Partnerships: Brokers participate in private investment ventures or business partnerships without notifying their firm, creating conflicts of interest that violate disclosure requirements.
• Hidden Compensation Arrangements: Representatives receive undisclosed payments, commissions, or ownership interests from outside investment sponsors while promoting these opportunities to clients.
• Off-Books Business Ventures: Brokers establish separate business entities or investment companies to facilitate selling away without proper firm notification or approval under Rule 3210.
• Dual Employment Violations: Representatives work for multiple financial services companies or investment firms simultaneously without proper disclosure to all involved employers.
• Real Estate Business Activities: Brokers engage in property development, real estate sales, or rental property management while promoting these ventures to brokerage clients without firm approval.
• Insurance Sales Conflicts: Representatives sell insurance products or annuities through separate agencies while using their securities license credibility to generate business without proper disclosure.
• Consulting Service Arrangements: Brokers provide paid financial consulting, business advisory services, or investment committee participation without notifying their member firms.
• Board Member Positions: Representatives serve on boards of directors for companies whose securities they later recommend to clients without proper conflict of interest disclosure.
• Family Business Involvement: Brokers participate in family-owned businesses or investment ventures that they promote to clients without revealing personal financial interests to their firms.
• Speaking and Training Income: Representatives receive compensation for investment seminars, training programs, or educational events without proper firm notification and approval procedures.
• Publication and Media Work: Brokers write investment newsletters, provide market commentary, or appear on financial media programs while receiving undisclosed compensation from promoted companies.
• Referral Fee Arrangements: Representatives receive payments for client referrals to investment opportunities, insurance products, or other financial services without proper firm disclosure.
• Technology Platform Investments: Brokers invest in or promote fintech companies, trading platforms, or investment apps while using their professional credentials without firm knowledge.
• Charity and Religious Organization Roles: Representatives serve in leadership positions with charitable organizations that they later use to solicit investment opportunities from congregation or charity members.
• Social Media Monetization: Brokers receive compensation for social media posts, investment recommendations, or online content creation without proper firm disclosure and approval.

Pump and Dump Securities Fraud Explained

Pump and dump schemes represent one of the most prevalent forms of securities fraud, artificially inflating stock prices through deceptive marketing before orchestrated selling. Weltz Law provides nationwide securities arbitration representation for investors who have suffered losses from these manipulative practices.

• Stock Accumulation: Fraudsters quietly buy large amounts of cheap stocks or penny stocks to build big positions before starting their promotion.
• False Promotions: Scammers spread fake news through emails, social media, newsletters, and cold calls to create artificial excitement about the stock.
• Fake Company News: They spread false claims about new contracts, breakthrough products, or celebrity partnerships that don't exist or are greatly exaggerated.
• Coordinated Marketing: Multiple people promote the same stock across different platforms to make it look like many independent sources are recommending it.
• Price Manipulation: Fraudsters place small buy orders at higher prices to create fake trading volume and make the stock price appear to be rising naturally.
• Paid Endorsements: Social media influencers, celebrities, or fake investment gurus promote the stock without revealing they're being paid to do so.
• Pressure Tactics: Marketing materials claim limited-time offers or exclusive access to pressure investors into buying quickly without doing research.
• Fake Trading Volume: Scammers create wash trades or work with accomplices to generate fake trading activity that makes the stock look popular.
• Price Peak: After successful promotion drives up the stock price and attracts enough retail investors, the stock reaches its artificially high value.
• Mass Selling: Fraudsters systematically sell all their shares at the inflated prices, often using multiple accounts to avoid detection.
• Price Crash: The coordinated selling causes massive downward pressure, making the stock price collapse as artificial demand disappears
• Communication Stops: All promotional activities suddenly end, leaving investors with no information as they watch their investments lose value.
• Regulatory Response: The SEC and other agencies investigate suspicious trading patterns, but recovering investor losses is often difficult.
• Repeat Targeting: Some schemes specifically target previous fraud victims, exploiting their desire to recover losses through new "guaranteed" opportunities
• International Challenges: Many schemes operate across borders, making regulatory enforcement and asset recovery more difficult for investors.

Protect Your Investment Rights

If you've suffered investment losses due to your broker's undisclosed outside business activities or selling away violations, contact Weltz Law for securities arbitration representation. Request a free initial consultation to discuss possible legal options to recover your losses.

Securities Arbitration Lawyer FAQs

How long do I have to file a securities arbitration claim for selling away losses? FINRA arbitration claims must generally be filed within six years of the occurrence or discovery of the act or practice that constitutes a violation. However, statutes of limitations can vary based on specific circumstances, so prompt consultation with securities arbitration lawyers is essential to preserve your legal rights.

What damages can I recover in a selling away arbitration case? Investors may recover actual losses, lost profits, interest, and in some cases punitive damages. Recovery can include the difference between what you paid for the unauthorized investment and its current value, plus any income you would have earned from legitimate investments during the same period.

Can I sue my brokerage firm if my individual broker engaged in selling away? Yes, brokerage firms can be held liable for their representatives' selling away conduct under theories of respondeat superior, failure to supervise, or negligent hiring and retention. Firms have a duty to maintain adequate supervisory systems to detect and prevent unauthorized investment activities.

What evidence do I need to prove a selling away case? Key evidence includes investment documentation, correspondence with your broker, payment records, account statements, and communications showing the investment was not approved by the brokerage firm. FINRA records and the broker's employment history can also support your case.

How much does it cost to hire a securities arbitration lawyer for selling away cases? Many securities arbitration lawyers work on contingency fee arrangements, meaning you pay legal fees only if you recover money from your case. This structure aligns the attorney's interests with successful client outcomes and makes legal representation accessible to investors regardless of their financial situation.

What happens if my broker declares bankruptcy during the arbitration process? Brokerage firms typically carry errors and omissions insurance and may have other assets available for judgment satisfaction. Your securities arbitration lawyer will investigate all potential sources of recovery, including firm liability and insurance coverage, to maximize your chances of collecting any award.

Can selling away cases be resolved without going through full arbitration? Many selling away cases settle through pre-arbitration negotiations or mediation. Early settlement can provide faster resolution and avoid the uncertainty of arbitration proceedings, though the decision to settle depends on the strength of your case and the adequacy of any settlement offer.

What role does SIPC insurance play in selling away cases? Securities Investor Protection Corporation insurance typically does not cover selling away losses because these investments occur outside the brokerage firm's custody and are not considered securities held by SIPC member firms. Recovery must generally come through arbitration or litigation against responsible brokers.

How do I know if my investment losses resulted from selling away versus market conditions? Selling away cases typically involve investments that were never approved by your brokerage firm, lack proper regulatory filings, or were promoted through communications outside normal business channels. Investment fraud attorneys can help distinguish between legitimate market losses and fraudulent selling away schemes.

What happens to my other investments with the firm during the arbitration process? You can continue to maintain your existing accounts and investments with the brokerage firm while pursuing arbitration for selling away losses. The arbitration process addresses specific unauthorized transactions rather than your entire relationship with the firm.

Can I file a selling away claim if I made money on the unauthorized investment? While profit from unauthorized investments may complicate damage calculations, you may still have valid claims for breach of fiduciary duty, failure to supervise, or regulatory violations. The unauthorized nature of the investment activity violates securities laws regardless of the financial outcome.

What is the typical timeline for resolving selling away arbitration cases? FINRA arbitration cases typically take 12 to 18 months from filing to final award, though complex cases involving multiple parties or extensive discovery may take longer. Settlement negotiations can resolve cases more quickly, sometimes within a few months of filing.

Do I need to report selling away losses on my tax returns? Tax treatment of investment losses can be complex and depends on various factors including the nature of the investment and your individual circumstances. Consult with a tax professional about proper reporting of selling away losses and potential deductions for investment fraud.

What happens if my broker was terminated for selling away after I invested? Broker termination for selling away can strengthen your case by providing evidence of wrongdoing. However, you may still need to pursue claims against both the individual broker and the brokerage firm to maximize recovery opportunities through arbitration proceedings.