When it comes to making a first-time investment, it can be tricky to choose a suitable stockbroker or investment advisor.
You will want to choose a stockbroker who is aware of your goals for investing, how much you can realistically afford, and one who can break down jargon-based terminologies into simple English.
And of course, you will want to choose a stockbroker or investor who will act lawfully and on your behalf in all investment-related activities.
Which brings the subject neatly onto ‘selling away’ in investment terminologies, and the issues that this illegal practice creates for investors.
What is selling away?
In simple terms, selling away is when a stockbroker or an investment advisor offers an investment that is outside or separate from those that their firm has approved for sale to the public.
An investment firm will have an approved product list and will typically record all transactions in their books and records when an investment is made. As selling away based investments are not on the approved product list, they are not usually recorded in the investment firms records.
As a result, investors are not provided with a formal risk disclosure or compliance report. These investments are typically volatile and can pose a serious threat to capital.
Selling away involves either indirect or direct compensation for the broker or investment advisor. As these schemes can result in loss of capital from the investor without their knowledge or consent, they are considered fraudulent.
Common examples of selling away
Luckily, there are some ways that you can spot a selling away scheme, even if you have no real experience with investing.
It is the reality of all investments; there are never any guarantees in relation to the return you will receive.
When your stockbroker or investment advisor is trying to sell you a no-lose proposition, this is a red flag.
Unusually high returns
There is a reason why some things appear to be too good to be true; because they are!
The same is true for investment. If your broker or advisor is trying to sell you shares in a company with a complicated structure, or are telling you that the returns from your investment will be unusually high, this is another red flag.
Private side deals
In a standard investment firm, retail investors are not able to participate in a private placement of assets, so be wary of any investment opportunities in which your investor uses the word ‘private.’
If your investor or advisor begins to describe you as a top customer or mentions that the investment they are offering is only open to ‘special’ people, you should contact an experienced securities attorney.
This is a type of debt that businesses sometimes use to raise money.
If they are being sold away from a brokerage firm, they can carry substantial risk to capital.
Private real estate deals
There is a misconception among some investors that any investment associated with real estate or a real estate investment trust (REIT’s) is going to be safer.
This is false; these investments come with risks, especially if they are being sold away from a brokerage firm.
What are investors’ options for reclaiming losses?
Many people who are new to investing may believe that as it is their money that has been lost, they will have no way to recover it.
This is not true, and as soon as you discover that you have been on the receiving end of a selling away scheme, your first step is to take legal action.
According to FINRA’s Arbitration Claim Filing Guide, investors who have been victimized through selling away could at first, try to resolve the matter informally. The brokerage or investment firm that you invested with should have a compliance department, where you and your broker could reach a resolution. As many larger investment firms want to have ‘plausible deniability,’ this solution may sometimes work; simply put, the firm may realize the devastation that can be caused to them by allegations of selling away, and may not want the process to go any further legally.
If this fails, investors could attempt to sue the stockbroker or investment advisor through arbitration with FINRA.
Before attempting any of this, investors may want to contact an experienced and qualified securities fraud attorney as soon as possible to discuss your next step. Selling away cases can be complex and need the eye of an expert.