Some brokers try to evade supervision by selling investments not offered by their firm. Known as selling away, this can leave investors in the dark about the risks and conflicts of interest associated with outside investments.

Allegations of selling away frequently intersect with other claims of misconduct, such as misrepresentation and unsuitable investment recommendations. LPL Financial broker fraud investigations often resolve through FINRA arbitration.

Investors have resolved allegations of selling away against LPL Financial through FINRA arbitration.

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What is Selling Away?

Brokerage firms don’t offer every possible investment product to their clients. Instead, offer a selection of products they have conducted due diligence on. For example, LPL Financial’s Customer Relationship Summary lists some of the investment products it offers:

Stocks and bonds
Mutual funds
Exchange-traded funds (ETFs)
Alternative investments

Firms evaluate specific issuers and investments within these categories to ensure they are reputable and appropriate for their investors. This due diligence is vital to prevent investors from falling victim to fraud.

When a broker sells investments not approved and offered by the firm, they engage in selling away.

Selling away is a kind of private securities transaction. FINRA Rule 3280 prohibits brokers from engaging in private securities transactions without the approval of their firm. The broker must submit written notice to their firm indicating their role in the transaction and any compensation they may receive.

Without firm supervision, brokers can recommend unsuitably risky or outright fraudulent investments.

Why Do Brokers Sell Away?

Brokers may engage in selling away for several reasons:

To earn commissions outside their firm
To recommend a risky investment without supervision
To avoid scrutiny from their firm

Some investments have limited markets. Private placements are investments not available on public exchanges and are only available for certain investors, and may not be offered by a particular firm. Brokers may sell these investments away from their firm to earn higher commissions or to keep up their relationship with a client who might otherwise invest through another brokerage.

In some cases of LPL Financial broker fraud, selling away may be one part of a larger scheme. Brokers may engage in selling away so their firm doesn’t realize they are scamming their clients with high-risk investments or engaging in a Ponzi scheme.

A Kurta Law securities attorney can conduct an in-depth review of your account to uncover evidence of LPL Financial selling away.

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What are Outside Business Activities?

Some LPL Financial selling away cases may involve outside business activities (OBAs). Brokers disclose their OBAs on their detailed BrokerCheck records, which investors can access through FINRA’s BrokerCheck database.

FINRA Rule 3270 requires brokers to seek approval from their firm for any business activities they participate in outside the scope of their work at their firm.

Outside business activities include:

Employment with another business
Sole proprietorship
Contracting
Other business relationships that may result in compensation

Outside business activities are not inherently a form of selling away—but cases of LPL Financial broker fraud may involve both.

When are Private Securities Transactions Approved?

Not all private securities transactions are prohibited or fraudulent. Under FINRA Rule 3280, firms may provide approval for a private securities transaction. Firms will evaluate the investment and the broker’s conflicts of interest in the transaction.

If the firm fails to appropriately review the transaction, it may be found liable for failure to supervise. FINRA Rule 3110 requires firms to establish and enforce systems of supervision to prevent fraud.

LPL Financial Selling Away and Failure to Supervise

Investors may not initially be aware that the investment their broker recommends isn’t offered by LPL Financial. Whether the firm knew about the transaction and provided approval are crucial considerations in FINRA arbitration.

Under FINRA Rule 3110, a firm’s supervisory system must be reasonably designed to prevent violations of securities regulations. Without oversight, brokers may not disclose the risks, fees, and other material facts related to investments that investors have a right to know.

If an LPL Financial broker fraud investigation finds that the firm failed to adequately monitor the broker’s soliciting and trading activity, the firm can be held liable for its failure to supervise. Learn more about FINRA Rule 3110 and supervisory duties.

Recovery in LPL Financial Advisor Fraud

FINRA arbitration is a path to recovery that brokerage firms may require investors to use in place of civil court. Instead of presenting your claims to a jury, FINRA arbitration allows you to make your case to one or three neutral arbitrators. Like a civil proceeding, it results in a legally-binding decision.

Arbitrations that arise from allegations of LPL Financial scams often result in damage awards. Damages may be based on out-of-pocket losses as well as considerations like margin interest.

Settlements from LPL Financial may be obtained at any time during the arbitration process. A securities fraud attorney can help evaluate your offer and negotiate a settlement that best addresses your losses.

Investors should be aware, however, that a settlement doesn’t establish firm liability, and neither do past arbitrations or settlements achieved by other investors.

Do You Have an LPL Financial Broker Fraud Claim?

If you suspect your broker solicited you for an investment outside LPL Financial, it’s important to contact an experienced securities attorney today. Our team has experience evaluating account records for signs of selling away and representing our clients in FINRA arbitration.

You can also review Kurta Law’s broader work in investment fraud matters or request a case evaluation through our contact page.

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