Selling Away Claims Against Brokers and Their Firms
When a broker sells an investment outside the firm that employs them, investors nationwide may have a claim against the broker and the firm that was supposed to supervise them.
Selling away is the industry term for a broker selling securities that were not offered through, or approved by, the brokerage firm the broker works for. The investment is often a private company, a real estate program, a promissory note, or a fund the broker has a personal connection to. When it fails, the investor discovers that the firm on the account statements never knew about it, and the firm says it is not responsible.
FINRA Rule 3280 exists for exactly this situation. It prohibits an associated person from participating in any private securities transaction except in accordance with the rule, which requires written notice to the firm before the transaction and, where the broker is compensated, the firm’s written approval and supervision of the transaction as if it were the firm’s own. Industria Business Lawyers represents investors nationwide in FINRA arbitration claims arising from selling away, against the individual broker and, where the facts support it, the firm.
Every case is different, and not every outside investment supports a claim against the firm. The analysis turns on what the broker did, what the firm knew or should have known, and what its supervisory system was designed to catch.
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Selling Away Questions We Handle
The rule is short. The disputes are about notice, compensation, supervision, and what counts as participation.
What the Rule Requires of the Broker
Rule 3280(b) requires an associated person, before participating in any private securities transaction, to give the firm written notice describing the proposed transaction in detail, the person’s proposed role, and whether the person has received or may receive selling compensation. A broker who skipped that notice has breached the rule regardless of how the investment performed. We obtain the firm’s records to establish whether notice was ever given.
What the Rule Requires of the Firm
Under Rule 3280(c), where the broker may be compensated, the firm must state in writing whether it approves or disapproves the participation. If it approves, the transaction must be recorded on the firm’s books and supervised as if executed on behalf of the firm. If it disapproves, the broker may not participate in any manner, directly or indirectly. Where the broker is not compensated, Rule 3280(d) still requires the firm’s prompt written acknowledgment and allows it to impose conditions.
Failure to Supervise
Rule 3110(a) requires each firm to establish and maintain a system to supervise the activities of each associated person, reasonably designed to achieve compliance with securities laws and FINRA rules, and places final responsibility for proper supervision on the firm. A selling away claim against the firm usually rests on what a reasonable supervisory system would have detected: outside business activity disclosures, email review, customer complaints, or the broker’s own annual attestations.
What Counts as Participation
Rule 3280(a) reaches participation in any manner. Introducing a client to the promoter, forwarding documents, attending the pitch, or receiving a referral fee can each be participation even where the broker never handled the money. We examine the broker’s role against the rule’s breadth rather than the broker’s own description of it.
Compensation and Conflicts
Selling compensation is the trigger for the firm’s approval obligation and the clearest sign of a conflict. It includes commissions, finder’s fees, and other consideration tied to the sale. Establishing whether the broker was paid, by whom, and whether the firm knew is central to both the claim against the broker and the claim against the firm.
The Underlying Investment
Outside investments sold this way are frequently private placements, promissory notes, or programs that were unsuitable for the investor on their own terms. A selling away claim is often brought alongside a suitability claim under Rule 2111 and a claim under Rule 2010, which requires a member to observe high standards of commercial honor and just and equitable principles of trade. Our unsuitable investment claims page covers that analysis.
Why the Firm Matters More Than the Broker
An individual broker who sold away rarely has the means to satisfy an award. The firm usually does.
The rule places responsibility on the firm. Rule 3110 makes final responsibility for supervision rest with the member. Rule 3280 requires the firm to approve, record, and supervise compensated private securities transactions. A firm that had no system to detect a broker’s outside sales, or had one and ignored the signals, faces a claim independent of what the broker did.
The forum is FINRA arbitration. FINRA Rule 12200 requires arbitration of a dispute between a customer and a member or associated person, arising in connection with the business activities of the member or associated person, where a written agreement requires it or the customer requests it. Whether an outside sale arises in connection with the firm’s business activities is itself frequently contested, and it is one of the first issues we address.
Time limits apply. Under Rule 12206, no claim is eligible for arbitration where six years have elapsed from the occurrence or event giving rise to it. Outside investments often fail years after the sale, so the date of the relevant event needs early attention.
Where a claim goes. The claim names the broker, the firm, and where appropriate the firm’s supervisors. Our how to file page covers the statement of claim, and our worth it page covers the factors to weigh before filing.
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Tell Us About Your Matter
How We Work a Selling Away Claim
Investment and Broker Records +
The offering documents, subscription agreement, payment records, and every communication with the broker about the investment, together with the broker’s registration history.
Firm Records Request +
Outside business activity disclosures, private securities transaction notices, approvals or disapprovals, and the firm’s written supervisory procedures, obtained through the arbitration discovery process.
Rule 3280 Analysis +
Whether notice was given, whether compensation was involved, whether the firm approved, and whether the firm recorded and supervised the transaction.
Supervision Analysis +
What the firm’s system was designed to catch, what signals existed, and what a reasonable system would have done with them, measured against Rule 3110.
Suitability and Related Claims +
Whether the investment itself was suitable, whether representations were accurate, and which additional rules the conduct implicates.
Statement of Claim +
Filed with FINRA naming each respondent, with the damages calculated in the way arbitration panels expect.
Arbitration Through Award +
Arbitrator selection, discovery, hearing, and award, with the investor informed at each stage.
FAQ
01 • Investors My broker sold me an investment that was not through the firm. Is the firm responsible?
It can be. Rule 3280 required the broker to give the firm written notice and, if compensated, to obtain the firm’s written approval, after which the firm had to supervise the transaction as its own. Rule 3110 separately requires a supervisory system reasonably designed to achieve compliance. Whether the firm is responsible in a particular case depends on what it knew, what its system should have detected, and the facts of the sale.
02 • Investors The investment was a private company, not a stock. Does FINRA still apply?
Rule 3280 applies to private securities transactions, which by definition are outside the regular course of the firm’s business. Whether the interest sold was a security is analysed under the federal definition, which includes notes, investment contracts, and interests in profit sharing agreements among other instruments.
03 • Investors The broker said the firm knew about it.
Then the firm’s records should show the notice and its response. If the firm approved a compensated transaction, it had to record and supervise it. If the records show nothing, the question becomes whether the broker misled the investor, the firm, or both. Either way the firm’s supervisory system is in issue.
04 • Investors How long do I have?
Rule 12206 makes a claim ineligible for FINRA arbitration once six years have elapsed from the occurrence or event giving rise to it. The panel decides which event that is. Other limitation periods under state or federal law can apply to the underlying claims.
05 • Investors The broker has left the industry or has no money.
That is why the claim against the firm matters. Firms are required to maintain the supervisory system, and an award against a solvent firm can be collected. Whether the facts support a claim against the firm is the first thing we assess.
Talk to a Selling Away Claims Attorney
Investors nationwide. Call (202) 860-1210 or send the investment documents and your account statements through the form. Free consultation. Every case is different, and not every outside investment supports a claim against the firm. We will tell you whether yours does.
This page provides general information about selling away claims under FINRA rules and does not constitute legal advice. Reading it does not create an attorney client relationship. FINRA rules cited were read on the date this page was last updated and are subject to change. Whether a particular investor has a claim depends on the specific facts, and past outcomes in other matters do not predict the result of any claim.