“Selling away” is when a broker leads an investor to investments that are not offered through their brokerage house. Investing in securities outside of your brokerage account can be extremely risky, because investors will miss important investor protections that flow from the broker’s and the firm’s regulatory obligations, including the firms supervision of the brokers activities.
These investments are often presented as “alternative investments” or “outside investments.” Investors are often lured to these investments by promises of high returns with low risk. Another common theme in these cases is a representation by the broker that he/she has personally invested in the investment. Outside investments can take many forms including unsecured notes, limited partnerships, and limited liability companies.
Many of these alternative investments are in reality Ponzi schemes. Ponzi schemes are fraudulent alternative investment schemes that typically attract investors with promises of high returns and the investment initially produces some nice returns. However, these returns are money of subsequent investors. Ponzi schemes continue to pay investors with money received from subsequent investors, but eventually collapse when the well of new investors runs dry.
FINRA, the Financial Industry Regulatory Authority, takes these types of claims seriously. In April 2010, an arbitration panel in Kansas, awarded an investor more than $500,000 in damages flowing from her investment in two outside companies that her broker recommended.
If you think you have been a victim of one of these fraudulent investment schemes please contact us.