No. But since I have your attention, “selling away” is one of the most pernicious and dangerous investment scams in the brokerage industry. It is outlawed by FINRA and all state security regulators, yet it persists.
First, let me explain “selling away” (the phrase used by the industry and regulators – not me). “Selling away” is where a broker tries to sell one of his clients an investment that bypasses the account. Commonly, the broker tells the customer that there is a great investment of which the brokerage house is unaware and he/she would prefer to keep it that way. The broker then suggests keeping the transaction privately between him and the customer.
Sometimes it is blatant embezzlement but more often the investment is unregistered, poorly disclosed, and opaque (the opposite of transparent). Never does the victim know the commission paid to the broker or the broker’s pecuniary interest.
Second, “selling away” is unique to the brokerage industry. It is not a problem with investment advisors for reasons that will not be discussed here. The distinction, however, may lead us to a possible solution.
Third, a classic case of “selling away” occurred here in St. Louis. It started in 2002 when a Wachovia broker (now “Wells Fargo Advisors”) successfully convinced customers to invest in a proposed resort in Wisconsin called Meadow Ridge.
In the spring of 2003, the broker went to work for a relatively small brokerage called Huntleigh Securities and transferred his customers there. During the subsequent years he convinced numerous of his clients, many of whom were elderly, to send money to Meadow Ridge.
The sordid story is publicly available in the Consent Order(s) issued by the Missouri Secretary of State in December, 2010. Although the broker was subsequently barred from the securities business in Missouri, his FINRA license was unaffected and no relief was awarded to his many victims. Astonishingly, many of the victims were unaware of the “public censor” of Huntleigh and the broker for an utterly lack of the supervision of the broker.
The final chapter of Meadow Ridge was written when the Wisconsin receiver sold the assets of Meadow Ridge and the victims finally learned that all of their money, over $4 million, was totally lost.
Is there relief for the victims of “selling away” from the brokerage house? Equally important, can these situations be prevented? I will discuss those issues in a future blog.