“Selling Away” Continues to Create Liability Exposure for Brokerage Firms
“Selling away” occurs when a broker solicits a client to purchase securities that are not offered or approved by the brokerage. This activity can get a broker fired, because it increases the risk of violating FINRA rules by selling products that have not undergone proper due diligence screening. If brokerage firm clients lose money in the investments, the brokerage firm can be held liable for the broker’s wrongful acts.
Quest Capital Strategies, Inc. (“Quest Capital”) recently found out the hard way that a brokerage firm can face liability even when a broker sells unscreened securities to non-clients. On the surface the damage looks small, at least by brokerage standards – FINRA arbitrators found Quest Capital liable for $276,226 in losses incurred by a non-client, who was solicited to invest in a security that the firm had not approved. The Quest Capital broker who has since been terminated.
These damages might turn out to be just the tip of the iceberg. The securities were issued by the now-bankrupt Woodbridge Group of Companies (“Woodbridge”), whose principal recently was found liable for $1 billion relating to the securities. All told, the rogue broker sold more than $10 million of these securities to a mixed group of investors — some of whom were Quest Capital clients. Now it looks like Quest Capital may be liable for all of the investors’ losses.
A Liability Explosion?
Under the doctrine of respondeat superior, an employer is liable for losses caused by the
wrongful acts of its employee, even if the employer itself was not at fault. An exception to this
rule relieves the employer from liability when the employee is acting “outside the scope”
of their employment. The arbitrator in the Quest Capital case ruled that selling unapproved securities to non-clients was within the scope of the broker’s employment.
Securities Brokerages Needs to Place Importance on Monitoring Activity
This recent FINRA arbitration case demonstrates how important it is for brokerage firms to be aware of their brokers’ sales conduct. Close monitoring of brokers’ e-mails and text messages could help protect customers from unscrupulous broker and prevent investment losses. In turn, brokerage firms would decrease their exposure to liability.
Speak with an Investment Fraud Attorney
Dimond Kaplan & Rothstein, P.A. has vast experience in representing investors who have sustained losses due to the negligence or misconduct of their broker and/or brokerage firm. We will aggressively pursue claims and fight for your rights.
If you are looking for an investment fraud attorney to review your rights and options, the investment fraud lawyers at Dimond Kaplan & Rothstein, P.A. represent individual and institutional investors who have lost money as a result of investment fraud or stockbroker misconduct. We’ve recovered more than $100 million in assets lost to investment fraud and stockbroker misconduct.
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