When investors trust their savings to a financial advisor at a major, well-known brokerage firm, they expect that firm to stand behind its advice. But what happens when that advisor directs a client to an investment “outside” the firm’s official offerings?
This is exactly what happened to one of our clients, a hard-working, blue-collar investor who trusted his broker completely.
The Problem: A Trusted Referral to a Devastating Scam
Our client’s broker at a large, national firm approached him with a “special opportunity” not available through the firm itself—an investment in silver. The broker personally referred our client to a third-party promoter, vouching for the investment’s legitimacy.
Trusting this recommendation, our client invested a substantial, six-figure sum.
It all turned out to be a scam. The silver investment was worthless, and the promoter disappeared. Our client’s hard-earned money was gone.
The Fight: “Not Our Responsibility”
When our client turned to the brokerage firm for answers, they immediately washed their hands of the situation. Their defense was simple: because the silver investment was sold by a third party and was not an official product of the firm, they had no responsibility for the client’s losses.
They claimed their broker was acting on his own, and therefore, the firm was not liable.
Our Strategy: Proving “Selling Away” and Failure to Supervise
Our firm was retained to fight for the client’s recovery. We immediately recognized this as a classic case of “selling away.”
“Selling away” is the industry term for when a broker solicits an investment that is not offered by their employing firm. While firms often try to use this as a defense, they fundamentally misunderstand (or misrepresent) their own duties.
FINRA rules require brokerage firms to properly supervise their brokers. This includes monitoring their communications and outside business activities to prevent exactly this type of fraud.
We drafted a comprehensive demand letter that detailed the firm’s supervisory failures. We outlined how the firm either knew, or should have known, about their broker’s improper referral and failed to take steps to stop it. They could not simply ignore their representative’s actions just because the transaction happened “outside” the firm’s walls.
The Resolution: A Substantial Confidential Recovery
Faced with our evidence and clear legal arguments, the brokerage firm’s defense crumbled.
Rather than face a public arbitration battle, the firm agreed to negotiations. We successfully secured a confidential settlement for a substantial recovery, allowing our client to reclaim nearly everything he had lost in the fraudulent scheme.
Key Takeaway for Investors
This case is a critical reminder: Your brokerage firm is responsible for supervising its advisors.
If your broker ever recommends an investment “on the side”—whether it’s real estate, a private company, or commodities like silver—be extremely cautious. This is a major red flag.
Even if the firm claims it’s not their product, they may still be liable for their failure to supervise
Sean M. Sweeney is a shareholder at Halling and Cayo, a full service law firm in Milwaukee, WI and the head of its Securities Litigation team.
He represents individual and institutional investors in FINRA arbitration and court nationwide. He recovers investment losses from fraud or breach of duty from their broker-dealer.
Contact him at (414) 755-5020 or via e-mail at SMS@hallingcayo.com to see if he can help recover your funds.