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🤝 Employee Conduct & Reportable Events · Lesson 2 of 5 · 5 min

Selling Away: The Deal Your Firm Never Saw

🕳️ A friend's start-up wants investors and offers you a cut for every one you bring. If your firm never hears about it, you are 'selling away.'

💡 Key idea

Selling away = securities deals outside the firm without notice. Paid: notice, written approval, then the firm records and supervises it. Unpaid: notice and written acknowledgment.

🧠 Why it matters

A PRIVATE SECURITIES TRANSACTION is any securities transaction outside the regular course of your job with your firm. Doing one without telling the firm is called SELLING AWAY. Under FINRA RULE 3280 (in force today), an associated person must give the firm PRIOR WRITTEN NOTICE describing the transaction, their role, and whether they will be paid. If they will receive SELLING COMPENSATION, the firm must approve or disapprove in writing; if it approves, it records the trade on its books and SUPERVISES it as if it were its own. If no compensation, the firm acknowledges in writing and may set conditions. Example: you earn 5% for steering investors into a friend's private placement: notice plus written approval and supervision. Rule 3290 keeps this approach from Oct 25, 2027.

📈 In the real world

🏗️ Omar helps his uncle's real-estate LLC raise money from three of Omar's customers and takes a finder's fee. His firm learns about it only when one investment collapses and a customer complains. Omar never gave notice: a classic selling-away case that ends in a bar.

📌 Takeaways

  • Selling away: private securities transactions without telling the firm
  • With compensation: written approval, recorded and supervised by the firm
  • Without compensation: written notice and the firm's acknowledgment

📖 Terms in this lesson

Private securities transaction: A securities sale outside the firm; it requires prior written notice, and approval and supervision when compensated.

✅ Test yourself

A rep will receive a fee for referring investors to a private placement not offered by his firm. Under Rule 3280, what is required?
  1. Notice to FINRA within 30 days after the sale
  2. Only a note in his personal files
  3. Approval from the issuer's auditor
  4. Prior written notice and the firm's written approval

Answer: D · Prior written notice and the firm's written approval

With selling compensation, Rule 3280 requires prior written notice and written approval; the firm then records and supervises the transaction. FINRA and the issuer's auditor do not approve it.

If a firm approves a compensated private securities transaction, the firm must:
  1. Refer the customers to a different firm
  2. Record it on its books and supervise it
  3. File a Form U5 for the representative
  4. Hold the rep's commission in escrow

Answer: B · Record it on its books and supervise it

Approval means the firm records the transaction and supervises the rep's participation as if it were executed on the firm's behalf. No U5 or escrow requirement applies.

'Selling away' describes a representative who:
  1. Sells securities away from the firm without telling it
  2. Sells a customer's position when its price falls sharply
  3. Moves customer accounts to a new firm after resigning
  4. Sells shares that are not listed on an exchange

Answer: A · Sells securities away from the firm without telling it

Selling away is engaging in private securities transactions without notifying the firm. Moving accounts, selling a falling position or trading OTC shares are not the definition.

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