Investor Lawyers Blog
As recently disclosed by the Financial Industry Regulatory Authority (“FINRA”), former Morgan Stanley (CRD# 149777) financial advisor, Kevin Scott Woolf (CRD# 6145312), has voluntarily consented to an industry bar. Pursuant to a Letter of Acceptance, Waiver and Consent (“AWC”), accepted by FINRA on or about January 26, 2018, Mr. Woolf has consented to sanctions stemming from FINRA Enforcement’s allegations that “[h]e failed to provide documents and information and to appear and provide… on-the-record testimony during the course of an investigation that he engaged in multiple undisclosed outside business activities, including the development of a hotel, and participated in an undisclosed private securities offering for that development project that was marketed to customers of his member firm.”
According to BrokerCheck, Mr. Woolf was affiliated with Morgan Stanley as a registered representative from 2013 – 2016, during which time he worked out of the wirehouse’s Winter Haven, FL branch office. According to the allegations set forth in the AWC, it would appear that Mr. Woolf was permitted to voluntarily resign from Morgan Stanley on or about June 2016, based upon the brokerage firm’s internal review of Mr. Woolf’s “potential outside business activity related to a securities offering for a real estate investment.”
Based upon applicable securities laws and industry rules and regulations, a stockbroker or financial advisor is prohibited from engaging in conduct that amounts to “selling away,” or selling securities to his or her customers without prior notice to or approval from the broker’s firm. A registered representative who engages in such activity does so in violation of NASD Rule 3040, in addition to FINRA Rule 3280. As stated by the SEC, NASD Rule 3040 is designed to protect “investors from the hazards of unmonitored sales and protects the firm from loss and litigation.”
Allegations of selling away typically also entail allegations that a broker has engaged in undisclosed outside business activities, in violation of NASD Rule 3030 and FINRA Rule 3270. The industry rules governing outside business activities mandate, among other things, that a broker must obtain written approval from their firm prior to selling any security product.
In instances where a financial advisor engages in certain outside business activities that include selling away from the firm, the brokerage firm itself may be held liable for losses sustained by investors. This is because brokerage firms, as members of FINRA, have a duty to monitor the activities of their registered representatives, a duty which includes ensuring that a robust compliance program is in place, in order to effectively monitor the sales activities of its registered representatives.
Typically, selling away scenarios involve investments in closely held business ventures, limited partnerships, various real estate investments, promissory notes, and in some instances – penny stocks. Investors who believe that they may have a claim for “selling away” violations by a stockbroker or financial advisor may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.