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What are "selling away" FINRA rules? Can licensed broker/dealers recommendnon-listed securities?
Not really but there is a caveat.Selling away is a simple answer. Its a firm based rule and there is noviolation via FINRA but most likely its going to be a bad deal for theclient selling away but maybe not especially if the firms products arepoor products to begin with. In that scenario you may have a new company justgetting started. Now in most instances the rule simply states that the repmust first “show” the client a firms product then move to another companyssolution second in a sales meeting. This is typical with captive insuranceagents like Northwestern Mutual for example but they mostly require this onlife insurance products only I believe. Most firms require clientacknowledgement of this rule via a signed document.Heres an example of why some firms dont allow thisIn the insurance business a lot of reps sell fixed annuities which areinsurance products unregulated by FINRA. The newer more complicated and highcommission products can be exotic life ins. as well like a buysell etc.such as Equity Index Annuities with client bonuses etc. pay commissions inthe 10–15 range. This is insane. What I saw were reps showing client rates at3 on their firms product then showing anothers firms product at a 12 rate.Now they werent the same product werent the same construction or even thesame vehicle yet are both legally classified as fixed annuities strictly aninsurance product. When clients realize theyve been duped with highwithdrawal expenses or required annuitization they freak only only to realizeFINRA and the original firm the rep worked for will do nothing for them asarbitration law only covers securities for FINRA. They then have to provefraud to get their money back which is nearly impossible in the insuranceindustry. Insurance companies are experts in NOT paying claims restitution orany kind of right to a client as they are in the business of taking yourmoney not necessarily giving it back. Thats simply how they are structured.They have actuaries who sit around all day and build products with the leastlikely scenario of actually paying out any dollars to clients or claims astheyre called. Yes life insurance pays but it better not fall into 1 of a1000 things listed as classic deniability.As for the private dealThe rule via FINRA states and I quote“Private securities transactions between a broker and a customer that mayviolate FINRA rules particularly where the transactions are done without theknowledge and permission of the sales representatives firm.”So private securities are prohibited if the firm hasnt issued its blessingto the broker transaction or security. I have a few examples from my pastall of which turned out horrible for everyone involved even when blessed bythe firm. 1. Manager was caught selling shares of a private company basically fundraising to raise private capital like a Private Equity firm would. Software company eventually went belly up. Manager fired company firm and broker all sued. Broker declared BK firm paid software corporation and principles bared from ever listing a security with state or SEC. Bad stuff. No blessing. 2. Regional Director caught buying into a private company as silent partner clients were involved but not solicited just owners of company also. It ruined his career during cancer diagnosis lost insurance lost millions in firm stock plan died family got no death benefit stuck with medical bills and wife filed BK. Bad stuff. No blessing. Thought he was above the law. 3. Top broker meaning in the nation for the firm. Brought biz over from CPA practice dual law practice and really good guy. Making millions in recruitment deal. Gorgeous wife great kids football and baseball coach etc. Was in all kinds of side deals based on nature of his business past. Didnt disclose an ownership in franchises and had clients involved as owners. Firm found out and fired him. Wife divorced lost everything and eventually killed himself a month after termination in his home office with a gun. Really Bad Stuff. 4. Former biz partner did a private security transaction Reg D. private placement of convertible debt instrument high yield bond with Standard Insurance of Carmel IN. Company ran into problems My research points to fraud and didnt pay debt service requirements interest on bonds for a couple years. Bond was in default. Clients sued firm and won all money back 10 20 million. The CEO had the audacity to call clients who remained at the firm to raise more funds pitching converting the old bonds to a new instrument based on the future deal with Medicaid reimbursements for home pharmacy payments. I called a California reporter who reported via an article that year that the company was trying to acquire other pharmacy benefit companys in Cali with mention of past bond debt being refinanced. The reporter had spun the story to hint that it was bad prompting me to dig for my clients as I was curious what they were up to. She told me on the phone that their licensing with Medicaid hadnt even been done and was rejected. I checked their financials and they were trying to show income received in current Q to pay old debt with Medicare and Medicaid reimbursements via the new bond offering which raised new capital required new moneyinvestors and paying off Red D convertible from the past. I basically caught them in a lie and fraud. I met with CEO and showed him my findings and he still lied trying to spin it another way. He was very slick and an accomplished wordsmith. I let the state securities division know and they did absolutely nothing. Really really bad stuff. Blessed and underwritten by firm. Poor due diligence. I later read underwriters didnt like the deal rejected writing it but were pressured because of future business and commission earned. 5. One local rep at Merrill Lynch got into a deal private placement saw the opportunity and left the firm to become CFO making millions over several years. Later I learned the CEO which was his best friend was stealing money as most of the mortgages on homes in the new real estate investment trust Private REIT they created were fraudulently obtained and skimmed by the CEO via company loans and relations with real estate agents escrow officers a community bank CFO and a small mortgage company in town. Bad luck He was most likely involved as CFO.You would think at least one of these deals would have worked out well butnone nota The fact that most of those Silicone Valley startups fail is alsoproof that you should run like hell dont participate and keep the deal toyourself while at the same time mentioning this to the manager at the firm ina private meeting. Maybe heshe can stop it befor it ends bad for everyone.They dont have to fire reps or ruin lives but it can happen depending on howfar its gotten. Catching it before it gets out of control for clients firmand rep are is paramount to helping whoever is pitching it in literally savingtheir life. Most reps mean well and think theyll move over to the new companywhen theyve raised them a bunch of money getting a fat job with high incomebut this rarely ever happens.Good Luck.
In reference to FINRA Rule 5130, who exactly is a sophisticated investor?
I believe its almost the same as an “Accredited Investor” which is as followsbut should most likely also include institutions insurance companiespensions plans investment entities banks brokers etc.. The thought hereis that the sophisticated investor is one that throughout their experienceinvesting or in business can understand the risks or by net worth andorincome withstand the losses at 100 if that happens which often doesespecially with reg D filings.They must earn an individual income of more than 200000 per year or a jointincome of 300000 in each of the last two years and expect to reasonablymaintain the same level of income.OrHave a net worth exceeding 1 million either individually or jointly with hisor her spouse.OrBa general partner executive officer director or a related combinationthereof for the issuer of a security being offered.OrAn employee benefit plan or a trust can qualify as an accredit investor iftotal assets are in excess of 5 million.
Do Canadians that trade NASDAQ stocks in a 'pattern day trader' frequency haveto adhere to the FINRA rules regarding pattern day trading (less than 4 buysand sells during the same period per week)?
While AntiFreeriding rules apply to Canadians and anyone trading in USmarkets the way they satisfy FINRA is the same way US traders do they tradeon margin accounts. Rather than taking a cash long position they take longson margin. Shorts are already borrowed stocks. The difference that a Canadiantrader enjoys is that they are not bound by the 25000 minimum cash andortradeable securities limit a US day trader faces.On the down side there are US based brokerages that do not accept Canadianclients so Canadians have less choice in that department. Life is here andeverywhere about tradeoffs.Hope that helps.
What is FINRA Rule 6490?
The Financial Industry Regulatory Authority or FINRA made key changes in theway corporate actions are handled this past year including eliminating timeconsuming paperwork and adding issuer fees for corporate action processing.For more information visit httpblog.colonialstock.comco...
Will a Broker-Dealer be allowed (by FINRA and SEC rule) to makerecommendations on Title III crowdfunding deals?
The answers here are contradictory. Let’s discuss the differences between thecrowdfunding intermediaries under Regulation CF and then we can address thequestion which concerns only brokerdealers not crowdfunding portals.There are two types of crowdfunding intermediaries 1 “brokerdealers” and2 “funding portals.” Although both must register with the SEC and FINRAdifferent sets of regulations apply to each. Accordingly the services and thelimitations imposed by each type are different. A funding portal may advise an issuer i.e. a company seeking funding about the mechanics of an offering and assist in preparing documentation it’s given some leeway in curating the crowdfunders by highlighting particular offerings if based on objective criteria consistently applied but it otherwise acts as a passive vehicle. For example a funding portal CANNOT offer investment advice or recommendations solicit purchasers to buy or sell securities compensate employees agents or other persons for transactionbased solicitations i.e. no commissions other than on the platform with certain exceptions as contained in Rule 205 or hold manage possess or otherwise handle the money or securities transactions only a Title III escrow company can do this A registered brokerdealer on the other hand is in the business of effecting transactions in securities. As such it has much broader leeway than a funding portal. Unlike a funding portal a brokerdealer CAN offer investment advice and recommendations CAN solicit purchasers to buy or sell securities CAN be compensated for all aspects of a securities transaction including solicitation and negotiation structuring advising and executing the transaction etc. but they may not share their commissions with unlicensed persons or CAN hold manage possess and otherwise handle the money or securities transactions a broker dealer may act as escrow agent but only if that brokerdealer customarily handles such business transactions. See my Quora answer Regarding Title III what does the escrow company do and how much should it cost.But unlike funding portals brokerdealers are subject to stricter FINRA ruleswhen it comes to “knowyourcustomer” and “suitability” rules that requirebrokerdealers to have a reasonable basis of the suitability of the investmentbefore recommending an offering to a customer. That means brokerdealers havea duty to use reasonable diligence concerning the essential facts of everycustomer and the suitability of the investment before making recommendationsabout it. Funding portals have a lighter duty which provides that it cannotconduct an offering if it has reason to question the reliability of theissuer’s representations.Here the Quora user asks Will a Registered BrokerDealer be allowed ... to make recommendationson Title III crowdfunding dealsYes provided that the brokerdealer has followed all SEC and FINRA rulesincluding that the brokerdealer has a reasonable basis to believe that therecommendation is suitable for its customer.This answer is not a substitute for professional legal advice....
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