Investor Alert: Is Your Broker Selling You Investments Approved for Sale Through the Firm?

05/30/2018

The SEC’s Office of Investor Education and Advocacy (OIEA) and Retail Strategy Task Force are warning investors about red flags that a broker may be running a side business offering investments that are not approved for sale through the broker’s firm.

Always check the registration status and background of anyone recommending or selling an investment using the free simple search tool on Investor.gov. It’s a great first step toward protecting your money, as unregistered persons commit much of the investment fraud in the United States.                         

Even if you are investing with a registered broker that you have known for years, make sure that your investments are approved for sale through the broker’s firm. Ask your broker for an explanation and follow up with the firm’s compliance department if you encounter any of these potential red flags:

  • Your broker asks you to make out a check, or to wire money, to any person or to a different firm;
  • Your broker tries to sell you an investment without any paperwork about the investment;
  • Investments or deposits you made through your broker do not appear on your account statement from the firm; or
  • You receive an account statement that does not appear to be from the firm.
In SEC v Pagartanis, the SEC charged a former registered representative for defrauding some of his long-standing brokerage customers of $8 million. The SEC alleges that the representative offered purported investments that he described as “safe” and misrepresented to at least some investors that they were investing in a Canadian land development and home building company whose stock is listed on the Toronto Stock Exchange. According to the SEC’s complaint, the representative asked customers to send him checks that were made out to a private company that he owned and that had the same name as the Canadian land development company. The SEC alleges that the representative provided some investors with fictitious account statements indicating that they owned stock of the Canadian land development company. The representative allegedly transferred investor funds to other entities he controlled, used funds for his personal benefit, and used funds to pay monthly returns to some investors in a Ponzi scheme-like manner.

Use caution if your broker asks you to sign a letter that you consent to an investment that is not purchased through the firm. If you believe a broker is offering investments that may not be approved for sale through the firm, or to report other problems with a broker, submit a complaint to the firm and to the SEC or FINRA. Anytime you invest through a broker, confirm that the broker is registered and look out for signs that may indicate your investments are not being made through the broker’s firm.

Additional Resources

Investor Bulletin: Top Tips for Selecting a Financial Professional

Investor Bulletin: Understanding Your Brokerage Account Statement

Investor Alert: Excessive Trading at Investors’ Expense

Call OIEA at 1-800-732-0330, ask a question using this online form, or email us at Help@SEC.gov.

Visit Investor.gov, the SEC’s website for individual investors.                                 

Receive Investor Alerts and Bulletins from OIEA by email or RSS feed. Follow OIEA on Twitter @SEC_Investor_Ed. Like OIEA on Facebook at facebook.com/secinvestoreducation.


The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.

 

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You can check out the background of an investment professional by using Investor.gov.  It’s a great first step toward protecting your money.  Learn about an investment professional’s background, registration status, and more.  

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