Securities Lawyers Blog
The law offices of Gana Weinstein LLP are currently investigating claims that advisor Diane Zhu (Zhu) engaged in undisclosed outside business activities (OBAs) that were not approved by the brokerage firm. Zhu, formerly registered with PFS Investments Inc. (PFS Investments) was subject to a regulatory investigation according to records kept by The Financial Industry Regulatory Authority (FINRA). In addition, Zhu disclosed one employment termination for cause.
In July 2019, FINRA alleged that Zhu accepted a bar from the financial industry, without admitting or denying the findings, that she refused to provide documents and information requested by FINRA in connection with FINRA’s investigation into Zhu’s outside business activity that led to her termination from her member firm.
In November 2018 Zhu was discharged by PFS Investments after the firm claimed that she engaged in an undisclosed outside business activity.
At this time it is unclear what the activity was that was the focus of FINRA’s investigation or the scope of Zhu’s activities. Zhu’s publicly available BrokerCheck information discloses several OBAs including the sale of home security and automation products and a company called Stars Accounting which appears to be a tax accounting business. It is unknown whether the activity investigated by FINRA involves any of these entities.
Our law firm has significant experience bringing cases on behalf of defrauded victims when their advisors engage in receiving loans from clients or selling fraudulent securities sales through OBAs. The sale of unapproved investment products – is a practice known in the industry as “selling away” – a serious violation of the securities laws. In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. Sometimes those investments have some legitimacy but often times these types of investments can end up being Ponzi schemes or the advisor can be engaging in the conversion of funds.
When advisors convert or misappropriate funds they often create businesses or other vehicles to serve as a cover for the theft of funds. However, federal securities laws and the FINRA rules require firms to monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.
In cases of selling away the investor is unaware that the advisor’s investments are improper. In many of these cases the investor will not learn that the broker’s activities were wrongful until after the investment scheme is publicized, the broker is fired or charged by law enforcement, or stops returning client calls altogether.
Zhu entered the securities industry in 1997. From December 1997 until December 2018 Zhu was associated with PFS Investments out of the firm’s San Francisco, California office location.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. Investors may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of selling away and brokerage firms failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.