On October 18, 2013, the Securities and Exchange Commission (SEC) filed a Form U6 with FINRA regarding Chen’s activities disclosing the United States District Court for the Eastern District of New York had granted the SEC’s request for a temporary restraining order for an asset freeze and other emergency relief against Chen and other defendants. The SEC restraining order is in connection with an ongoing worldwide investment pyramid scheme targeting members of the Asian-American Community. Thereafter, FINRA commenced its own investigation into whether Chen while registered with a FINRA firm or had engaged in any violations of the securities laws. Until April 2012, Chen was registered with World Group Securities, Inc. Thereafter, and until August 2012, Chen was associated with Transamerica Financial Advisors, Inc. (Transamerica).
FINRA alleged that it made numerous requests seeking information and testimony from Chen. In spite of FINRA’s numerous requests, Chen failed to provide testimony and certain information requested by staff. Due to Chen’s failure to provide documents, FINRA brought the instant complaint.
The allegations concerning Chen’s involvement in a pyramid scheme are consistent with a “selling away” securities violation. In such a case, the broker sells private securities, and potentially fraudulent securities, away from the firm. In such cases the investment is not vetted or approved by the broker’s affiliated firm. Under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees for signs of potential misconduct. To that end FINRA requires each brokerage firm to establish and maintain a system to supervise the activities of each registered representative that is reasonably designed to achieve compliance with the securities laws. Selling away often occurs when supervisory lapse conditions exist. Supervisory lapses may include either the failure to put in place a reasonable supervisory system in the first place to detect certain conduct or a failure to implement the supervisory requirements that are specified by the firm. Many times in cases of private securities transactions there obvious “red flags” of misconduct that are either overlooked or not simply not properly followed up on by a supervisor or branch office manager.
In selling away cases, investors are often unaware that their broker’s recommendations and transactions are not authorized and potentially illegal. Favorite products of selling away schemes include promissory notes and private placements. Many times the investment ends up being a securities fraud such as a Ponzi scheme. All to commonly, investors do not learn that the broker’s activities constituted securities laws violations until the investment scheme is publicized, the broker is apprehended, or stops returning client calls.
Investors who have suffered losses through selling away activities may be able recover their losses through arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of selling away where brokerage firms fail to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.