Financial advisers and brokerage firms have fiduciary duties to all clients. One of the core tenets of a fiduciary duty is to always put the interests of the client ahead of one’s own personal financial interests. This means that both registered individuals and FINRA member firms must put their clients’ interests first.
For firms to ensure that their employees are following this duty, firms must be able to obtain information about their employees’ outside business dealings. Indeed, FINRA rule 3280 requires all FINRA associated individuals to report any private transactions to their employer.
This rule is designed to ensure that these personal transactions are conducted in an appropriate manner so that firms can protect the interests of their clients. If firms fail to live up to this duty, it may result in significant investor losses.
The Requirements Under Rule 3280:
Advanced Written Notice Must be Given for All Private Transactions
Rule 3280 requires FINRA associated individuals to give written notice to their employer firm as to any private transactions that they are planning engaging in. To be clear, this notice must be submitted in writing and it must be submitted before the private transaction begins to move forward. It can not be submitted simultaneously or after the completion of the private transaction. Additionally, this written notice must contain sufficient details regarding the private transaction. From there, the remaining requirements will depend on whether or not the employee is receiving compensation for the transaction.
Transactions for Compensation Require Firm Approval
If a FINRA associated person is receiving compensation for a private transaction, their employer has the right to approve or disapprove of the transaction. If approval is given, the transaction may go forward and it should be properly recorded into the records of the member firm. That firm is then responsible for supervising the transaction. However, if approval for the private transaction is not received, then the individual may not go forward with their participation in the private transaction. To sum this up, if a person is anticipating receiving a compensation as a seller for their role in a private transaction, they must submit, in writing, details of the transaction to the FINRA member firm and then receive approval before conducting the transaction.
Transactions not for Compensation Can Still Come With Additional Requirements
If a FINRA associated person is planning on engaging in a private transaction but does not anticipate receiving any compensation, they will not be required to seek approval from an employer. However, there are still strict legal requirements that must be followed. Prior written notice is still required for these transactions. Additionally, upon receiving written notice, their firm may require that the person involved in the private transaction adhere to specified procedures while participating in the transaction.
Contact Our Office Today
If you have been the victim of investment fraud, the experienced attorneys at the Sonn Law Group can help. We have been fierce advocates for the rights and interests of investors for nearly three decades. To schedule a free review of your case, please do not hesitate to call our office today at 1-844-689-5754.