If your broker solicits you to purchase securities away from the brokerage firm, your broker is "selling away," which is a violation of self-regulatory rules and federal securities laws. Typically, these investments are in the form of private placements, or other non-public investments. If you are the client of a brokerage firm, and your broker solicits the sale of these securities away from the brokerage firm. The sale of unregistered securities is a form of stockbroker fraud or misconduct. Under certain circumstances, you may recover from the brokerage firm.
Securities Brokerage firms have a duty to supervise their brokers and the sales practices of their brokers, and to review customer statements for, among other things, evidence of suitability, unauthorized trading, or excessive activity. But for the performance of these duties, most cases of securities fraud may be reasonably prevented. The failure to supervise is a violation of self-regulatory rules. Courts have recognized a cause of action for the negligent failure to supervise, and brokerage firms are liable for the acts of their registered representatives under the common law doctrine of respondeat superior, and as control persons under Section 20(a) of the Exchange Act. The failure to supervise is a form of stockbroker misconduct and is actionable under the federal securities laws.