Can My Broker Sell Me Unregistered Securities?

Selling Unregistered Securities – Is It Legal?

Selling (or offering) unregistered securities to public investors is a serious form of broker misconduct.

Before stocks, bond or options can sell to public investors, these financial products must receive proper registration with the Securities and Exchange Commission (SEC).

Here, our experienced securities fraud attorneys discuss the laws on registering securities, as well as what investors should know about their legal rights and remedies should they become of victim of unregistered securities fraud.

Article Contents: Selling Unregistered Securities

• The Law on Unregistered Securities
  • Securities Must Be Registered With the SEC
  • Investors Have a Right to Information
  • The Private Placement Exemption is Narrow
• Unregistered Securities are a Major Conduit of Fraud
  • Fraud Victims Can Take Action
• Browse Broker Complaint and Regulatory Action News Related to Selling Unregistered

The Law on Unregistered Securities

Securities Must Be Registered With the SEC

Under Section 5 of the Securities Act of 1933, securities must be registered with the SEC in order to be offered or sold to retail investors. Additionally, brokerage firms have an affirmative duty to ensure that all securities that they are selling or recommending have been registered, and are appropriate for public sale.

FINRA Regulatory Notice 09-05 states that broker-dealers have heightened obligations in cases where ‘red flags’ about certain securities have been raised. For example, if a broker-dealer does not know the source of a security, or if one of its customers has raised a complaint, then that firm must launch an immediate and thorough investigation into the issue.

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Investors Have a Right to Information

Registering securities is extremely important because it gives investors a fair opportunity to fully research an investment opportunity. To register, the SEC compels companies to provide a considerable amount of information, which is necessary to let investors perform their due diligence.
Specifically, companies must provide:

• A detailed description of all assets and liabilities;
• Comprehensive details regarding the securities offering itself;
• Extensive background information about the officers and directors of the firm; and
• Financial statements that have been certified by an independent auditor.

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The Private Placement Exemption is Narrow

The only exceptions to the SEC’s registration requirements are for ‘private placements‘. Essentially, a private placement is the sale of a securities product directly to an individual private investor, and not through a public offering. Most investors cannot participate in private securities offerings. Indeed, the only investors that are eligible to purchase unregistered securities through a private placement are:

1. Corporate insiders and
2. ‘Qualified’ buyers. The bottom line is that selling unregistered securities to public investors is illegal.

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Unregistered Securities are a Major Conduit of Fraud

Not only are unregistered securities inherently risky, but too often, they can be a tool to commit outright investment fraud.

This is a serious problem because, with unregistered securities, no information about the underlying company or product is ever supplied to industry regulators. Investors are essentially flying blind, forced to place all of their trust in a broker.

As an example of a typical unregistered securities fraud case, consider former registered investment advisor Michael Andre Jones (CRD#: 2157872) and his company Green Bash LLC. In 2016, two years after Michael Jones was barred from the securities industry by FINRA, the SEC brought criminal charges against him for fraudulently offering and selling unregistered securities.

Mr. Jones was selling convertible promissory notes, for Green Bash LLC, an e-commerce company that he solely owned and controlled. As the company’s securities did not receive proper registration, no certified financial statements were ever provided to the SEC. Investors in the company were forced to rely entirely on Mr. Jones’s claim that the company was making money. In reality, Green Bash LLC had zero revenue; he was simply taking the investor cash for personal use. In all, investors lost more than $700,000.

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Fraud Victims Can Take Action

Did you lose a substantial amount of money because a broker, or brokerage firm was selling you unregistered securities? You need to take immediate action. You should get your claim into the hands of an experienced investment fraud attorney without delay. Our team can review your case, and determine exactly what you need to do next:

• If you are a public investor, then you should have never been offered unregistered securities in the first place. A broker doing so was committing a per se violation of U.S. securities law and FINRA guidelines.
• If you are deemed a ‘qualified investor’, you may still have been a victim of misconduct. Our attorneys should review your case to determine if you had the full information necessary to make an informed decision and if any recommendations made to you were unsuitable for your investment profile and objectives.

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Browse Broker Complaint and Regulatory Action News Related to Selling Away

• Investor Lost $300,000 to an LPL Financial Advisor Who Recommended a Loan Strategy (2/28/2024)
• What Investors Need to Know About “Selling Away” (12/9/2022)
• William LeBoeuf, Ohio-based Investment Advisor, Suspended by FINRA Over Alleged Unauthorized Private Securities Transactions (11/30/2021)
• Can My Broker Sell Me Unregistered Securities? (1/22/2020)
• Jason LaBelle, Broker for LPL Financial, Suspended and Fined Over Alleged Participation in Undisclosed Outside Business Activities (1/21/2020)
• Robert Henderson, Formerly of IFS Securities, Sued by FINRA for Unauthorized Outside Business Activities (12/17/2019)
• Triad Advisors Subject to Multiple Disputes Regarding Sales of GPB Capital Private Placements (11/20/2019)
• Jason LeBlanc, Formerly of Girard Securities, Barred by FINRA Following Allegations that he Failed to Disclose Several Outside Business Activities (11/11/2019)
• Christopher Kozak, Formerly of Cetera Advisors, Suspended by FINRA for Failure to Disclose an Outside Business Activity (11/6/2019)
• Jason Mosher, Advisor for Kalos Capital, Allegedly Recommended GPB Capital Private Placements to Investors (10/25/2019)
• Andres Fernandez and Edison Denizard Sued by SEC for Offering Unregistered Fraudulent Securities (10/2/2019)
• Kalos Capital Sued Over Allegations that Broker Hunter McFarlin Sold Private Placements in GPB Capital (9/18/2019)
• Kerry Hoffman, Formerly of LPL Financial, Sued by SEC for Selling $3.3 Million in Unregistered Securities (9/17/2019)
• Fidelity’s National Financial Services Gives GPB Investors 90 Days to Move Private Placements to Another Firm (7/31/2019)
• James F. Anderson Formerly of Ameritas Investment Barred for Selling Away (6/20/2019)
• Broker Alert: Eric Olin Shanks barred for “Selling Away” (4/2/2019)
• Broker Mark Isidore Lamendola Barred for Selling Away, Falsifying Documents (3/27/2019)
• Broker Investigation: Spencer Edwards of Centennial, Colorado (4/23/2018)
• Investigation: Charles Cumber, broker suspended by FINRA for outside business activities (10/12/2017)
• Citigroup Global — formerly Smith Barney — hit with $11.2M arbitration award (8/22/2017)

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Request Your Free Legal Consultation Today

At the Sonn Law Group, our team has extensive experience handling claims related to the sale of unregistered securities. We want to help you recover full compensation for your investment losses. If you lost money because a broker or brokerage firm was selling you unregistered securities, please contact our team today at 844-689-5754 for immediate legal assistance.