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Regulatory Sanctions

The Long and The Short of This Private Securities Transaction

April 1, 2019

by Howard Haykin


THE SHORT.    In late 2016, a broker with Voya Financial Advisors discussed with 2 longtime acquaintances an investment idea involving the purchase and sale of real estate in Nepal. The acquaintances were also Voya customers. The venture's objective was to purchase plots of land in Nepal for profit and was to be managed by the broker’s relatives in Nepal. Terms of the deal - investment period, expected rate of return, etc. - were discussed, though nothing was in writing.


In December 2016, the 2 customers collectively invested a total of $55,000 in the venture funded from their respective brokerage accounts. The broker - who received no compensation - participated in the transactions by: (i) soliciting the investments; (ii) depositing the money invested into accounts he controlled and subsequently transferring them therefrom; and, (iii) helping facilitate the land purchases in Nepal.


By February 2017, Voya somehow got wind of the transactions and by March 3, 2017, the firm U5’d (discharged) the broker for having “failed to follow Firm policy regarding private securities transactions.” On March 14, 2017, FINRA received the Form U5 and initiated an investigation.


THE LONG.   In the end, everyone came out ahead – except the broker.
  • In 2018, the venture sold 2 plots of land it had purchased in Nepal and repaid both customers their respective investments plus profit.
  • The broker lost his job and was sanctioned ($5K fine, 45-day suspension) for violating FINRA Rule 3280Private Securities Transactions of an Associated Person.



THE LONG AND THE SHORT OF IT.    Unauthorized private securities transactions (PSTs) away from the firm are risky business, not only for customers. A broker's career can be on the line if and when he or she is caught - which happens with regular frequency. Of course, the risk of getting caught is amplified when firm customers are involved - a tempting prospect because that's where investable funds are readily available. And that's where a broker must weigh THE LONG AND SHORT TERM RISK/REWARD RATIOS.  



This case was reported in FINRA Disciplinary Actions for March 2019.

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017053590001.