FINRA Rule 3280: Private Securities Transactions (Selling Away Risks)
Private securities transactions (PSTs) occur when a broker or financial advisor buys or sells securities outside the scope of their brokerage firm.
What Are Private Securities Transactions?
Private securities transactions (PSTs) occur when a broker or financial advisor buys or sells securities outside the scope of their brokerage firm. These transactions are not executed through the firm’s platform and often involve private investments such as startups, promissory notes, or private placements.
Because these investments typically lack transparency, liquidity, and firm oversight, they can expose investors to heightened risks, including fraud and undisclosed conflicts of interest.
Understanding FINRA Rule 3280
FINRA Rule 3280 governs how registered representatives may participate in private securities transactions.
Under this rule, brokers must:
- Provide written notice to their employing firm before engaging in any private securities transaction
- Disclose details of the transaction, including their role and whether they will receive compensation
- Obtain written approval from their firm if compensation is involved
- Allow the firm to supervise and record the transaction as if it were conducted internally
Failure to follow these requirements may result in disciplinary action and investor harm.
Examples of Private Securities Transactions
Private securities transactions can take many forms, including:
- Private Placements: Investments in non-public companies or offerings
- Outside Investment Deals: Participation in startups or real estate ventures not offered through the firm
- Advisory Activities: Providing investment advice or facilitating deals outside firm supervision
- Compensated Transactions: Receiving commissions, referral fees, or other compensation outside the firm
While some PSTs may be legitimate, problems arise when brokers fail to disclose or seek approval.
Private Securities Transactions vs. Selling Away
Private securities transactions are closely related to Selling Away, but they are not the same.
- Private Securities Transactions:
Allowed only if properly disclosed and approved under FINRA rules - Selling Away:
Occurs when a broker fails to disclose or obtain approval for outside transactions
Selling away is a serious violation that can expose investors to fraudulent or unsuitable investments. Many investor claims arise from undisclosed deals that firms were never given the opportunity to supervise.
Learn more about selling away and how it impacts investors.
Private Securities Transactions vs. FINRA Rule 3270
FINRA Rule 3270 (Outside Business Activities) is closely related to
FINRA Rule 3280.
- Rule 3270 (OBA): Covers outside business activities broadly
- Rule 3280 (PST): Specifically governs securities transactions outside the firm
Many cases involve both violations together, especially when an outside business evolves into selling investments to clients.
Failure to Supervise and Firm Liability
Brokerage firms have a legal duty to supervise their representatives under FINRA Rule 3110.
If a firm:
- Ignores red flags
- Fails to monitor outside business activities
- Does not enforce disclosure requirements
…it may be liable for failure to supervise, even if it did not directly approve the transaction.
Risks of Private Securities Transactions for Investors
Investors involved in private securities transactions may face:
- Lack of liquidity – Difficulty selling the investment
- Limited disclosures – Less regulatory transparency than public markets
- Higher fraud risk – Especially in unapproved or undisclosed deals
- Conflicts of interest – Brokers may prioritize personal gain
If a broker recommends an investment outside their firm, it is important to ask whether the firm has reviewed and approved the opportunity.
Can Investors Recover Losses?
Yes. Investors who suffer losses due to improper private securities transactions or selling away may be able to recover damages through FINRA arbitration.
Claims may include:
- Selling away
- Failure to supervise
- Misrepresentation or omission
- Unsuitable investment recommendations
How The White Law Group Can Help
The attorneys at The White Law Group LLC represent investors nationwide in securities arbitration and fraud claims.
Our firm handles cases involving:
- Private securities transactions
- Selling away violations
- Broker misconduct and fraud
- Unsuitable investments
If you believe your broker recommended an unauthorized or undisclosed investment, you may have legal options.
Free Consultation: 888-637-5510
Frequently Asked Questions
What is a private securities transaction under FINRA rules?
A private securities transaction is any securities-related activity conducted by a broker outside their firm, including private investments or deals not offered through the brokerage.
Is selling away illegal?
Yes. Selling away violates FINRA rules because it involves undisclosed and unapproved transactions, depriving the firm of its ability to supervise the activity.
Can a brokerage firm be liable for private securities transactions?
Yes. Firms may be liable if they failed to supervise their brokers or ignored warning signs of outside activities.
What should I do if my advisor recommended an outside investment?
Ask whether the investment was approved by the firm and documented. If not, you may want to consult a securities attorney to evaluate potential claims.