William C. Babb III (Babb) was recently barred from the securities industry by the Financial Industry Regulatory Authority (FINRA) over allegations that Babb engaged in private securities transactions away from his brokerage firm.
In July 1999, Babb became associated with Lincoln Financial Advisors Corporation (Lincoln Financial), the broker-dealer arm of Lincoln Financial Group. In July, 2012, Lincoln Financial filed a notice of termination indicating that the firm had terminated Babb’s employment. The termination notice stated that Lincoln Financial terminated Babb’s employment after Babb informed the brokerage firm that he had referred customers and others to investments not approved by the Lincoln Financial.
Subsequent to Babb’s termination by Lincoln Financial, Babb failed to cooperate with FINRA’s investigation into allegations that he violated NASD Rule 3040 by engaging in private securities transactions.
The accusations made against Babb are consistent with a “selling away” securities violation. Selling away occurs when a securities broker solicits securities that are not approved by the broker’s firm. Selling away is prohibited under FINRA Rule 3040, as well as other securities laws. The most common securities products solicited in selling away schemes are private placements and promissory note. Selling away activities expose investors to substantial risks because the investments may not be registered with the Securities and Exchange Commission and the sales themselves are not properly supervised by a brokerage firm.
In the typical selling away scenario the investor is not aware that the broker is acting outside of the normal securities channels. Many times investors are provided with fictitious account statements or confirmations that contain values that the broker manipulates and controls. In other cases, the broker will have the investor open a self-directed account that helps the broker cloak the illegitimacy of the investment by having a third-party prepare statements and distribute income payments. However, these account statements are also misleading to investors because the broker has complete discretion to stop or alter payments and values.
The attorneys at Gana LLP are experienced in investigating claims of financial fraud. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.