Merrill Lynch has asked a team of stockbrokers who reportedly managed$2.5 billion in assets to leave the firm. The brokers, James Goetz and Stephen Brown, allegedly recommended that clients buy investments outside the firm. That is, they allegedly recommended that the clients by investments in hedge funds directly from the hedge funds rather than through Merrill Lynch. Such conduct, often referred to as "selling away," would be in violation of Merrill Lynch's policies and FINRA rules as well. Many FINRA arbitration investment fraud cases involve selling away situations.
Messrs. Goetz and Brown, who operated as The Brown Group, had been with Merrill Lynch's Private Banking and Investment Group since 1998 and 1991, respectively. They worked from Merrill Lynch’s Pittsford, N.Y. office. Showing the door to such a successful broker team is unusual for a brokerage firm, but firms have been getting more and more critical of any perceived misconduct by their brokers in the hopes of avoiding costly lawsuits and customer arbitration claims.
The act of selling away does not necessarily mean that the investments are unsuitable for the investor. But investors should aware that brokers often engage in such conduct when they stand to gain more financially by selling the particular products. As such, investors should be ask sufficient questions to determine whether their broker has recommended the investment because of the commissions or fees they could earn rather than because the investment is appropriate for the investor. Also, because brokerage firms generally have not reviewed or approved investments that broker "sell away," investors should be wary of such investments because proper due diligence may not have been conducted to determine whether the investment is legitimate or appropriate for the investor. We currently have no indication as to whether there was anything improper or concerning about the products that Messrs. Goetz and Brown sold, but investors should have any such investments reviewed by an independent third party.
