Broker-Dealers Still May Be Held Liable for Selling Away Losses: A Woodbridge Case Study

Attorney Advising Disclaimer

A recent InvestmentNews editorial illustrates that broker-dealers may still be liable for the actions of its brokers, even if the rogue broker sells away from the firm or otherwise engages non-clients in unauthorized or unapproved transactions, even when the broker fails to disclose the violative sales to the firm.

The article follows the case of Quest Capital Strategies of Lake Forest, California and the $1.2 billion Woodbridge Group of Companies Ponzi scheme.

In November 2018, FINRA barred Quest Capital broker Frank Roland Dietrich (CRD #2506091) after he sold more than $10.8 million of Woodbridge promissory notes to 58 investors without disclosing the sales to nor receiving permission from Quest Capital to do so, earning $260,864 in commissions as a result while the investors lost money in the fraudulent scheme. Dietrich faces several customer disputes alleging various misconduct, including improperly selling away, related to the Woodbridge Mortgage Promissory Note and related products.

Although FINRA acknowledged that Dietrich sold the Woodbridge notes away from—and without disclosing the sales to—Quest Capital, an arbitration panel nonetheless found the firm liable for Dietrich's actions away from the firm, and ordered Quest Capital to pay the client $276,226.

According to the prevailing client, Quest had argued that it should not be held liable because the client was not a Quest customer—a defense ultimately rejected by the arbitration panel.

If you have invested with a broker or financial adviser who has sold harmful products away from the representative's firm, and these illicit sales have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

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