Terminated Over an Outside Business Activity? What FINRA Cases Show

The short answer: Firms have terminated advisors over an outside business or a private securities transaction they were not told about first. In the ten 2025 and 2026 FINRA settlements cited here, most involved other people's money, and FINRA acted even after voluntary exits. BrokerCheck withholds the U5's stated reason and shows any FINRA sanction; the next firm reads both.

Our explainer on FINRA Rule 3290 covers the new outside activity rule; this guide covers the cases under the current rules and the record they leave.

Which rules apply to an outside activity today?

Rules 3270 and 3280 still govern. FINRA's Regulatory Notice 26-20, published October 26, 2026, says "The effective date of Rule 3290 is October 25, 2027." Until that date:

• Rule 3270, outside business activities. A registered person may not work for, run or be paid by a business outside the firm relationship "unless he or she has provided prior written notice to the member, in such form as specified by the member." Passive investments are exempt.
• Rule 3280, private securities transactions. A private securities transaction is "any securities transaction outside the regular course or scope of an associated person's employment with a member." Before taking part, the person gives the firm written notice of the transaction, their role and any selling compensation; with selling compensation, the firm approves or disapproves in writing.

Firms write their own policies on top. Once Rule 3290 takes effect, it will reach only investment-related activity and add whether the activity involves a customer to the firm's review; Notice 26-20 says it "does not alter existing Form U4 disclosure obligations."

What do FINRA's recent cases show?

The ten below are FINRA settlements (Letters of Acceptance, Waiver and Consent, or AWCs) finalized between April 2025 and February 2026, each of which found a violation of Rule 3270 or Rule 3280, or arose from a Form U5 that reported one or a review of one. In each, the person accepted FINRA's findings without admitting or denying them. The ten include representatives who were not field advisors, among them an Investment Banking Representative and several Investment Company and Variable Contracts Products Representatives. Names are left out; the sources link each case number to FINRA's record.

Read together, the cases show a few patterns.

• The activity went unreported, or reported in part. One LLC was described to the firms as real estate paying $1,500 a year while it earned about $600,000 in consulting. In another case, the fund role was approved and the transactions inside it went unreported until afterward.
• Other people's money, often customers' money. Seven of the ten involved other people's money (investors in six, customer loans in one), and in four it came partly from the representative's own customers, the factor Rule 3290 adds to the firm's review.
• Transactions with no compensation were still found to be violations. The $150,000 note paid its representative nothing, and the $11 million offering paid no commissions; Rule 3280's notice requirement covers "any private securities transaction."
• Compliance questionnaires became part of the case. In three, the findings cite annual firm questionnaires that left the activity out or said it had been disclosed.
• The Form U5 started five of them. Five of the ten began with a Form U5 or an amendment to one, and the cases were partly chosen because they arose from a U5. Others began with a customer complaint, a surveillance alert or a FINRA review of private placements.
• FINRA acted after voluntary exits too. Seven of the ten involved a U5 reporting a voluntary termination or resignation from at least one firm; the AWCs note that FINRA's jurisdiction continued after the person left.
• Not answering FINRA ended in a bar. In two of the ten, and in four other investigations of undisclosed outside activities or private securities transactions from the period (cases 2025087880501, 2025088422001, 2025086695201 and 2024082783901), the person was barred for refusing FINRA's Rule 8210 requests. In those two of the ten, the outside activity comes from the firm's U5 wording; FINRA's finding is the refusal.

Firms answer too: in 2026 FINRA fined one firm that "did not evaluate at least 23 disclosed OBAs" (case 2022073261701) and another that knew of undisclosed outside activities and took no steps to get written notice (case 2020065592401).

How does the Form U5 describe it?

The firm gives a reason in Section 3 with a written explanation, which in the cases above read "concerns with an apparent conflict of interest following incomplete disclosure of an outside business activity" and "failing to report private securities transaction pursuant to FINRA Rule 3280 and Firm policy." Questions 7B (internal review) and 7F (termination after allegations) sit alongside it, and FINRA's By-Laws require an amendment, with a copy to you, within 30 days of the firm learning the U5 is inaccurate or incomplete, which is how several of these records changed after the person left. What each Section 3 reason means is covered in what "Discharged" means on a Form U5.

What does BrokerCheck show?

Under FINRA Rule 8312, BrokerCheck withholds the Section 3 reason and the internal review answer, releases a yes to Question 7F, and keeps showing anyone who "was ever the subject of a final regulatory action as defined in Form U4," even after ten years out. A FINRA settlement also goes on any new Form U4 under Question 14E, because FINRA's Explanation of Terms says "found" includes "consent decrees in which the respondent has neither admitted nor denied the findings."

How does the next firm's review see it?

A hiring FINRA member firm reads the whole U5, including what BrokerCheck withholds: Rule 3110(e) requires it to review "the applicant's most recent Form U5, including any amendments thereto, within 60 days" of filing the application. The new Form U4 then asks the advisor about other businesses (Question 13), past findings and discipline (14E), investigations (14G) and terminations after allegations (14J), and any outside business that continues falls under the new firm's own policy.

Under Rules 1011 and 1017(a)(7), a FINRA sanction that includes a suspension or bar, or $15,000 or more, counts as a specified risk event, and a firm adding a person with two such events in five years must first go to FINRA; our guide to what a new firm checks before it hires you covers the full review.

Questions to take to your own attorney

What to do in a given case belongs with a securities or employment attorney. These are the questions the rules and the cases raise:

1. Which of my outside activities, past and present, did each of my firms receive written notice of, and in what form?
2. Does anything I took part in count as a private securities transaction under Rule 3280, including a transaction where I received no compensation?
3. Does my firm's written policy on outside activities ask for more than Rule 3270 does, and what did I certify on its annual compliance questionnaires?
4. What did the firm write in Section 3 and in Questions 7B and 7F of my Form U5, and does it match the facts?
5. Could a former firm amend my U5 after I leave, and what would that change?
6. If FINRA sends me a Rule 8210 request, what does it require, by when, and to whom should any response go?
7. How should my answers to Questions 13, 14E, 14G and 14J read on a new firm's Form U4?
8. Does a separation agreement, a promissory note or the outside business's own documents affect any of this?

Do you need a lawyer for a Form U5? covers when advisors call one and what to bring to the first meeting. Our guide to the first 72 hours after a termination puts the early steps in order.

Where does Winthrop fit?

Winthrop & Co. works on the advisor's side of the business decision, alongside the advisor's own attorney. Our free guide, What Are Your Options After a Termination?, lays out the paths, and Rapid Response is our service for advisors in the weeks after a termination. The firm pays us, and the advisor never pays.

Every situation is different, and the specific answer comes from a confidential conversation about where you can land: the best deal we can win through our relationships and our record of past deals, and how culture, technology, support and service compare at the firms that fit. Request an Introduction.