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Regulatory Sanctions

Did Broker Not Realize He Crossed Line Between an OBA and PSTs?

January 2, 2019

by Howard Haykin


In 2012, a broker received permission from Sigma Financial Corporation to engage in an outside business activity (“OBA”) – he co-owned a company that developed a video platform to connect on-call interpreters with deaf or limited language individuals. This was a seemingly altruistic effort by an individual who had never committed a violation during his 21 years in the securities industry. However, along the way, this broker crossed the line – intentionally or not – that separates OBAs from private securities transactions (“PSTs”).


As a result, Sigma Financial terminated (U5’d) this broker in September 2017 for “failure to timely and adequately notify the Firm of an outside business activity as required by FINRA Rule 3270.” [Outside Business Activities of Registered Person


In June 2018, FINRA hit the broker with a $10K fine and a 4-month suspension for having violated NASD Rule 3040(b) – replaced by FINRA Rule 3040(b). [Private Securities Transactions of an Associated Person]



WHAT WENT WRONG.    According to FINRA, the broker engaged in 14 private securities transactions (“PSTs”) - from September 2011 through July 2014 - without providing prior written notice to his member firm or receiving the firm’s approval to participate in them. All told, he helped raise approximately $430,000 for his company from the sale of membership units to 14 investors.


The broker …

  • introduced and discussed the company with 13 Sigma customers and one other individual;
  • referred each to his co-owner about investing;
  • discussed subscription agreements with at least 4 of the investors; and,
  • received investment checks from 2 of them, which he forwarded to his co-owner.
  • did not receive selling compensation for any of these investments.


FINANCIALISH TAKE AWAYS.    There simply was no wiggle room in this case. As much as I would have liked to see this broker get a break, he was admittedly "in too deep” the moment he introduced the (Sigma) customers to his company. Forget his attempt to detach himself by referring the investors to his co-owner. That was subterfuge or wishful thinking.


Anyway, for his sake, I sincerely hope the business was a success.  



This case was reported in FINRA Disciplinary Actions for August 2018.

For details the case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017053702901.