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Regulatory Sanctions

Veteran Broker is Barred: Was it the Loans, PSTs or Lies?

February 20, 2019

[Photo:  Money Manager Irving Kahn, who shorted the '29 crash, died in 2015 at age 109 / Huffingtonpost ]


by Howard Haykin


What can you say about a broker who had 50 years in the business and just one blemish on his records (a 1992 customer dispute was settled for $12,000), yet was barred from the industry for committing several rule violations (borrowing from a customer, engaging in private securities transactions, lying on firm certifications and to FINRA investigators)?
  • He deserved lighter sanctions from FINRA.
  • He probably excelled at covering up prior violations.
  • He should have been given a ‘gold watch’ and allowed to retire on his own terms.
  • He should have been escorted to the door and given the boot, because all violators deserve to be punished.



WHAT WENT WRONG.    Well, here's what went down. During his 13-year association with Oberweis Securities, this broker was charged with the following violative conduct.


          IMPERMISSIBLE BORROWING FROM A CUSTOMER.   From October 2012 through January 2014, he accepted at least 6 loans from “VLH,” a customer in his 80’s, totaling $32,000. The broker did not obtain written pre-approval from the firm, and he denied the existence of the loans on ACQs (annual compliance questionnaires) that were submitted for 2012, 2013, and 2014.  [Violations of FINRA Rule 3240, Borrowing from or Lending to Customers.]



          PRIVATE SECURITIES TRANSACTIONS.    Between July 2013 and April 2014, he participated in private securities transactions (“PSTs”) for compensation, involving investments made by VLH in a pharmaceutical start-up company. The broker did not provide prior written notice to, or receive prior written approval from Oberweis. VLH’s investments in Reven Pharmaceuticals included: (i) 1,000,000 shares of stock, 4,200,000 in convertible notes, and $1,250,000 in stock options, valued at $2,550,000. For assisting with and facilitating in the transaction between Reven and VLH, the broker received selling compensation in the form of 1,155,000 shares of Reven stock and $12,500 in cash.  [Violation of NASD Rule 3040, Private Securities Transactions of an Associated Person.]



          PROVIDING FALSE AND MISLEADING INFORMATION TO FINRA.    In response to FINRA’s requests for information ("RFIs"), the broker provided several false statements.  [In violation of FINRA Rule 8210, Provision of Information and Testimony and Inspection and Copying of Books.]


  • In response to FINRA’s first request, the broker falsely stated that … (i) "[n]either I— nor to my knowledge, Oberweis - received any consideration or remuneration of any kind from Reven in connection with [VLH's] investments with Reven;"  (ii) he "received no compensation from Reven at any time or in any amount;" and (iii) he "never accepted a loan from a customer" other than a $16,000 loan from customer VLH in January 2014.


  • In response to a FINRA’s second request, the broker falsely stated that …  he had only borrowed $16,000 from customer VLH in January 2014, and approximately $10,000 or $11,000 in the late 1980s or early 1990s.



FINANCIALISH TAKE AWAYS.    It can be argued that none of the broker's violations were so egregious as to warrant his being barred from the industry. Yet, 3 issues most likely factored into FINRA's decision to bar this broker from the individual.
First, the broker's violative conduct crossed over into 3 separate and distinct categories of rule violations. 
Second, two of the broker's actions involved an elderly investor - commonly viewed by FINRA as a "Cardinal Sin" - notwithstanding the fact that the broker, himself, is an elderly individual.
Third, the broker was caught in multiple lies to Oberweis and FINRA. Each such lie - on the submitted ACQs and in response to FINRA RFIs - is a "Cardinal Sin," as well.
As such, this broker apparently left FINRA with little wiggle room.



This case was reported in FINRA Disciplinary Actions for February 2019.

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017055306401.