In 2007, a California Court of Appeal upheld the convictions of two officers/directors for engaging in unlicensed broker-dealer activity in violation of Corporations Code Section 25210. People v. Cole, 156 Cal. App. 4th 452 (2007). Neither defendant contested that he fell within the definition of “broker-dealer” in Corporations Code Section 25004 (i.e., any person engaged in the business of effecting transactions in securities for the account of others or for his own account). Instead, the defendants argued that they were not “agents” as defined in Corporations Code Section 25003.

The Agency Exclusion

The defendants were charged with being unlicensed broker-dealers, not unlicensed agents. Why then did they bother to argue that were not agents? The answer lies with Corporations Code Section 25004(a)(2) which excludes agents from the definition of “broker-dealer” when they are employees of a broker-dealer or issuer.