rogue-broker

­A Cautionary Tale: After 50+ Disclosure Events, Rogue Broker Finally Gets the Boot

For years, we’ve been preaching to financial professionals about the importance of keeping their compliance records free of black marks. Our argument: that all it takes is one bad disclosure to besmirch your record. And now that sanction reports live forever on the Internet, one event can make it impossible to generate new business . . . for years, if not decades, to come.

However, sometimes we run across news that makes us question this advice. For instance, Financial Advisor IQ recently reported the case of a renegade broker who racked up more than 50 disclosure events over a 14-year-time period, all easily found on his FINRA BrokerCheck record. The fact that the broker operated beyond the regulatory pale for years makes one question whether government agencies are capable of protecting consumers against rogue advisors. In this particular case, the answer, apparently, is no.

The more you learn about this broker’s track record, the more shocking his story becomes. According to Financial Advisor IQ, FINRA recently threw Anthony Diaz, a Pennsylvania broker last registered with IBN Financial Services, Inc., out of the business. But it took him repeatedly selling unsuitable securities to at least 17 clients since 2000 for FINRA to act. To its credit, FINRA ordered him to refund $4.3 million to his clients, including $1 million in compensatory damages, $2.9 million in punitive awards, and $413,000 in legal fees. But it tolerated his behavior for years.

Over the course of his career, Diaz repeatedly made inappropriate recommendations. He pushed clients to make variable annuity exchanges with no reasonable basis. He misrepresented products to clients. He lied about their net worth so he could sell them alternative investments. He deceived his product firms and broker-dealers. He falsified signatures on annuity applications. He also got embroiled in numerous client disputes, including a 2017 complaint alleging he made poor recommendations, had a client sign a blank form, and put false information on their documents.

During his career, Diaz worked for 11 different securities firms and was fired from five of them. Apparently, the broker-dealers didn’t care about his atrocious disclosure history; they were more impressed with his sizable client list. And regulators only got serious about policing him over the last couple years, when FINRA finally barred him and the New Jersey and Pennsylvania securities agencies pulled his license.

But think about the impact he had on those 17 clients—how much they must have worried about losing their money, how aggravated they were filing FINRA claims, how much they shelled out in legal fees. If regulators had done their jobs years ago, clients could have entirely avoided this nightmare.

Now, surely the broker-dealers and the clients themselves share culpability. Why did firms keep hiring and firing this guy? And why did consumers retain the guy when even a cursory BrokerCheck read would have revealed his true nature? His track record should have disqualified him from holding even a janitorial position in the securities business.

So what are the lessons learned from the Diaz case?

  • First, if you’re insurance licensed and refer clients to a broker to purchase securities, please do careful due diligence on that person. Eliminate those with anything more than a trivial complaint in their past. And given the number of brokers who have flawless records, perhaps adopt a zero-tolerance posture regarding customer disputes.
  • Second, encourage your friends, family members, and colleagues to do serious research on potential brokers. The BrokerCheck system is user-friendly. There’s absolutely no excuse for a consumer not to do a deep dive into a broker’s compliance history to see if the person is trustworthy.
  • Third, if you’re securities licensed, supplement your BrokerCheck file with other sources of information your prospects might find useful. For example, give your prospects access to a comprehensive background check on you, available through the National Ethics Association. Also, consider joining the Better Business Bureau. And as long as you don’t have an investment-advisory license, give your prospects the names of several clients who can vouch for your integrity.
  • Finally, as disappointing as the Diaz story is, it highlights the tremendous opportunities financial professionals with clean records have. With so many ethically flawed competitors in the marketplace, those committed to doing business ethically and legally will have a huge competitive advantage over the unethical bottom-feeders. When consumers finish checking you out, they will know you’re the real deal—a financial professional who will serve their best interests and in whom they can place their trust.

To read more about ethical business practices, visit the Ethics Center at the National Ethics Association, sponsor of EOforLess.