This month, the Massachusetts Securities Division sent a message to several hundred brokerages with above-average numbers of representatives with at least one misconduct report on their records: Firms are on the hook for hiring bad brokers.
The regulator cited a report that 44% of advisers who are fired for misconduct obtained another job at an advisory firm within a year of the firing, and made it no small secret that the practice of rehiring brokers fired for misconduct, sometimes called cockroach culture, is unacceptable.
Facing federal indictment for charges including repeated fraudulent sales of nontraded REITs, Anthony Diaz is perhaps the best example of a financial adviser who was able to repeat his misconduct through complaint after complaint, in part, because of "ineffective sanctions" and a business model that targets vulnerable consumers, such as the elderly and unsophisticated customers with less education, according to a joint letter to FINRA from Massachusetts Senator Elizabeth Warren and Arkansas Senator Tom Cotton.
In the letter, Sen. Warren and Sen. Cotton wrote that, "adviser misconduct exists at unacceptably high levels" because misconduct-related disclosures don't seem to adequately punish malfeasant brokers and that among those brokers and advisers who have committed at least one instance of misconduct, about one-third are repeat offenders.
In conclusion, the senators wrote that these past offenders are "five times more likely to engage in misconduct than the average adviser, [which] exposes investors to real risk."
Enter Anthony Diaz, a former broker with Sandlapper Securities and IBN Financial Services in Scotrun, PA, who racked up 51 disclosures in his BrokerCheck report, including 44 since 2010 alone.
Diaz earned his first disclosure in December 2002, when Edward Jones fired him for providing inaccurate information to a field supervisor. Nonetheless, Raymond James Financial Services hired him that very same month and less than two years later, Diaz was hit with a pair of customer complaints alleging unauthorized trading.
The report shows that Diaz henceforth moved to Round Hill Securities, Inc. in Alamo, California for about six months before joining First Allied Securities in 2005, where he encountered another series of customer disputes alleging misrepresentation and failure to fulfill fiduciary responsibilities.
In all, Diaz was fired by four firms—Edward Jones, SII Investments, Kovack Securities and Sandlapper—for charges ranging from dishonesty to unauthorized trading to improper solicitation & sales, yet each and every time a firm terminated his employment, another one was there to hire him within a month of his dismissal. In the end, Diaz earned his 51 disclosures for a variety of misconduct allegations including unauthorized trading, willful misrepresentation, omission of material facts, unapproved solicitation and sales, and breach of contract and fiduciary duty.
On average, Diaz earned over four disclosures for each firm he associated with, the majority of which occurred during his final few years in the industry.
This, according to Warren and Cotton's appeal, is what is wrong with the industry and is what the lawmaking duo implores FINRA to address.
If you have invested with Anthony Diaz or with any firm who has employed a broker or financial adviser with a history of misconduct, and the firm's inability to recognize—or apparent willful disregard of—its broker's red flags and previous disclosures has proven harmful to your investments or interests when the offending broker has committed another repeat offense, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.