Kevin Carreno, IAA Financial's part-owner and general counsel (Photo by Timothy Healy) At a time when regulators are keeping a close eye on brokers that move from one problem firm to another, IAA Financial may attract attention.
Of the 37 Finra-registered brokers at the firm, 31 have been with at least one brokerage firm that had been expelled by regulators, according to an analysis of Financial Industry Regulatory Authority Inc. registration records.
On average, each of the 31 brokers had worked at three defunct firms. Six brokers, meanwhile, had worked at five or more firms that were expelled from the industry by Finra.
Several IAA Financial brokers came from broker-dealers such as John Thomas Financial Inc. or EKN Financial Services Inc., both of which were kicked out of the securities industry after incurring multiple customer complaints and accusations of fraud.
Other brokers joined IAA Financial after leaving GunnAllen Financial Inc., which had around 400 brokers at the time it was shut down by Finra in 2010 for not meeting capital requirements.
GunnAllen also had 30 so-called disclosure events on its own BrokerCheck record and one of its brokers, Frank Bluestein, was accused of participating in a $74 million Ponzi scheme.
Being associated with an expelled firm is not itself a ground for sanction. But over the past year, Finra has been increasing its focus on brokers affiliated with firms shut down for regulatory violations.
This year, the industry's self-regulator formed a six-member team to focus on what it calls “high-risk” brokers.
Finra spokeswoman Nancy Condon declined to comment on IAA Financial.
But in an e-mail, she wrote: “Finra is sensitive to the potential risks posed by brokers who formerly worked at one or more firms that have been expelled by Finra.”
“Finra keeps close tabs on this small but potentially high-risk group of registered persons — and the firms that hire them — using a combination of methods, including sophisticated data-mining analytics and near-real-time analysis of incoming tips, complaints and ongoing field examinations,” she added.
Jamie Mongiovi, director of communications for the Office of Financial Regulation in Florida, where IAA Financial is based, said the state hasn't taken any action against the firm and is not investigating it.
DEFENDS HIRING
IAA Financial's general counsel, Kevin Carreno, defends the company's hiring practices.
Some of the brokers in question may have worked briefly at their previous firms and may have left them even before they were shut down or expelled, he said.
Those ! brokers, Mr. Carreno said, should not be penalized for working at firms at which they had no decision-making authority.
“If these people shouldn't be working in the industry, don't you think Finra has the authority to take that action right now?” he added.
Mr. Carreno declined to comment on whether IAA Financial is the subject of any pending Finra investigations.
Of the 37 brokers at IAA Financial, 20 — or around 54% — had at least one disclosure event on their public BrokerCheck record. That compares with an industry average of about 12%, according to Finra.
Disclosure events include, but are not limited to, customer complaints with more than $5,000 in alleged damages, arrests, bankruptcies or liens.
On average, the 20 IAA Financial brokers with disclosure events have between two and three events.
To be sure, not all disclosure events are found to have merit or wind up in award against the broker.
Moreover, many brokers may be subject of a customer complaint against a firm, although they may not have been named directly by the investor. That must still be reported on their record, according to Finra rules.
Mr. Carreno downplayed the significance of certain disclosure events.
“They're impossible to remove and in some cases there's just no basis,” he said.
A number of the IAA Financial brokers have moved around among several expelled firms before landing at IAA Financial.
The firm's chief executive, David Weinberger, for example, has been with five expelled firms over his 17-year career, including most
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