As a financial analyst and legal expert with over a decade of experience, I’ve seen my share of broker misconduct cases. The recent FINRA investigation into Arthur DeFilippo, a broker with Revere Securities, caught my attention for the seriousness of the allegations involved. Let’s break down what this case means for investors.
Allegation of Material Misrepresentation
According to DeFilippo’s BrokerCheck profile, FINRA made a preliminary determination to recommend disciplinary action against him for allegedly making a “material misrepresentation to a counterparty about an indication of interest made for shares in a public offering.” In simple terms, he’s accused of misleading another party about a potential investment. A few key points:
- Material misrepresentations are a major red flag – they involve deception about important facts an investor would want to know before deciding whether to invest.
- This allegedly occurred in the context of a public offering of shares, a critical time when companies are raising capital and courting investors.
- If proven, this violation of FINRA rules would be a serious breach of a broker’s fundamental duties to deal fairly and honestly.
FINRA also alleges that DeFilippo failed to disclose a customer dispute on his record, which brings me to his background…
Past Disciplinary Action and Customer Complaints
In 2002, DeFilippo was sanctioned by Massachusetts regulators who alleged he “borrowed and lent money to several clients” improperly and failed to report an outside business activity. He was censured and fined $2,500.
Additionally, two customer disputes were filed against DeFilippo between 1991-2001 alleging misrepresentation, unsuitability, and failures to follow instructions. His member firms at the time settled those disputes for a total of $42,000.
While every case is unique, a documented history of disciplinary issues and customer complaints is concerning. It’s always crucial to thoroughly vet a broker’s background before investing. According to a Forbes article, bad brokers are twice as likely to work at large firms, making it even more important for investors to be cautious.
Revere Securities and FINRA Rules
Revere Securities, DeFilippo’s current employer, purports to stay “at the forefront” of “ever-changing” global markets. But FINRA rules governing brokers are steadfast and well-established.
FINRA Rule 2010 requires brokers to observe high standards of commercial honor and just and equitable principles of trade. Misrepresentations of material facts run afoul of this fundamental duty.
Rule 2020 prohibits the use of manipulative, deceptive or fraudulent devices to induce investment. If the allegations against DeFilippo are proven, it would represent a clear violation of these cornerstone industry rules.
Consequences and Lessons for Investors
The potential penalties for DeFilippo could include a fine, suspension, or even a permanent bar from the industry, depending on the outcome of FINRA’s investigation. But the consequences for investors underscore some vital lessons:
- Always research a broker’s history, qualifications and disciplinary record before investing. Pay attention to any red flags like regulatory actions or client disputes.
- If a broker’s claims about an investment seem too good to be true, get a second opinion. Misrepresentations can cost investors dearly.
- Know your rights. Investors who fall victim to broker misconduct can often pursue damages through FINRA arbitration with the help of an attorney.
As the saying goes, trust but verify. With 39 years of experience, DeFilippo is an industry veteran, but a clean regulatory history is always most telling.
Here’s a striking fact: a 2018 study found that one in 13 financial advisers have a record of misconduct. Out of 650,000 registered brokers, some 50,000 had black marks from customer disputes, regulatory infractions, or other issues.
Investment fraud and bad advice from financial advisors can have devastating consequences for investors. According to the Financial Advisor Complaints website, the most common types of misconduct include misrepresentation, unsuitable investments, and unauthorized trading.
If you’ve suffered losses due to broker misconduct, don’t despair. I’ve seen firsthand how investors can recoup damages through legal action. The key is to act promptly, know your rights, and consult with experienced counsel.
The DeFilippo case is an unsettling reminder that even longstanding industry players can run afoul of the rules. By staying informed and vigilant, investors can better protect themselves in an ever-complex financial landscape. As always, I’ll be keeping a close eye on this case as it unfolds.