By Michael Rubinkam
Associated Press
SCOTRUN, Pa. (AP) - He was fired from one company, then another, then another. And still Anthony Diaz continued handling other people's money.
The smooth-talking securities salesman affiliated with 11 different investment firms in 15 years, getting booted from five of them and resigning from another amid customer complaints and rules infractions. Yet his checkered employment history never seemed to slow him down on his way to earning millions by pushing high-fee, high-risk "alternative investments."
Now under federal criminal indictment for fraud - he has pleaded not guilty - and with dozens of former clients lodging complaints, Diaz illustrates what can go wrong when investment firms hire problem brokers.
It happens with alarming frequency. An academic study from March found that 15 to 20 percent of the brokers at some of the largest financial services firms in the country, including one that employed Diaz, have disciplinary records. Moreover, nearly half of financial advisers fired for misconduct find a new job in the industry within a year - and are at greater risk of re-offending, according to researchers at the universities of Chicago and Minnesota.
The researchers also found that brokers with a propensity for ripping off their customers tend to migrate to certain firms, suggesting the firms "specialize" in misconduct and "cater to unsophisticated consumers."
"A lot of these guys are real hustlers," said Jacob Zamansky, a securities lawyer who represents investors, explaining why firms would take a chance on an unethical broker. "It's all about the money, and it's a risk-reward. ... This is a big problem, perhaps one of the biggest."
-Seeking answers
Democratic Sen. Elizabeth Warren, of Massachusetts, and Republican Sen. Tom Cotton, of Arkansas, have asked Wall Street's self-policing body to address what it's doing about firms that routinely employ brokers with a history of fleecing clients.
The Financial Industry Regulatory Authority has until June 15 to respond, but agency chief Richard Ketchum has already warned investment firms that routinely employ high-risk advisers to expect "searching questions" about "the special supervisory steps they have taken to ensure no further bad actions."
New federal regulations, meanwhile, would require brokers to put their clients' interest ahead of their own when giving retirement investment advice. Wall Street lobbying groups sued last week to block the rules, arguing they're too burdensome and subject brokers to too much liability.
Even with so many rule-breaking brokers still in business, Diaz's serial firings stand out. He's the only one of the nation's 650,000 licensed brokers to have been fired more than three times, according to an analysis conducted for The Associated Press by Securities Litigation and Consulting Group Inc.
Why was he able to land on his feet so many times?
"It's about greed," said attorney Albert Murray Jr., who represents about 30 former clients of Diaz. "Here's a guy who's making lots of money and has a big portfolio of clients all over the country. That's why they did it."
Diaz's attorney, Darren Gelber, said his client rejects the allegations.
"It is his very, very strong and fervent belief that everything he did was proper and legal," Gelber said.
-'A total, total rip-off'
Pennsylvania retiree Vincent Sylvester, 69, said he invested nearly all of his $500,000 nest egg with Diaz after the financial adviser guaranteed him returns of 8 percent and more. Sylvester said Diaz inflated his net worth to qualify him for the investments, didn't explain the risk and failed to tell him his money would be tied up for years.
Now he and his wife are making barely $400 a month on their savings - a return of less than 1 percent - and their retirement is less comfortable than it might have been. Sylvester is dealing with bladder cancer on top of his financial stress.
"The whole thing was a total, total rip-off," said Sylvester, who worked in the real estate department of a homebuilder. "It took me a lot of years to save this money, and a lot of hard work, and unfortunately you've got guys like him who don't really care."
Federal prosecutors allege Diaz advised his clients to put their money in real estate investment trusts and equipment leasing partnerships, types of higher-risk, illiquid "alternative investments" geared to wealthier, more sophisticated investors.
He had them sign blank documents; then he falsified their net worth, income and risk tolerance to make it appear they met the suitability requirements of the products, according to a grand jury indictment.
"I had no idea they were super high-risk," said Bruce Kilby, 67, of Scotrun, a retired pharmaceutical company worker who invested about $350,000 with Diaz. The financial adviser, Kilby said, "was a very fast talker, and when you asked questions that he didn't want to answer, he more or less talked down to you."
Kilby won a $220,000 arbitration award against Diaz, who has challenged it in state court.
First Allied Securities Inc., the firm with which Diaz was affiliated when prosecutors say he began committing fraud a decade ago, said in a statement that it thoroughly vets prospective hires and expects them to be ethical and professional.
But the company routinely employs advisers who have been disciplined for misconduct - nearly one in five, according to the Chicago and Minnesota researchers. First Allied called the study flawed.
-Why hire him?
After First Allied permitted Diaz to resign in 2009, Diaz was fired from several other firms before his last stop at IBN Financial Services, a brokerage in Liverpool, New York. Its CEO, Richard Carlesco, said in an interview that Diaz's big roster of clients made him an attractive hire.
Given his employment history, "it was a stretch for me," said Carlesco, whose small brokerage had a squeaky-clean record. "I'd not had a rep like this before."
But Carlesco said he thought Diaz had been terminated by his earlier firms for "stupid reasons" that largely related to issues of customer service, not because he was selling clients on bad investments. At the time of his 2012 hire by IBN, Diaz had no open consumer complaints against him, Carlesco said.
He said he called FINRA, the industry regulator, about Diaz, and FINRA officials advised Carlesco to put Diaz on "heightened supervision." Carlesco installed a staffer in Diaz's office in the Pocono Mountains and sent his compliance officer there every week.
"Trust me, I just didn't jump into this blind," he said.
In retrospect, Carlesco said, he regrets getting involved. The financial adviser cost the firm more in legal and compliance fees than it earned from his clientele, Carlesco said.
Most of the other companies that affiliated with Diaz after he resigned from First Allied did not return messages from the AP.
With Diaz now barred from giving investment advice, he has entered another sales profession - real estate. He was licensed in November and works for a commercial real estate firm.
His staff biography touts his "solid background" in finance.
"Anthony has his (clients') best interest at heart," the biography says.
How to do a background check on financial advisers
NEW YORK (AP) - Shopping for a financial adviser? Make sure to do a background check first.
A few quick internet searches can save you from handing over your money to a fraudster or someone who has racked up complaints from past customers.
Running into someone with a less-than-stellar record can be more common than you think. As many as 20 percent of brokers at some of the country's largest financial institutions have disciplinary records, according to a March study by researchers at the University of Chicago and the University of Minnesota.
It's up to you to do the research and ask questions to protect your money. Here's how:
- Check their history
Typically, advisers fall into two categories. They are either brokers, who buy or sell stocks on your behalf, or investment advisers, who charge a fee for advice.
If the person you are considering is a broker, they should be able to be found at brokercheck.finra.org, which is run by the Financial Industry Regulatory Authority. There you can search brokers by name and see if they are currently licensed, have any recent customer complaints or regulatory actions. It will also show how long they've been in the industry and how many exams they've taken.
If you're considering an investment adviser, they are searchable on the U.S. Securities and Exchange Commission's website at adviserinfo.sec.gov. When you find the adviser, you'll want to open the detailed report to see the person's past employers and if he or she has ever gotten in trouble.
Obviously, people who have a long history of disciplinary action are a red flag.
Christine Sgarlata Chung, an associate professor at Albany Law School and a co-director of the Institute for Financial Market Regulation, recommends searching names on both sites. "People may wear multiple hats," she says.
- Ask questions
When you meet with an adviser or broker, ask how they make money and try to gauge if they are working in your best interest. If they're pushing a certain product, you should ask if they get a financial incentive for selling it to you. Also, don't be afraid to ask if they've been hit with disciplinary action in the past and what happened.
"The best thing you can do to protect yourself is ask questions," says Sgarlata Chung. "If you start hearing things that don't make sense, trust yourself and walk away."
The SEC has a list of questions on its site that you can print out and take with you at https://www.sec.gov/investor/pubs/askquestions.htm.
- Know what the acronyms mean
Some advisers may have a bunch of letters after their names that can be confusing. Those letters are acronyms for designations that the adviser or broker may have received by taking courses or passing a test. To make sense of what the acronyms mean, go to http://www.finra.org/investors/professional-designations. There you can see what organization gave them the title and whether you can verify it.
- Other warning signs
Beware of advisers pushing you to make a decision quickly, says the Consumer Financial Protection Bureau. Other red flags include free dinners or workshops, where they may be selling financial products. The CFPB has more tips on what to look out for on its website at http://files.consumerfinance.gov/f/201311_cfpb_flyer_senior-financial-advisors.pdf.
Published: Fri, Jun 10, 2016
