Advisor in Smoothie Shop Incident Is Fined and Suspended Over Cash Transactions

Among his defenses, Iannazzo argued that his conduct was “personal,” not business-related, because he used money from his personal bank accounts to finance a personal home construction and renovation project, FINRA reported. The NAC has rejected such an argument in the past, the regulator noted.

David Gehn, a partner at Fox Rothschild who is representing Iannazzo, said the case was an example of “out-of-control regulation of personal conduct” by FINRA.

The transactions had no effect on clients or securities markets, and others who investigated – including Connecticut regulators and Merrill itself – found no issues with Iannazzo’s conduct, Gehn said.

The FINRA hearing panel majority found that the unlawful structuring was business-related because “Merrill has demonstrated its interest, through multiple policies and procedures, in ensuring its employees comply with anti-structuring laws, including in their personal banking accounts.”

In addition, by engaging in structuring in accounts associated with Merrill and parent Bank of America, he interfered with the institutions’ ability to effectively monitor his cash transactions and comply with their reporting obligations, exposing them to regulatory and reputational risk, the FINRA panel ruled.

Structuring Rules

Federal law requires financial institutions to file currency transaction reports for cash transactions over $10,000, to help law enforcement detect money laundering and other crimes.

Structuring cash deposits and withdrawals to avoid a currency transaction report filing is a crime and involves three elements: breaking up large amounts of cash into smaller amounts of $10,000 or less; knowledge of the reporting requirement; and intent to evade the reporting requirement, FINRA said.

The authority detailed a pattern of withdrawals and deposits that Iannazzo made over several years.

“On many occasions, Iannazzo withdrew or deposited tens of thousands of dollars in cash in the span of a few weeks, or even a few days, thereby avoiding cash transactions that exceeded $10,000 in any single day. Iannazzo never engaged in cash transactions that exceeded $10,000 at the same financial institution on any one day,” FINRA found.

“Iannazzo repeated these patterns with some modifications throughout the relevant period, although there were months-long stretches during which he engaged in no cash withdrawal or deposit activity,” FINRA said.

Personal Projects

At his FINRA hearing, Iannazzo offered various explanations.

“He said he felt unsafe carrying amounts larger than about $8,000 to $9,000 at any one time. He also testified that he used his bank account statements as a spreadsheet to track the cash activity for separate residential renovation projects,” FINRA said.

“By making separate withdrawals, Iannazzo stated, he could keep track of his separate projects. Iannazzo also claimed he was not aware of the $10,000 CTR reporting requirement and so could not have formed the intent to avoid the reporting requirement,” the authority said.

The majority of the hearing panel didn’t find the explanation credible, according to FINRA, which noted that Iannazzo was an experienced financial advisor by the time he began his structuring activity and received ample training about financial crimes at Merrill.

The panel found that Iannazzo’s misconduct was intentional and that he took steps to conceal the full extent of his cash transactions.

The majority was “significantly troubled by Iannazzo’s refusal throughout this proceeding to accept responsibility for his own actions. Instead of acknowledging his wrongdoing, the Panel Majority finds that by offering incredible explanations for why he engaged in cash transactions below the $10,000 reporting threshold Iannazzo gave false testimony at the hearing,” the order said.

“Iannazzo also repeatedly pointed the finger at others,” blaming Merrill for not adequately training him regarding CTR requirements, testifying that he relied on his local bank and Merrill to tell him his conduct was wrong, and saying they were at fault for not stopping him earlier, FINRA said in its order.

Dissenting Opinion

A dissenting opinion from one panelist noted that law enforcement had declined to take meaningful action against Iannazzo over his activities, and that Merrill had issued him only a written warning. Also, the evidence doesn’t support ending a 30-year professional career, the near certain consequence, the dissent said.

No firm customers were involved, the dissenter wrote. “Iannazzo’s conduct was unrelated to any securities transactions or securities markets. Enforcement identified no unlawful purpose or intent by Iannazzo. It also did not show there was any criminal activity — for example, gambling, drug trafficking, tax evasion, or money laundering. No other regulator or law enforcement authority took action against Iannazzo.”

Smoothie Incident

Iannazzo was registered with Merrill from November 1996 until February 2022, when the firm disclosed it had fired him the previous month over the smoothie shop incident.

Later that year, he settled for $7,500 a civil lawsuit over the incident, which occurred at a Connecticut smoothie shop. He had confronted employees there, demanding to know who had made a smoothie that caused a peanut-allergic reaction in his son, and grew irate over the response, throwing a drink at an employee, cursing and calling an employee an “immigrant loser,” police said.

Iannazzo was charged with various crimes and received probation through an accelerated rehab program. The charges were to be dropped if he completed a year of probation without committing a new crime, The Connecticut Post reported at the time.

James Iannazzo. Credit: Fairfield Police Department