FINRA Fines Smoothie-Tossing Rep $50,000 for Structuring Scheme

The Financial Industry Regulatory Authority has fined a former Merrill Lynch representative $50,000 and suspended him for two years for structuring 368 cash withdrawals and deposits totaling $845,890 in order to allegedly avoid the current reporting requirements set forth in the Bank Security Act. FINRA first announced that it filed disciplinary action in 2023.

According to FINRA, between 2014 and 2021, James Iannazzo used an individual cash management account at Merrill, along with personal bank accounts, to break up large cash transactions into smaller amounts of $10,000 or less in order to avoid triggering a currency transaction report, or CTR. FINRA reported that Iannazzo would typically withdraw the daily ATM limit of $2,500 from his Merrill Lynch account and then store the unspent cash at home until he would then make multiple trips to his personal bank to deposit separate amounts below the $10,000 reporting threshold.

Financial institutions are required by the Bank Secrecy Act, or BSA, to file CTRs for cash transactions exceeding $10,000. The stated purpose of CTRs is to help law enforcement detect and prevent money laundering, tax evasion, and other financial crimes. Structuring cash deposits and withdrawals in order to avoid filing a CTR is a crime.

FINRA said that, 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 repeated these patterns with some modifications throughout the relevant period, and Iannazzo never engaged in cash transactions that exceeded $10,000 at the same financial institution on any one day.

At his hearing, Iannazzo claimed that he was unaware of the $10,000 reporting requirement and that his cash transactions were related to separate home renovation projects, such as a pool house and an in-law suite, and that he used his bank account statements as a spreadsheet to track the cash activity for the projects. He also stated that he felt unsafe with any amount of cash larger than $8,000 to $9,000. The majority of the extended hearing panel, however, found Iannazzo’s explanations not credible.

The panel noted that Iannazzo was an experienced financial adviser who had received extensive training on financial crimes, including currency transaction reporting and structuring. Additionally, Iannazzo had been given a FinCEN pamphlet on five separate occasions by employees at his personal bank after making large cash withdrawals. The pamphlet explicitly warned against structuring and outlined the penalties for violating the BSA.

One panelist did dissent from the majority’s decision. The dissenting panelist argued that Iannazzo’s conduct was not business-related and that the sanctions were too harsh. The dissenting panelist also pointed out that other regulators and law enforcement agencies had reviewed Iannazzo’s conduct and declined to take action. Furthermore, the panelist criticized FINRA for using the “catch-all” Rule 2010, which requires associated persons to observe high standards of commercial honor and just and equitable principles of trade.

Iannazzo had been a managing director at Merrill Lynch’s branch office in Stamford, Conn., and he had been with the firm from 1996 to 2022. He was considered a top financial adviser, managing between $500 million and $550 million in assets for up to 300 clients. Iannazzo’s misconduct came to light after an investigation by FINRA’s Department of Enforcement. According to BrokerCheck, Iannazzo is now with the New York-based broker-dealer Aegis Capital.

Merrill fired Iannazzo in January 2022 following his arrest over a viral incident at a smoothie shop. In a video shared on TikTok and other social media sites, Iannazzo is shown throwing a smoothie and calling an employee an “immigrant loser.” Iannazzo was charged with second-degree intimidation based on bigotry or bias, but the charges were dismissed as part of an accelerated rehabilitation program. Iannazzo also agreed to pay one of the employees $7,500 after she sued him for damages.

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