FINRA Rule 2010’s Broad Business-Related Scope Affirmed: The Iannazzo Case’s Implications for Personal Misconduct and Professional Consequences.

Earlier this year, I wrote about the extraordinary flexibility of FINRA Rule 2010 in my article The Expansive Reach of FINRA Rule 2010: Ethical Standards Beyond Securities Transactions. As discussed there, Rule 2010 operates both as a companion to other FINRA rules and as an independent ethical standard capable of reaching misconduct even tangentially connected to business-related activities. A recent decision from FINRA’s Extended Hearing Panel in Dep’t of Enforcement v. James Iannazzo, No. 2020067734001, 2025 FINRA Discip. LEXIS 7 (OHO Feb. 6, 2025) provides a valuable and timely demonstration of these principles at work.

In Iannazzo, the Department of Enforcement alleged, and the Panel Majority found, that James Iannazzo, a former Merrill Lynch financial advisor, engaged in the structuring of 368 cash transactions totaling $845,890. The Panel Majority found that, over the course of more than six years, Iannazzo broke up large cash transactions into smaller amounts to deliberately evade federal currency transaction reporting requirements under the Bank Secrecy Act. Even though the alleged structuring activity involved the withdrawal of funds from his personal bank accounts to pay for purely personal home improvement projects, and no customer accounts or securities transactions were implicated, the Panel Majority concluded that Iannazzo’s conduct nonetheless violated the high ethical standards imposed by FINRA Rule 2010. As a result, the Panel fined Iannazzo $50,000 and suspended him from associating with any FINRA member firm for two years.

The rationale of the Panel Majority is highly consistent with the framework I outlined in my earlier article. FINRA charged Iannazzo solely with violating Rule 2010, finding that, as an experienced financial professional extensively trained in anti-money laundering requirements, Iannazzo was aware of the $10,000 reporting threshold and deliberately engaged in conduct to evade it.

Importantly, the Panel Majority placed significant weight on the fact that Iannazzo had repeatedly certified his agreement to abide by various Codes of Conduct, Employee Handbooks, and training materials issued by Merrill Lynch and Bank of America, all of which emphasized that personal integrity and compliance with laws were critical obligations extending beyond professional activities. Iannazzo acknowledged that his personal financial conduct was important to his employers' reputations and regulatory compliance. These policies made clear that misconduct, even in personal accounts, not merely customer accounts, was important to the firm because it could reflect adversely on the firm and the securities industry as a whole.

Against this backdrop, the Panel Majority concluded that his deliberate structuring conduct reflected poorly on his fitness as a securities professional and therefore constituted a violation of FINRA’s ethical standards, even absent direct customer harm or an underlying securities law violation.

However, the decision was not unanimous. One member of the Panel dissented, raising important concerns about the scope of Rule 2010. The dissent emphasized that Iannazzo’s cash structuring did not involve his customers, their accounts, or the securities markets and noted that “Enforcement did not show that Iannazzo was involved in or connected in any manner to any underlying criminal activity or that his cash transactions were derived from or in any way involved unlawful activity.”

Since the transactions were linked to personal home renovation projects and not his professional activities, the dissent appeared concerned that applying Rule 2010 in such circumstances risks extending FINRA’s disciplinary authority into purely private affairs. Indeed, the connection between Iannazzo’s conduct and the securities industry was tenuous, raising fair notice and due process concerns that have long shadowed the broad application of this rule.

The dissent's concerns are further underscored by the fact that the authorities primarily responsible for pursuing the structuring violations, including the Department of Justice, the state banking regulator, and even Iannazzo’s firm, Merrill Lynch, reviewed Iannazzo’s transactions and took no punitive or enforcement action. This regulatory forbearance suggests that the agencies charged specifically with policing structuring violations found no sufficient basis to pursue Iannazzo’s alleged misconduct.

It is also worth noting that structuring is a criminal offense under the Bank Secrecy Act, requiring the government to prove violations beyond a reasonable doubt. In contrast, FINRA disciplinary proceedings operate under a much lower standard of preponderance of the evidence. Given these distinctions, regulatory caution might be advisable, particularly where the conduct in question involved no misuse of client funds, no harm to customers, and only the most attenuated relationship to professional duties. When the primary regulators, armed with investigatory resources and prosecutorial discretion, choose not to act, it should give FINRA pause before imposing significant sanctions based solely on Rule 2010’s flexible ethical mandate. Otherwise, FINRA risks overextending its authority into private activities, eroding fair notice, and undermining the fundamental due process protections that regulated persons are entitled to expect. Particularly when the business-related connection is this tenuous, and the rule invoked is as malleable as Rule 2010, prudence, restraint, and heightened procedural fairness must guide regulatory action.

The tension between protecting the integrity of the financial industry and respecting the boundary between professional and private conduct is precisely the challenge I highlighted in my previous blog. It remains an open question whether FINRA's enforcement practices strike the right balance. Importantly, the Iannazzo decision has been appealed to FINRA’s National Adjudicatory Council (NAC). The NAC’s forthcoming decision promises to provide further clarity about the outer limits of Rule 2010’s reach, particularly in cases involving personal conduct that does not, on its face, intersect with client accounts, firm resources, or securities transactions.

Until then, the Iannazzo decision confirms what industry participants must increasingly recognize: Rule 2010’s broad ethical mandate is not confined to traditional securities activities. Rather, any misconduct that reflects on a registered representative’s fitness to engage in the securities business, even in a seemingly personal context, can subject them to discipline.