FINRA Sanctions Pending Against Cantone Research and Anthony Cantone After Allegations of Unsuitability, Misrepresentation, and Omissions of Fact Resulting in Investment Loss
The Financial Industry Regulatory Authority (FINRA) Department of Enforcement requested on October 26, 2021, that FINRA move to sanction Cantone Research, Inc. (CRI) and CRI president and majority owner Anthony Cantone, as well as their associate CRI representative Raymond J. DeRobbio. Allegations include negligent misrepresentation, omissions of material fact, unsuitable recommendations, securities fraud, and failure to make time of trade disclosures. FINRA sanctions would compel CRI and Cantone to disgorge ill-gotten gains and make restitution.
Allegations Regarding Investor Losses on Quad Cities Bonds
It is alleged that CRI, Cantone, and DeRobbio made multiple fraudulent and negligent misrepresentations and omissions of material fact in connection with two municipal bond offerings where CRI was the sole underwriter. The allegation states that CRI, Cantone, and DeRobbio recommended and sold the municipal bonds that later defaulted to more than 150 investors, resulting in losses of more than $6,225,000.
In the first bond offering, conduit bonds where the principal and interest payments to investors would come only from net revenue were underwritten and sold for the Quad Cities Regional Economic Development Authority First Mortgage Revenue Bonds (Quad Cities Bonds) in 2013. They were issued to fund the purchase and rehabilitation of a Sauk Valley Community College dormitory. If the dormitory failed to be profitable, investors would face losses.
CRI and Cantone and their associate are alleged to have violated the Municipal Securities Rulemaking Board and Securities Act of 1933 Rules related to suitability, including the following:
- Failure to carry out appropriate due diligence for their investors;
- Failure to disclose material facts and present accurate financial projections of the dormitory;
- Misrepresent the relationship between the college and dormitory; and
- Repeat the failures from these primary sales of the bonds on secondary market transactions.
Allegations Regarding Investor Losses on Montgomery 2015 Bonds
In 2015, CRI was the only underwriter and seller of conduit bonds for The Medical Clinic Board of the City of Montgomery-1976 East or Montgomery 2015 Bonds in the amount of $6,025,000. These bonds were for the purchase and rehabilitation of the Cedars, an Alabama assisted living facility. Investors would make money only if the Cedars generated net revenue; if the Cedars failed to earn a profit, investors would face losses.
CRI and Cantone and their associate are alleged to have violated the Municipal Securities Rulemaking Board and Securities Act of 1933 Rules related to suitability, including fraudulent misstatements and omissions for primary and secondary sales of these bonds. In addition, it is alleged that investors were not informed of the following as they should have been:
- CRI was involved in two previous failed offerings of the Cedars;
- CRI loaned money to entities associated with the issuer that allowed it to pay previous investors when it did not have the revenue to do so; and
- CRI knew about Cedars’ financial losses.
Background on CRI and Anthony Cantone
Cantone Research Inc. or CRI is a general securities business based in New Jersey. Around 2003, CRI entered the business of underwriting municipal revenue bond offerings and selling those bonds to its retail customers in the primary and secondary markets. Anthony J. Cantone first became registered with FINRA as a General Securities Representative through an association with a former member firm in 1982. Since then, Cantone became registered as a General Securities Representative, General Securities Principal, Research Analyst, Research Principal, Investment Banking Representative, and Investment Banking Principal at CRI. At all times relevant to these allegations, Cantone was CRI’s president and majority owner.
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Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
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