(Bloomberg) -- The CEO who led the revival of the storied EF Hutton name as a leading SPAC investment bank hit back at a lawsuit accusing him of falsifying expenses, claiming his former business partner orchestrated a “coup” to illegally oust him.
Joseph Rallo filed his own suit Tuesday in Delaware against EF Hutton and the partner, David Boral, saying the firm’s claims against him were “entirely false” and “motivated by personal animosity and greed.”
Rallo’s suit comes about a week after EF Hutton filed its own suit in New York, disclosing that the chief executive officer was asked to go on leave after the firm learned he was the subject of a federal criminal investigation. According to EF Hutton, it then discovered he had stolen millions by falsifying expenses. The firm alleged that, despite being paid tens of millions of dollars, Rallo was likely in financial trouble due to an extravagant lifestyle and gambling problem.
Rallo’s court filings acknowledged the criminal probe by the US attorney’s office in Brooklyn, New York, as well as a civil one by the Securities and Exchange Commission, but provided no further details. He strongly denied EF Hutton’s allegations about his expenses, saying they were approved by Boral, and said the claims about his lifestyle amounted to “gaslighting.” Instead, it was Boral who had issues that threatened his work, Rallo claims.
‘More Recognizable Brand’
“Mr. Rallo’s baseless claim is a desperate attempt to smear EFH’s leadership to distract from his reprehensible behavior and personal legal problems,” EF Hutton said in a statement. “We will vigorously pursue our lawsuit to hold him accountable for his unconscionable actions.”
Boral didn’t immediately respond to a LinkedIn message seeking comment. The US attorney’s office last week declined to comment on its probe. The SEC also declined to comment. Seth DuCharme, Rallo’s lawyer in the criminal probe, declined to comment as well.
The dispute is a strange turn for the EF Hutton brand, which once graced one of the largest US retail brokerages and was famous for commercials that proclaimed, “when EF Hutton talks, people listen.” That EF Hutton merged with Shearson Lehman/American Express Inc. in 1988. The name was acquired in 2021 for a rebrand of Kingswood Capital Markets, the investment banking arm of Benchmark Investments LLC.
According to Rallo’s suit, he brought his friend Boral aboard as a partner in the effort to launch a new investment bank under Kingswood, with each holding a 47.5% stake. Rallo said it was his idea to acquire the EF Hutton name and other intellectual property in 2021 for $1 million.
“Rallo soon realized that the company needed a more recognizable brand name to propel its growth into a full-service investment bank,” he said in the suit, noting that Boral objected to the rebrand.
The ‘Alpha’
The firm became a top underwriter of special purpose acquisition company listings, including for the SPAC that later acquired Trump Media & Technology Group. In its suit, EF Hutton said it had 2021 banking and underwriting revenue of almost $150 million, and Rallo was paid more than $44 million of compensation in 2021 and 2022.
According to Rallo’s suit, Boral became jealous that his partner was perceived as the driving force of the firm’s success. Boral acted out against Rallo in a number of ways and also frequently abused drugs and alcohol, Rallo claims.
“Boral would develop an insatiable desire to prove he was the ‘Alpha’ at EF Hutton, which desire would only drive personal animosity towards Rallo,” Rallo said in his suit.
Boral allegedly seized the occasion of the federal search and seizure warrant served on Rallo in May to take control of the firm. Rallo is asking the court to declare that he remains a member of EF Hutton’s board of managers along with Boral.
The case is Rallo v Boral, 24-0987, Delaware Court of Chancery (Wilmington).
--With assistance from Jef Feeley.
(Updates with statement from EF Hutton.)
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