EF Hutton's Ousted CEO Fires Back, Alleging Unlawful 'Coup'

An emotionally charged dispute between investment bank EF Hutton’s co-founders, marked by charges of substance abuse and corporate wrongdoing, has spilled into a second lawsuit.

Fired EF Hutton CEO Joseph T. Rallo, accused in a recent lawsuit of stealing millions from the firm by faking expense reports, has now filed a complaint himself, contending the investment bank’s current CEO and general counsel unlawfully ousted him in a “coup d’etat.”

Accused of Stealing Millions

EF Hutton, in a lawsuit filed last week in the commercial division of the New York Supreme Court in New York County, alleges Rallo stole millions from the firm by falsifying his expense reports and caroused at a “gambling den” during the workday.

Rallo, firing back in a lawsuit filed Monday in Delaware’s Court of Chancery, describes EF Hutton’s complaint as “frivolous” and “meritless,” and alleges his former business partner, now the firm’s CEO, acted out of personal and professional jealousy.

Since casting Rallo out, firm co-founder David Boral and its general counsel “have engaged in further misconduct in an attempt to solidify their position, including defaming Rallo to employees and making entirely false claims that he is broke, suffers from addiction issues, and that it was he who, in fact, tried to oust Boral.

“Such misstatements are the ultimate form of ‘gaslighting,’ as it is Boral who suffers from addiction problems. His instability and erratic conduct, which now proceed unchecked by Rallo, continues to place the company in severe jeopardy,” Rallo’s complaint alleges.

EF Hutton LLC and EF Hutton Partners contend Rallo used company funds for extravagant personal expenses, writing at least some off on his tax return despite the reimbursements, and has a “severe gambling problem.”

Among other allegations in its lawsuit, the firm reports federal agents seized Rallo’s phone at his home in May in connection with a U.S. attorney’s office investigation seeking records related to potential securities and wire fraud.

The firm also alleges Rallo fraudulently prompted it to reimburse him for private jets for family vacations, tickets for premium seats at sporting events he attended with his bookie and intravenous drips to treat hangovers from excessive alcohol and drug usage, among other personal expenses.

Claim: Old and New Jealousy

Rallo, who co-founded the firm and helped revive a once-storied Wall Street brokerage’s name, alleges in his lawsuit that Boral — described as his formerly trusted business partner — now holds the CEO post unlawfully.

EF Hutton Holdings and the firm’s general counsel, Ryan Whalen, also are named as defendants. Rallo contends the firm filed its lawsuit in New York last week as a preemptive move to discredit him, in anticipation of his complaint.

Rallo alleges Boral’s “substance abuse and jealousy of Rallo” strained their relationship and led to the purported coup.

He cites a 2022 weekend that he and his wife hosted at their family home, in which “Boral’s wife remarked that Rallo, and not her husband, was clearly the ‘Alpha’ at EF Hutton. Boral became extremely agitated over this and retired early to bed in a foul mood.”

Rallo, comparing his upbringing to Boral’s, contends this “jealousy” started years earlier.

“Rallo developed a respect for Boral and his drive and determination to make something of himself in the face of a difficult childhood. Rallo grew-up in a tight-knit, middle class Maryland family, whereas Boral grew up raised by a single mother, and with an absentee father abusing, and selling, narcotics,” the complaint alleges.

“After the death of his mother, Boral gravitated toward Rallo and his family and began developing a close relationship with Rallo’s parents. It was not uncommon for Boral to contact Rallo’s parents directly, particularly Rallo’s father, for advice.

“At times, however, Boral made clear he was jealous of Rallo’s tight-knit family — a jealousy that would rear its head again in the years to come,” Rallo’s complaint alleges.

Among other allegations, Rallo contends Boral and Whalen had no corporate authority or legal right to remove him as CEO nor to divest him of authority as one of two members of the board of managers.

EF Hutton’s corporate agreement requires Rallo’s consent for any corporate action, including the suspension or removal officers and changes to company bank accounts, the lawsuit says.

Boral, who had served as company president, moved into Rallo’s office, had employees box up his personal effects — “adding insult to injury” — and left Rallo’s deal trophies in a box “unceremoniously sitting in the hallway,” Rallo’s suit alleges.

The governance disputes raised in the complaint “are fundamental to the ongoing viability of the company and its affiliates,” including its licensed broker-dealer, EF Hutton LLC, Rallo contends.

“With Rallo frozen out of the company he co-founded and built, Boral and Whalen began to run the business … into the ground,” he alleges.

“By way of example, with Boral and Whalen at the helm EF Hutton embarrassingly sold certain shares of NASDAQ-listed stock that the company might potentially receive in the future as a ‘success fee,’ but which the company did not yet hold.

“This led to NASDAQ halt trading on the stock. Clients have now sued over this and other transactions Boral and Whalen mishandled,” the lawsuit alleges.

The ouster and “defamation” of Rallo have “raised alarms across the hyper-sensitive financial services industry. Client relationships have been harmed and terminated, ventures canceled, and the company’s goodwill and value significantly eroded,” the complaint alleges.

Rallo also contends Boral used the federal search and seizure warrant as the opportunity to take control of EF Hutton. He was formally dismissed last week, he was told, for failing to cooperate with an internal investigation related to the warrant, the lawsuit says.

EF Hutton sued Rallo the same day, according to Rallo’s complaint, which contends he had wanted to assure the government didn’t object to his participation in the company’s in-house probe.

Rallo also alleges that Boral and Whalen, as recently as a few weeks ago, “were seeking to depart from the company altogether to join a competitor” and were taking direct action to undermine EF Hutton in the process.

Now, they’re “unilaterally exercising complete control of the business, acting in a destructive and erratic manner, and otherwise ignoring their obligations” under the corporate agreement, Rallo alleges.

A spokesperson for EF Hutton told ThinkAdvisor via email Tuesday: ”Mr. Rallo’s baseless claim is a desperate attempt to smear EFH’s leadership to distract from his reprehensible behavior and personal legal problems. We will vigorously pursue our lawsuit to hold him accountable for his unconscionable actions.”

EF Hutton’s lawsuit alleges that on May 21, when the firm’s general counsel called Rallo and told him he needed to go on administrative leave pending a U.S. attorney’s office investigation, the CEO threatened to “burn [EHF] down.”

The firm also alleges he lost control over his “extravagant lifestyle, poor investing and illegal gambling losses.”

EF Hutton handled the deal to publicly list former President Donald Trump’s social media venture, Trump Media & Technology Group, which owns his Truth Social platform, via a merger with a special purpose acquisition company, or SPAC.

Image: Adobe Stock