The second coming (and going) of EF Hutton | USAEMALL.com

Everyone knows that the best way to stop a zombie is to destroy its brain. 

But EF Hutton, an undead US underwriter we wrote about two years ago, had two heads: chief executive Joseph Rallo and president David Boral.

Rallo left the bank earlier this year, taking ZombiEF Hutton’s once venerable name and trademark with him. He had been placed on voluntary administrative leave, having in May been served by the Attorney’s Office for the Eastern District of New York with a search and seizure warrant linked to an ongoing investigation into alleged securities and wire fraud. Rallo has not been indicted or charged. In November, EF Hutton 2.0 rebranded as D. Boral Capital. 

We reached out to Rallo’s legal counsel for comment but have yet to hear back.

Rallo and Boral appear to have enjoyed many happy years together. Both did stints at New York underwriters Maxim Group and Aegis Capital (check out the underwriters’ . . . patchy track-records here, and their disclosure-heavy Brokercheck reports here and here) before teaming up in 2020 at what was then Benchmark Investments.

There, Rallo co-led the company’s new investment banking division, Kingswood Capital Markets. KCM grabbed the EF Hutton name in 2021, a blockbuster year for global capital markets during which the firm’s IB and underwriting revenues rose to almost $150mn from $11mn in 2020.

In 2022, the bank landed its most illustrious client to date: Donald Trump’s Truth Social, which it eventually helped list via a Spac.

But the good times didn’t last. In mid-September, EF Hutton filed a lawsuit against Rallo, accusing its own CEO of regularly skipping work to “gamble and carouse” and charging the firm for personal expenses including trips on private jets, “extravagant” meals and intravenous drips “which upon information and belief, were used to treat hangovers from excessive alcohol and drug usage”.

Rallo contested the allegations and filed a countersuit soon after, alleging that Boral frequently embarked on stimulant-aided “benders” of his own and that he had “physically assaulted” Rallo over a disagreement about which of the two was the real “alpha” at the bank. The suit alleged that Boral had orchestrated a “coup d’état” by weaponising the federal warrant served against him to wrest control of EF Hutto. Boral contested the allegations.

By mid-October, Boral and Rallo seemed to have buried the hatchet. Their lawsuits were withdrawn. EF Hutton issued a statement saying the duo were “pleased to put their dispute behind them” and had “decided to take their businesses in different directions”. 

In his first interview since the pair’s conscious uncoupling, Boral told FT Alphaville how they settled on the EF Hutton name and gave his take on what Trump’s election win means for US capital markets. The conversation has been edited for brevity.

FTAV: You and Joseph [Rallo] seemed to have a good relationship for a long time. What happened?

David Boral: Joe and I withdrew our lawsuits and publicly stated that we’re pleased to put our dispute behind us and move forward with confidence that our new and separate business ventures will be successful.

The full team is otherwise fully intact. We’ve done a name change and a rebranding. We’re having one of our best years yet*, we’re on pace for $100mn in revenue, and unadjusted, unaudited positive net income of $25mn plus or so. We’re very excited to proceed forward.

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FTAV: Tell me about the Truth Social deal EF Hutton worked on in 2023 — did Trump’s team approach you, or vice versa? How did it go down?

DB: With regard to DJT [Trump Media & Technology Group], everything has already been publicly stated. There’s not much for me to add. They’re a regular public company now.

FTAV: Why did you choose the EF Hutton name? There was that whole business with the cheque-kiting scandal . . . 

DB: We were looking for a name, and at the time, with my previous partner, we thought of looking at previous banks that were no longer in business. So there were a few out there that were available — Dillon Read, some of these prominent names, obviously EF Hutton, that we heard were available, potentially.

We weren’t sure if we could get Bear Stearns or Lehman Brothers, but those were too recent and near-term. We polled a few people and most of the people that had ever heard of EF Hutton actually had a positive review or remembered the commercials.

But a lot of the employees that used to work there — an older generation, probably at this point mostly in their sixties, because I think it went out in maybe ‘86 or ‘87 . . .  they were pretty fond of their time and experience there. The response from the marketplace was pretty positive from most people.

FTAV: You set up EF Hutton 2.0 in 2020 and capital markets exploded the next year, when you guys became particularly active in the Spac space. Tell me about the market back then.

DB: 2021 was one of the best years in the history of the financial capital markets in the US. And we capitalised on that. It was an interesting dynamic, from 2020 being an election year, Covid, starting the organisation from home, and not meeting team members in person for a whole year. So we didn’t go into our office space until about June 2021, at 590 Madison in the IBM building, overlooking Central Park in New York City.

But for the year prior to that it was working mornings, to late nights, on Zoom calls all day. There wasn’t much to do other than work 24/7. That propelled me to a lot of success, because I was singularly focused on growing my bank.

FTAV: Your website says you’re ranked “number one worldwide in regular way and Spac IPOs since 2022 for number of new issues”. You’ve certainly listed an eclectic mix of companies. How do you find these businesses and how do you find investors to invest in them?

DB: I’ve worked in the industry for about 20 years, so I’ve met a lot of different constituents, from attorneys, IR firms, PR firms, consultants, auditors, accountants, C-suite management teams, board members in a multitude of industries and sectors. And I think there was a need for a new bank at the time. And I was keenly focused on the opportunity that the Spac market presented, so I hit that market pretty hard, got completely engrossed in it, which provided a lot of value.

We don’t make any material product, as an investment bank, so a lot of it is the information you have and how to best guide clients, issuers, so you can make the most cost-effective capital raise which inherently provides more jobs, a better company and a more efficient capital markets system. That was an area we focused on and we had tremendous success.

FTAV: Was the Spac boom back then an aberration?

DB: Every few years there’s a new hot industry sector product. It was cannabis at one point, then it was crypto, then it was Spacs. It’s cyclical in the fact that there’s always something new, now it’s AI, that is gathering everyone’s attention and capital. It just so happened that 2021 was the Spac year.

I think it was a one-off and I actually think that’s good. Because there was an oversaturation of the market. In 2022, I think, regular IPOs were down something like 50 per cent after six months. Spac IPOs were down 49 per cent, they were performing slightly better.

The slowdown in the Spac market was good, because 1732035305 you’re getting higher quality sponsors, you’re getting more repeat sponsors, you’re getting more fairly valued de-SPACs. So the numbers have come down but it’s healthy long-term. I don’t think the product is going anywhere.

FTAV: What does Trump’s win mean for your firm and the IPO market more broadly? Is Wall Street rejoicing?

DB: With Trump and how the markets are going to respond, it’s pretty evident already from what you’ve seen. You can see how the market responded to him winning the election. From a macro perspective, issuers listed on NYSE, Nasdaq etc have . . . responded extremely well. That’s case in point. There’s no speculation needed.

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FTAV: A lot of the IPOs you’ve worked on in the past few years, particularly those for Chinese micro-caps, haven’t done so well. Shares pop on IPO day but tend to collapse further down the line. Does that bother you?

DB: This year, our IPOs have been up, 4.1 per cent on average the following day and approximately 22.6 per cent after 30 days**. That’s very positive, we’re very happy about that.

Obviously we want investors to always make money, for companies to get capital and make that dollar they received worth two dollars, and hit on all of the ideas that they had. It doesn’t happen all the time, but obviously we try our best to have a win-win, and my 2024 statistics are pretty positive.

* EF Hutton’s now withdrawn lawsuit against Rallo states that “by mid-May 2024, the firm was operating at a loss despite significant revenues”.

**The ten regular-way IPOs (excluding follow-on offerings and Spac IPOs) that EFH/D Boral Cap has worked on so far this year, according to its website, have fallen an average of 24.5 per cent since listing.

Two, Haoxi Health Technology and U-BX Technology, have dropped more than 90 per cent since their respective listings in January and March. Armlogi, the best performer, has added 18.7 per cent since it went public in May.