Center Street Securities (CSS) are at the receiving end of a six-figure claim filed through the FINRA (Financial Industry Regulatory Authority) arbitration process by a Missouri retired couple. The claim is for recovery of losses sustained in their investment in GWG Holdings Inc. (NASDAQ: GWGH). Unfortunately, the investors were facing health issues, both have little investment experience. Entrusting CSS with their money has only resulted in most of it being placed at the risk of vanishing in the illiquid, speculative, risky investment in the form of GWG L Bonds.
Overconcentration, unsuitability, fraud, gross negligence, breach of contract, negligence, and misrepresentations are some of the allegations the couple has made against the firm and against Joe Latour, the broker dealing with their account, who is also a registered financial advisor with the Latour Financial Group. Collectively they failed to provide information about the risk attendant in the investment to the couple.
Haselkorn & Thibaut (InvestmentFraudLawyers.com) is currently investigating GWG Holdings and broker-dealers that sold their products. Investors can call at 1-800-856-3352 for a free consultation on investment loss recovery options including security fraud lawsuits and FINRA claims.
The couple’s GWG Holdings case
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The couple is pursuing damages of up to $500,000. They made an investment of $134,000 in L Bonds, recommended by CSS.
Other investment recommendations to the couple included investing in non-traded alternative investments, again, given the investing profile and risk-tolerance level of the pair, an unsuitable recommendation. Even more strangely, the firm maintained its stand of these products being safe, conservative choices while moving the couple deeper into the quagmire of alternative assets.
About L Bonds From GWG
These bonds are junior debt and unlisted, which means there is no market-determined price that is either available or at which they can be sold. Further, issued with maturities between 6 months and 7 years, they can be repurchased by GWG solely at their own discretion, without penalty, regardless of whether it results in a loss to the investor or not. The Bonds will automatically roll over unless the investor has requested otherwise prior to the due date. Almost 50% of maturity repayment requests were honored by replacing it with another bond.
Though collateralized on the face of it, the security being GWG’s ownership interest in subsidiary companies does not inspire confidence. Repayments in the early years operated as a Ponzi scheme with the money generated from fresh sales being used to fund repayment liabilities.
A brief history of GWG Holdings
Founded in 2006 and based in Texas, this financial services company was set up with the objective of earning returns from life insurance assets that were not correlated. The business model was to create value for consumers in the secondary market over and beyond the traditional options provided by life insurance policies and make a profit on that.
The result has been the opposite. Investors are poorer by millions of dollars collectively as a result of their investments in GWG.
GWG defaulted on $10.35 million in interest and $3.25 million in principal payments in February 2022. And that was not even the first sign of implosion.
By April 2021, the issuance of fresh L Bonds had been discontinued by GWG.
GWG failed to file its 2020 annual report. On its books, GWG had over $1.6 billion in L Bonds and $ 200 million in senior debt outstanding.
GWG was subpoenaed by the Securities and Exchange Commission (SEC) in October 2020 on account of rising concerns about various issues, accounting practices being one of them. GWG kept the probe under wraps and continue to sell Bonds without disclosing this matter to the new investors.
Why did Center Street sell long maturities?
Broker-dealer Emerson Equity, LLC, operated as a master dealer for L Bonds. It sold bonds directly to investors and also enlisted other brokerage firms to sell them in exchange for a share of the commission. This is how CSS got access to selling L Bonds to their customers. Between the two firms, they earned 8% as commission for these sales.
Since the incentive payouts were scaled according to maturity; the longer the maturity the higher the incentive, CSS made efforts to sell bonds with long maturities to their customers.
Advice to investors
Are you an investor in L Bonds or know someone who is?
Have you lost money on your investment in GWG L Bonds or know someone who has?
The investor lawyers at Haselkorn & Thibaut are helping investors who have lost money in these bonds, by filing FINRA arbitration claims for recovery, as they have done successfully many times in the past in other cases of broker fraud and misconduct.
The firm encourages other L Bond investors to reach out to them for a free, no-obligation consultation and for guidance in pursuing damages against brokerage firms whose negligence or misconduct caused them losses.