In a significant ruling, a Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered AGES Financial Services, LTD. to pay nearly $1.08 million in damages, interest, and attorney’s fees to a group of investors who purchased bonds from the now-bankrupt GWG Holdings Inc.
The case, filed in July 2022, involved multiple claimants who alleged various forms of misconduct by AGES Financial Services, including breach of fiduciary duty, unsuitable investment recommendations, and fraudulent or negligent misrepresentations. After a lengthy arbitration process, the panel ruled in favor of several claimants while denying claims from others.
In an unusual move for FINRA arbitrations, the panel awarded emotional distress damages to two claimants, each receiving $75,000. These awards are particularly noteworthy as emotional distress damages are rarely granted in FINRA arbitrations. $150,000 is one of the most significant emotional distress damages awarded in FINRA’s history.
A review of FINRA’s arbitration database reveals the rarity of such awards. Out of 15 arbitration claims this year that included “emotional distress” claims, only two resulted in monetary awards for emotional distress, including this case.
Joe Peiffer, head of the Public Investors Advocate Bar Association, commented on the significance of these awards: “The loss of life savings is absolutely devastating to investors. Judges and juries awarded these types of damages for years. I’m glad arbitration panels are starting to recognize this, too.”
The panel’s decision resulted in substantial awards for several claimants. Another client and his IRA were awarded $267,252 in compensatory damages, plus interest, costs, and $80,176 in attorneys’ fees. Client 3 received $256,520 in compensatory damages, $75,000 in emotional distress damages, and $76,956 in attorneys’ fees, among other costs. Client 4 and her IRA were awarded $149,372 in compensatory damages, $75,000 in emotional distress damages, and $44,812 in attorneys’ fees.
This case is part of a larger issue involving GWG Holdings. Approximately 40 broker-dealers sold nearly $1.6 billion in GWG L bonds before the firm declared bankruptcy in 2022, leaving many investors at a loss. This is not the first arbitration loss for AGES Financial Services related to GWG bonds; the firm lost a previous FINRA arbitration decision last fall, totaling $246,000.
The award may have significant implications for the financial services industry, particularly for the damages caused by emotional distress. It could lead to increased scrutiny of alternative investment products, greater emphasis on suitability and fiduciary duty in investment recommendations, and potentially more emotional distress claims in future FINRA arbitrations.
As the industry grapples with the fallout from complex investment products like GWG L bonds, this ruling reminds investors of the severe consequences of inadequate due diligence and risk disclosure. It also highlights the potential personal and emotional impact of investment losses on clients, particularly older investors.
William McCance, the president of AGES Financial Services, did not return a call for comment about the matter. The small broker-dealer in suburban Boston now faces significant financial repercussions from this ruling, which may prompt other firms to reassess their practices in recommending and selling complex financial products.
