California Broker-Dealer Sanctioned for Failing to Supervise Unsuitable Sales of High-Risk Alternative Investments to Senior Investors
The Financial Industry Regulatory Authority (FINRA) has censured and fined Kingswood Capital Partners $150,000 after finding the California-based broker-dealer failed to adequately supervise the sale of illiquid alternative investments, including the now-worthless GWG Holdings L Bonds, to senior clients with limited financial resources. The enforcement action, announced this week, underscores the ongoing regulatory fallout from one of the most significant alternative investment failures in recent history—a collapse that has left approximately 27,000 investors holding bonds now valued at pennies on the dollar.
Under a Letter of Acceptance, Waiver, and Consent (AWC), Kingswood accepted FINRA’s findings without admitting or denying the allegations. The settlement reveals a troubling pattern of supervisory breakdowns that allowed vulnerable senior investors to be placed in highly concentrated positions in speculative, illiquid securities that were fundamentally unsuitable for their financial profiles.
The Supervisory Failures That Led to Investor Harm
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According to FINRA’s findings, the violations occurred between March and June 2019, when Kingswood failed to reasonably supervise a former registered representative’s recommendations of illiquid alternative investments, particularly GWG Holdings’ L Bonds. The case centered on recommendations made to three senior customers, aged between 66 and 81, all of whom had moderate risk tolerances and limited financial resources.
The firm’s supervisory failures were stark: Kingswood approved transactions that resulted in some customers having between 25% and 96% of their net worth concentrated in illiquid alternative investments. One elderly client had a staggering 96% of her investable assets placed into GWG L Bonds—a concentration level that defies basic principles of portfolio diversification and suitability.
FINRA found that Kingswood did not maintain written supervisory procedures that were reasonably designed to assess concentration risks in illiquid products. The regulator noted that the firm’s procedures failed to specify how supervisors should evaluate overconcentration or what steps should be taken when red flags were identified. This lack of adequate supervisory infrastructure left senior investors exposed to catastrophic losses when GWG Holdings collapsed.
The enforcement action found that Kingswood’s failures breached FINRA Rules 3110 and 2010, which require firms to maintain effective supervisory systems and observe high standards of commercial honor. In addition to the $150,000 fine, Kingswood was formally censured and agreed not to contest the sanctions or claim an inability to pay.
The Broker Behind the Unsuitable Recommendations
While FINRA’s action against Kingswood did not initially identify the broker involved, the regulator separately sanctioned former Kingswood broker Phillip C. Anderson in May 2025 for making egregiously unsuitable recommendations involving GWG L Bonds to two senior clients.
According to FINRA’s findings, Anderson recommended that one senior customer with an annual income under $50,000 and a net worth of less than $100,000 (excluding her residence) invest $96,000 in GWG L Bonds—representing at least 96% of her total net worth. A second customer, with an annual income under $100,000 and a net worth not exceeding $250,000, was advised to invest $88,000, translating to at least 35% of his total net worth in these illiquid, speculative securities.
Both customers had moderate risk tolerances and investment objectives centered on balanced growth, making the concentrated positions in high-risk, illiquid L Bonds fundamentally unsuitable. The recommendations generated over $8,000 in commissions for Anderson.
FINRA imposed a five-month suspension from the securities industry, a $10,000 fine, and ordered Anderson to disgorge $8,280 in commissions plus interest. Both customers ultimately filed and settled arbitration claims against Kingswood Capital Partners, though the specific settlement amounts were not disclosed in one case. For the client who invested $96,000, the settlement amount was $56,000—a recovery that still left the investor with substantial losses.
Anderson, who worked for 40 years in the securities industry, left Kingswood in 2023 and is no longer registered as a broker, according to his BrokerCheck profile.
What Were GWG L Bonds?
GWG Holdings initially operated by purchasing life insurance policies on the secondary market—a business model known as life settlements. Following a 2018-2019 reorganization with Beneficient Company Group, L.P., the company pivoted to an opaque alternative investment strategy focused on providing liquidity to holders of illiquid investments and alternative assets.
To finance its operations, GWG issued high-yield, unrated bonds called “L Bonds” (so-called because they were allegedly backed by life settlements). These bonds were not secured by GWG’s life insurance portfolio and carried significant risks. They were illiquid, speculative, and intended only for investors who could afford to lose substantial sums and had no need for short-term liquidity.
Despite these red flags, L Bonds were marketed broadly through a network of approximately 40 to 145 broker-dealers to retail investors, many of whom were retirees and seniors seeking income. The bonds offered attractive yields, but those high returns masked the substantial risks lurking beneath the surface.
In January 2022, GWG defaulted on its L Bond obligations, missing approximately $10.35 million in interest and $3.25 million in principal payments. By April 2022, the company filed for Chapter 11 bankruptcy, leaving thousands of investors holding worthless securities. The company was officially dissolved in January 2024.
The Devastating Impact on Investors
The collapse of GWG Holdings has been catastrophic for the approximately 27,000 L Bondholders, who collectively invested close to $1.6 billion in the bonds. The average individual bondholder owns approximately $45,000 worth of bonds—for many retirees, a substantial portion of their life savings.
In April 2025, the GWG Wind Down Trust confirmed that only approximately $3 million in net assets remain available for distribution among roughly 26,000 GWG L Bond investors. This would result in only about $115 per investor if divided equally, with many investors potentially receiving no recovery at all based on proportional distribution. This represents a recovery of approximately three cents on the dollar—a devastating outcome for investors who were told these were safe, income-producing investments.
The assets that were supposed to back the bonds have deteriorated dramatically. BENF (Beneficient) stock plummeted from $15 per share to under $2. GWG’s life insurance portfolio was sold for just $10 million. FOXO shares, once valued at $552,000, appear unstable with potential bankruptcy looming.
The Broader Pattern of Broker-Dealer Failures
The Kingswood enforcement action is part of a broader wave of regulatory scrutiny targeting broker-dealers that sold GWG L Bonds. FINRA has issued multiple enforcement decisions against both broker-dealers and individual registered representatives tied to the recommendation and sale of GWG L Bonds.
In April 2025, FINRA sanctioned American Trust Investment Services, Inc., citing extensive supervisory deficiencies tied to the sale of GWG L Bonds. The firm was censured, fined $100,000, and ordered to pay $166,000 in restitution to affected customers. Between July 2020 and April 2021, American Trust permitted three registered representatives to recommend GWG L Bonds to eight customers, resulting in dangerously high concentrations ranging from 14% to as much as 72% of customers’ liquid net worth.
These cases illustrate serious violations of suitability standards, Regulation Best Interest (Reg BI), and supervisory obligations. They reveal a troubling pattern: high-risk, illiquid products like GWG L Bonds were marketed to investors who were neither equipped to evaluate the risks nor in a financial position to absorb the losses.
Legal Claims Available to GWG L Bond Investors
Investors who suffered losses in GWG L Bonds may have viable claims against the brokerage firms that recommended these investments. Common claims include:
Unsuitability: Brokers have an obligation to recommend only investments that are suitable based on a customer’s investment profile, including age, income, net worth, liquidity needs, risk tolerance, and investment experience. Concentrated positions in illiquid, speculative bonds are unsuitable for most retail investors, particularly seniors with moderate risk tolerances.
Violation of Regulation Best Interest (Reg BI): For recommendations made after June 30, 2020, brokers must act in the best interest of retail customers, exercising reasonable diligence, care, and skill in evaluating an investment’s risks, costs, and alternatives.
Failure to Supervise: Brokerage firms have a duty to maintain adequate supervisory systems to detect and prevent unsuitable recommendations. The Kingswood case demonstrates how supervisory failures can leave firms liable for their brokers’ misconduct.
Misrepresentation and Omission: If brokers failed to adequately disclose the risks, illiquidity, and speculative nature of GWG L Bonds, or made misleading statements about the safety of the investment, investors may have claims for misrepresentation.
Overconcentration: Placing an excessive percentage of a customer’s assets in a single investment or asset class violates basic principles of diversification and can constitute a breach of fiduciary duty.
Why FINRA Arbitration May Be Your Best Path to Recovery
While a class action lawsuit has been filed against GWG Holdings, the bankruptcy process could take years to resolve, and empirical evidence shows that investors may achieve an overall higher rate of recovery by filing individual FINRA arbitration claims against the brokerage firms that sold them the bonds.
In FINRA arbitration, your individual case facts are considered by the arbitration panel and factored into the value of your case. Your age, financial situation, risk tolerance, investment objectives, and the specific representations made to you are all relevant. In a class action, these individual factors are not considered—all class members receive the same pro-rata recovery regardless of their circumstances.
Additionally, FINRA arbitration allows you to pursue claims against the brokerage firm based on supervisory failures, suitability violations, and misrepresentations—claims that may not be available in the bankruptcy proceeding. Time limits apply for filing FINRA arbitration claims, so it is critical to act promptly.
Contact Haselkorn & Thibaut for a Free Consultation
If you suffered losses in GWG L Bonds, the experienced securities attorneys at Haselkorn & Thibaut can help you evaluate your legal options and pursue recovery through FINRA arbitration. We have successfully represented thousands of investors in securities arbitration cases and have recovered hundreds of millions of dollars for our clients.
We work on a contingency fee basis, which means you pay no attorney fees unless we recover money for you. Contact us today for a free, confidential consultation to discuss your GWG L Bond losses and learn about your rights.
Call 1-888-885-7162 or visit investmentfraudlawyers.com to schedule your free consultation.
