Recently a civil suit has been filed by the Securities and Exchange Commission (SEC) against Western International Securities (WIS) about GWG L Bond Sales. A number of broker-dealer’s registered representatives are also named in the suit that alleges violation of the Regulation Best Interest (Reg BI) standards. Specifically, the lawsuit references GWG L Bonds worth $13.3 million sold between 2020 July and 2021 April.
GWG has been in the news this year as it defaulted on its debt obligations and sought relief through bankruptcy. This has alarmed many investors who were not aware of the risks of GWG L Bonds.
Haselkorn & Thibaut, P.A., has been actively investigating allegations against Western International Securities as well as many other broker-dealers that sold GWG L Bonds. Our firm is currently representing clients and offering a free consultation for investors. Call 1-888-614-9356 to get a private consultation with our experienced investment fraud lawyer if you are a holder of GWG L Bonds or GWG Preferred Stock.
The allegations
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The SEC contents that broker-dealers of neglecting to conduct due diligence on the speculative, and unrated security recommended to investors. In January GWG defaulted on repayments as well as interest to investors to the tune of $13.6 million in February 2022. Soon after, in April 2022, bankruptcy protection was sought by the Dallas-based firm.
Other missteps by GWG include delays in the submission of mandatory regulatory filings. It continues to be investigated by the SEC.
Over 140 brokerage houses, including Atria Wealth Solutions, owned WIS and sold the GWG L Bonds to customers. The high sales commissions paid on sales to brokers are understood to have been a driving force behind the sales effort.
SEC’s contention is that L Bonds were recommended to be sold to customers dependent on a fixed income and with only a moderate tolerance of investment risk, even after GWG had stated that the bonds should be considered suitable only for investors with ‘substantial’ financial resources.
A large number of these investors turned out to be older and inexperienced and should never have been sold this illiquid and risky life insurance-based bonds.
What does the SEC seek?
The SEC wants permanent injunctions, prejudgment interest, disgorgement, and civil penalties against WIS as well as some of their registered representatives for unsuitably selling L Bonds to customers. These representatives are:
- Westlake Village, CA-based Thomas Brian Swan, possibly additionally locally affiliated with Adult Financial Education Services
- Valencia, CA-based Steven R Graham; also, possibly additionally locally affiliated with Primerica Financial Service
- Glendora, CA-based Patrick Michael Egan, of Coordinated Wealth Management
- Pasadena, CA-based Andy Ravi Gitipityapon, also President of the AG Wealth Group
- Sacramento, CA-based Nancy Ellen Cole
Most of these were experienced brokers with at least two, in some cases three, decades of experience in the industry. Their L Bond sales netted them commissions ranging between $5,400 to $32,500 each, even as the firm earned $187,000 in commissions and fees from the sale of L Bonds.
Regulation Best Interest
The Regulation Best Interest (or Reg BI) of the SEC, which was established in 1934, under the Securities Exchange Act, sets a ‘best interest’ standard for brokerage forms as well as everyone associated with them. Reg BI relates to recommendations to a retail customer, regardless of whether it is for a financial product, investment strategy, or transaction.
Violation of the Reg BI standard in the sale of L Bonds by WIS and the named brokers has been alleged by the SEC on account of:
- Their failure to conduct “reasonable diligence, care, and skill to understand the risks, rewards, and costs”
- Investment recommendation to at least 7 customers without there being any reasonable grounds to believe that the investment would be in their best interest
- Failure to “adequately establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI”
GWG Holdings
After failing to make scheduled interest payments on the bonds earlier this year, GWG Holdings Inc. filed for Chapter 11 bankruptcy protection and ceased sales of these securities. It is unclear how many investors have purchased GWG L Bonds. Some investors may be able to recover some of their losses by filing a FINRA arbitration claim.
Investors knew very little about the risks of GWG Holdings L Bonds prior to investing. Many investors have filed a claim against GWG Holdings, claiming that they were not properly informed about the risks. This type of bond is not easily liquidated, and investors cannot sell them early. Investors can redeem their GWG Holdings L Bonds only in the event that the company is bankrupt or becomes disabled, which would create losses for bondholders. The early redemption option, however, requires a 6% penalty.
GWGH began issuing L Bonds in January 2012. The GWG L Bonds had maturities ranging from two to seven years and promised annual interest payments ranging from 5.50 percent to 8.50%. The company issued these illiquid bonds to attract investors who wanted to take advantage of guaranteed returns on their principal, plus a small amount of interest. The SEC has broadened its inquiry and demand for records on GWG Holdings Inc. L Bonds, as well as on the company’s other investment products and L Bonds.
Help for investors
If you have been sold GWG L Bonds by WIS or one of their brokers, you may want to establish that due process was followed in the sale. If not, and if you have incurred losses on the investment, you may have valid grounds to proceed against the firm and the broker through a FINRA arbitration claim.
To better understand your position, as well as rights and choices, you can contact one of the securities attorneys at 1-888-614-9356 today. Our seasoned GWG L Bond lawyers represent investors in Financial Industry Regulatory Authority (FINRA) arbitration against the brokerage firms that unsuitably recommended L Bonds to customers.
