National investment fraud lawyers KlaymanToskes encourages former and current Western International Securities customers who purchased GWG Holdings’ L Bonds to contact our law firm in light of the Securities & Exchange Commission’s (“SEC”) recent action against the brokerage firm.
On June 16, 2022, the SEC filed a Complaint against Western International Securities and five of its brokers for violating its Best Interest Obligations when they recommended GWG L Bonds, which was an unrated, high-risk debt security sold to retirees and other retail investors. From July 2020 through April 2021, Western International Securities sold an aggregate of $13.3 million of L Bonds to its customers, many of whom were on fixed incomes and had moderate risk tolerances.
The firm sold the L bonds despite GWG’s statements that the products were high risk, illiquid, and only suitable for customers with substantial financial resources. Further, per the SEC in its Complaint, Western International Securities and its brokers sold GWG L Bonds to its customers without adequately understanding the risks of the investment.
The SEC Complaint charged 5 Western International Securities broker in its GWG L Bond sales to customers:
Brokerage firms and its financial advisors must only recommend suitable investments to their customers. Unsuitable investment advice is an investment recommendation that is not consistent with an investor’s investment objectives, risk tolerance and investment time horizon.
Per GWG’s 2020 prospectus, the L bonds were only suitable for a very particular investor. Specifically, the prospectus states that “L Bonds are only suitable for persons with substantial financial resources and with no need for liquidity in this investment.” L bonds were sold to many retirees and elderly investors, many of whom were not willing or able to accept this high risk.
Regulation BI’s Best Interest Obligation requires a broker like Western International Securities and its associated persons when making a recommendation of any securities transaction to a retail customer, to act in the best interest of that retail customer at the time the recommendation is made. The recommendation must be made without placing the financial or other interest of the broker, dealer, or associated person ahead of the interest of the retail customer.
The Care Obligation in Regulation BI also requires a broker, dealer, or associated person to exercise reasonable diligence, care, and skill to have a reasonable basis to believe that their recommendation is in the best interest of the particular retail customer, based on that customer’s investment profile and the potential risks, rewards, and costs associated with the recommendation.
Despite the requirements of Regulation BI, Western International Securities and 5 of its brokers sold GWG L Bonds to its customers who were on fixed incomes and had moderate risk tolerances. The firm sold the GWG L Bonds to these customers despite GWG’s prospectus stating that the investments were only suitable for those with substantial financial resources.
Former and current customers of Western International Securities who purchased GWG L Bonds, and those with information relating to the handling of their accounts, are encouraged to contact Lawrence L. Klayman, Esq. at 1 (888) 997-9956.
KlaymanToskes is a leading national securities law firm which practices exclusively in the field of securities arbitration and litigation on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm has recovered more than $230 million in FINRA arbitrations and over $350 million in other securities litigation matters for its clients. KlaymanToskes has office locations in California, Florida, New York, and Puerto Rico.