Western International sold $13.3 million worth of high-risk GWG L bonds to retirees and other retail investors. 

According to a press release on June 16, 2022, the Securities and Exchange Commission charged registered broker-dealer Western International Securities, Inc. and five of its brokers – Nancy Cole, Patrick Egan, Andy Gitipityapon, Steven Graham, and Thomas Swan – with violating Reg BI (Regulation Best Interest) when they recommended and sold bond offerings from GWG Holdings, an unrated, high-risk debt security to retirees and other retail investors.  

From July 2020 through April 2021, Western International reportedly sold an aggregate of $13.3 million of GWG L Bonds, according to the announcement. GWG Holdings, Inc filed for Chapter 11 bankruptcy protection on April 20, 2022 after failing to make $13.6 million in interest payments to bondholders in January.

The SEC alleges that between July 2020 and April 2021, Western International and the brokers recommended and sold L Bonds to retail customers, many of whom were on fixed incomes and had moderate risk tolerances, despite the issuer, GWG Holdings, Inc., stating the L bonds were “high risk, illiquid, and only suitable for customers with substantial financial resources.”  

Regulation Best Interest (Reg BI)

The defendants allegedly failed to comply with Reg BI’s “Care Obligation,” and according to the complaint, the defendants purportedly failed to exercise reasonable diligence, care, and skill to understand the risks, rewards, and costs associated with L Bonds, and allegedly recommended L Bonds to at least seven customers without a reasonable basis to believe the bonds were in their customers’ best interests.  

The SEC further alleges that Western International failed to comply with Reg BI’s “Compliance Obligation” because it did not adequately establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI. 

“Reg BI is clear: broker-dealers must act in the best interest of their customers,” said the Director of the SEC’s Division of Enforcement. “When they fail to do so, as we allege happened here, they put retail investors at risk and we’ll hold them accountable.” 

According to Investment News today, this is the SEC’s first considerable enforcement action involving Regulation Best Interest. Investor advocates have been waiting to see how the SEC would enforce Reg BI since the regulation went into effect in June 2020. Prior to this enforcement, the SEC had only pursued cases centering on firms missing deadlines and omitting information in disclosure documents related to Reg BI, according to the article. 

Potential Lawsuits to Recover Financial Losses    

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The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. For more information, please visit our website, www.whitesecuritieslaw.com.