The Monetary Trade Regulatory Authority has suspended and fined a rep for violating Regulation Greatest Curiosity through the sale of L bonds, a high-risk funding created by a now-defunct monetary providers firm.
Alan Mason was registered with FINRA by WestPark Capital from March 2018 to March 2023.
In July 2020, whereas related to WestPark, Mason really useful {that a} retail buyer make investments at the very least 20% of her liquid internet price in L bonds, a speculative, unrated debt safety, in line with FINRA’s order.
“This suggestion was not within the buyer’s finest curiosity primarily based on her funding profile,” FINRA stated, violating Reg Bl and FINRA Rule 2010.
GWG and L Bonds
As FINRA explains, GWG Holdings was a monetary providers firm that bought life insurance coverage insurance policies on the secondary market. Dealing with monetary struggles, it shifted its enterprise mannequin to offering liquidity to holders of illiquid investments and different property.
GWG bought company bonds it known as L bonds to fund its operations. These bonds “weren’t instantly secured by GWG’s life insurance coverage portfolio and weren’t rated by any bond ranking company,” in line with FINRA.
GWG bought L bonds to retail traders in 4 separate choices by a community of broker-dealers, together with WestPark, which entered into an settlement with GWG to promote L bonds in July 2016 and accepted the product on the market by its registered reps, FINRA’s order explains.
“The providing paperwork for the third and fourth L Bond choices, which commenced in December 2017 and June 2020, respectively, acknowledged the bonds could possibly be thought of speculative, concerned a excessive diploma of danger, have been illiquid, and have been solely appropriate for individuals with substantial monetary sources and without having for liquidity,” the order states.
In January 2022, after Mason’s buyer made two investments within the L Bonds, “GWG defaulted on its obligations to L Bond traders and suspended additional gross sales of L Bonds. In April 2022, GWG filed for chapter,” the order states.