UPDATE! Investigation of GWG RENEWABLE SECURED DEBENTURES
Additional Investigation Into GWG Renewable Secured Debentures
Have you invested in GWG Renewable Secured Debentures? We have previously written several blog entries regarding actions bought by the Financial Industry Regulatory Authority (FINRA) against financial advisors who recommended that their clients invest in GWG debentures.
FINRA recently brought at least its fourth disciplinary action in the last three months against a financial advisor for recommending GWG Debentures to his clients. Robert Fontaine was suspended for one month and fined $10,000 (including disgorgement of $2,000 in commissions) for recommending at least $146,000 in GWG Debentures to three of his clients. Robert Fontaine is a financial advisor in Hubertus, Wisconsin and works as a registered representative and financial advisor of Freedom Investors Corp. from September 2008 to the present. FINRA alleged that Fontaine had no reasonable basis for recommending these investments to his clients, and therefore the investments were unsuitable. Fontaine consented to the punishment.
GWG Holdings, Inc. purchases life insurance policies on the secondary market, at a discount from the policy owner. GWG then hopes to make a profit by collecting the face value of the policy when the insured passes away. However, in order to finance the purchases of these insurance policies, GWG borrows money from financial institutions or investors.
GWG began issuing Renewable Secured Debentures in 2012 to sell to investors. The GWG Renewable Secured Debentures have varying maturities, from six-months to seven-years, and are purported to pay annual intererest rates fom 4.75% to 9.50%. However, the GWG Renewable Secured Debentures are illiquid, and investors do not have access to their principal investment, with exceptions for death, bankruptcy, or total disability of the investor. There is no secondary market for the GWG Renewable Secured Debentures either. The prospectus for the GWG Debentures states that this investment is generally not suitable for an investor who needs their invested funds to be liquid.
FINRA previously suspended Michael Wurdinger of Center Street, who was responsible for supervising the financial advisors who recommended the GWG Renewable Secured Debentures to Center Street Securities clients. FINRA alleged that Wurdinger did not understand the features and risks of the GWG Debentures, and therefore he lacked the requisite understanding to adequately supervise and review the sales of these Debentures. FINRA also alleged that Wurdinger approved sales of the GWG Debentures to many elderly clients, some of whom had investment objectives and risk tolerances that were inconsistent with the GWG Debentures, which were speculative. FINRA further alleged that some Center Street Securities customers had high concentrations of these debentures, which exceeded suitability requirements described in the GWG Debenture disclosure documents.
FINRA also recently suspended another advisor at Center Street Securities for selling GWG Debentures. Additionally, FINRA suspended Michael M. Ward, CEO of 79 Capital Securities, for failing to adequately supervise the sales of GWG Debentures.
We are investigating whether clients may have potential claims against Freedom Investors Corp., Center Street Securities, 79 Capital Securities, or other broker-dealer firms for unsuitable sales and misrepresentations in connection with the sale of the GWG Renewable Secured Debentures. Financial advisors have an obligation to make investment recommendations that are suitable for their clients, considering the client’s investment objectives, risk tolerance, financial resources, age, and other circumstances. Securities broker-dealer firms have a responsibility to adequately supervise all representatives and financial advisors who are registered through their firm, including investments sold by their registered representatives. Broker-dealers also must take steps to ensure that their financial advisors follow all securities rules and regulations, as well as internal firm policies. When broker-dealers fail to adequately supervise their registered representatives, they may be liable for investment losses sustained by customers. If you have invested in GWG Renewable Secured Debentures and want to hear about ALL legal options, please visit https://www.israelsneuman.com/ or call us at 720-599-3505.
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