SEC: L Bond Inappropriate for Investors

The SEC, the Securities and Exchange Commission, states that broker sales of the GWG L Bond are inappropriate for most investors in a recently filed complaint. Regulation Best Interest (BI) and/or the FINRA suitability rule require that financial advisors recommend this high-risk investment only to the most seasoned investors. Both rules also require that the advisor not make overly aggressive recommendations. Likewise, both prohibit recommendations based upon the advisor’s self interests. If your financial advisor recommended GWG L Bond you may be entitled to recovery of your losses. Please call 303-300-5022.

In the Complaint file June 15, 2022, the SEC identifies the L Bonds are inappropriate for the average investor. The Complaint states, “L Bonds were corporate bonds offered […] were high risk, illiquid, and only suitable for customers with substantial financial resources.”

The SEC states that the sale of L Bonds violated federal securities laws in many instances. “These recommendations violated Regulation Best Interest in several ways. Regulation Best Interest requires that a [financial advisor] act in the best interest of a retail customer when making a recommendation of a securities transaction (“Reg BI’s Best Interest Obligation”).”

Western International Securities is the focus of the current SEC investigation. The brokerage, however, is just one of many brokerages across the country that sold the GWG L Bond.

Federal regulations prohibit sales to investors who are not retired and looking to speculate. Regulation BI, under the SEC’s analysis, greatly limits who an advisor can recommend the L Bonds.

The SEC reiterates this in the Complaint. Advisors cannot recommend L Bonds to investors with “moderate-conservative or moderate risk tolerances, investment objectives that did not include speculation, limited investment experience, limited liquid net worth, and/or they were retired.”

Financial Advisors knew that the L Bond were inappropriate. The relatively large commissions offered for the sale of the L Bonds made many financial advisors sell the L Bonds anyway.

Regulations require advisors understand the risks of the L Bond. Regulation BI requires the performing of due diligence to understand the risks of an investment. Advisors stating that they did not know of the risk have no excuse.

We represent numerous individuals concerning the GWG L Bonds. Please call for and free and confidential consultation.

IFP Inappropriate Sale of GWG Bonds

We are interested in speaking to investors of IFP that were sold GWG bonds for potentially inappropriate reasons. The SEC has opened an investigation of IFP’s sales of GWG’s L-Bond in light of the SEC’s Regulation Best Interest. Call 303-300-5022.

Advisors recommending investments that are high risk due to heightened commission is a violation of securities laws. GWG bonds are and have always been a highly risky investment. Additionally, alternative investments such as GWG pay an advisor a very high commission to recommend and sell the investment. This creates an inappropriate incentive to advisors to sell the GWG bonds.

A firm has a duty to evaluate the risk of the investments it sells. The investigation also concerns the research into the risk, which should have disclosed at all relevant times that GWG was a highly speculative investment.

IFP asserts that the questions raised by the SEC are true not just for IFP but also a large number of other brokerage and advisory firms. However, the SEC seems to be keenly focused on the sale of GWG by IFP.

It’s not clear how much in GWG bonds IFP advisers sold. GWG Holdings issued $1.6 billion of L bonds, which are backed by life settlements, and more than 140 broker-dealers had agreements to sell the bonds. It’s also unclear what the bonds are worth, but we strongly believe that the bonds are worthless.

The Law Offices of Jeffrey Pederson represents multiple investors concerning losses with GWG. Please call for a free and confidential consultation.

ETFs from Pursche Kaplan Sterling

Please call 303-300-5022 if you have been sold a leveraged or inverse ETFs by brokers at Pursche Kaplan Sterling.

Leveraged ETFs are ETFs with returns based upon some underlying multiplier of a commodity or index (2x S&P, 3x Gold, 2x Russell 2000, etc.). Inverse ETFs are ETFs with returns inverse to a commodity or index. Both are unsuitable for almost all retail investors. Regulators have prohibited the holding of such investments for more than one day even for those sophisticated investors such products are suitable. This is because the investment resets each evening and this can cause extreme volatility in the investments.

One brokerage firm accused of selling these inappropriate ETFs to retail investors is Pursche Kaplan Sterling (“PKS”). Massachusetts regulators recently brought civil claims against PKS.

The regulator alleges PKS failed to review the suitability of thousands of leveraged exchange-traded fund (“leveraged ETF”) transactions. PKS brokers executed the transactions in the accounts of their investors. Investors often holding leveraged ETF positions for periods in excess of one-year experienced significant losses.

Certain ETFs can expose retail investors to an inappropriate amount of risk.

PKS brokers also did this in a fiduciary capacity. These brokers were not just securities brokers but registered investment adviser representatives (“RIAs”). RIAs have heightened fiduciary responsibilities beyond those of securities brokers.

PKS had a duty to supervise the advisors at the higher fiduciary level. Once a brokerage like PKS approves a agent to act as a dually-registered RIAs, the brokerage has specific supervisory requirements it must fulfill. In particular, a brokerage must record private securities transactions of these dually registered RIAs on its books and records and supervise activity in the affected accounts as if it were the broker’s own. The brokerage must also follow other fiduciary requirements. This includes full disclosure and warning investors to exit an investment.

Investors should call for a free and confidential evaluation to learn if they are entitled to recovery for the sale of unsuitable investments. Jeffrey Pederson has helped investors across the country recover losses in unsuitable investments for 20 years. Most representations done on a contingency basis.

Investigation into Everbridge Losses

In December 2021, Everbridge (EVBG) lost approximately half of its value. This highly speculative investment is only for investors willing to take the highest level of risk. If you are not such an investor, and recommended this investment by your advisor, please call 1-303-300-5022.

We are currently investigating the circumstances surrounding the fall of EVBG. While the popular refrain is that the losses were unexpected due to the abrupt resignation of CEO David Meredith, we believe that issues with this investment were known prior to the resignation.

The volatility of Everbridge was known to be a speculative option for investment. This company built assets faster than its revenue growth. Some external analysts even saw extreme financial distress in the finances of EVBG to the extent that they opined imminent bankruptcy.

Additionally, we believe that the internal research of the broker-dealers originally recommending Everbridge will reveal problems at EVBG. The advisors never revealed and disregarded these issues until the abrupt resignation of Meredith.

As such, we are looking to speak to investors to investigate our suspicions. We are currently only looking at brokerage firms recommending this investment to moderate or conservative investors. If you were recommended EVBG please contact us at the number above.

For the last 20 years, the Law Offices of Jeffrey Pederson represents investors nationwide. Initial consultation is free, and all consultations are confidential.

Eric Carl Willer

If you invested with Eric Carl Willer of Fusion Analytics please call 303-300-5022.

From January 2017 to December 2018, Willer recommended that 13 potential investors purchase bonds in two private offerings without having a reasonable basis to believe that the bonds were suitable for any investor.  This means that he did not conduct sufficient investigation into the investments to determine whether the investments were financial sound enough for any investor to invest into. Additionally, Willer negligently misrepresented and omitted important facts when he distributed offering documents to four potential investors that included misrepresentations and omissions, in violation of securities regulations.

In January 2017, Promoters of the bond engaged Willer to sell the bonds through Fusion. On its website and in press releases, the issuer of the bonds identified itself as a wholly-owned subsidiary of the company that was sanctioned in a prior SEC action which ordered the Promoter to cease and desist raising money for past securities violations. Promoter was among the issuer’s management and was the president of the parent company.

The bond offering was intended to raise $6 million of the necessary $7.75 million to build a power plant, which the issuer claimed would use clean energy technology patented by the company that was sanctioned by the SEC. Revenue from the power plant would be the only source of revenue to support payments to the bondholders. In late December 2018, the issuer commenced a second offering (Offering 2) to fund the same power plant as Offering 1. As Willer was aware, none of the issuer, its parent company, Promoter 1, or Promoter 2 had any experience building or operating a power plant.

Willer performed no investigation of the issuer or its management in connection with the offerings, other than reviewing offering documents prepared by the issuer. Furthermore, the offering documents Willer used and distributed to potential investors in the sale of the bonds contained multiple, significant misrepresentations that Willer failed to recognize.

The Financial Industry Regulatory Authority (FINRA) began investigating this matter in March of 2021.  Willer agreed to a nine month suspension from the securities industry.

Churning at Fist Standard Financial

If you are or were an investor with First Standard Financial and believe First Standard churned your account, please call 303-300-5022.  Initial consultations are free and confidential.

A supervisor with First Standard Financial has recently been suspended for two months and fined for failing to supervise churning activities First Standard Financial brokers.  The regulator instituting this stipulated sanction is the Financial Industry Regulatory Authority (FINRA).  FINRA regulates securities brokerage firms under the oversight of the SEC.

Between March 2018 and May 2019, the supervisor at First Standard failed to reasonably supervise a former First Standard broker who had, with a history of violations and was required to given heightened supervision, excessively and unsuitably traded the accounts of three investors.  Excessive trades are commonly referred to as “churning.”

FINRA rules prohibit excessive trading in an investor’s account.  To guard against this, FINRA rules require a brokerage to “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.” To comply with this FINRA rule, a firm’s supervisors must reasonably investigate “red flags,” or warning signals, of potential broker misconduct and take appropriate action when misconduct has occurred.   First Standard Financial failed to institute such safeguards.

Not only did the broker have a history that should have required heightened supervision, the supervisor who was charged with monitoring the broker also had a history.  An arbitration panel in 2016 found that this supervisor had committed violations himself while acting as a broker.  These violations included churning.

This same supervisor also has a history of being associated with a number of brokerages that been expelled by regulators.  These facts make the systematic failure to supervise churning at First Standard foreseeable.

Seijas of Wells Fargo Crypto Ponzi

James Seijas, a former Wells Fargo broker who was alleged to be part of part of a crypto Ponzi scheme has now been barred by the Financial Industry Regulatory Authority from associating with any FINRA member firms.  If you have suffered such losses, please call 303-300-5022 for a free and confidential consultation.

Wells FargoThe former Wells Fargo broker signed a FINRA letter of acceptance, waiver and consent on Oct. 22 in which he consented to the imposition of a bar against him by the industry self-regulating group. FINRA signed the letter on Tuesday and posted the letter on its website.

On March 24, 2020, Wells Fargo filed an amendment to Seijas’ regulatory form disclosing the details of his termination, “disclosing for the first time that Seijas had been named as a defendant in a lawsuit alleging that he had ‘misrepresented investments as part of a Ponzi scheme’.

FINRA, the regulator overseeing securities brokerages, investigated and brought suit, but Seija failed to defend the charges against him.  On Sept. 29, 2021, in connection with its investigation concerning the termination description filed by Wells Fargo, FINRA sent a request to Seijas for on-the-record testimony, according to FINRA.  Seijas acknowledged that he received FINRA’s request for documents as part of the investigation and would not appear or cooperate at any time.

Unsafe SPACs – FINRA Targets with SPAC Exams

SPACs are inherently unsafe.  The SPAC crave has been pushed on to even most conservative investors.  Individuals suffering losses in SPACs who thought they were getting moderate or low risk investments should call 303-300-5022 for a free and confidential consultation about their options to recover losses.

There has been a groundswell of SPACs since 2019.  The substantial trend has caught the attention of FINRA, the Financial Industry Regulatory Authority.  FINRA has begun to target the sale of SPACs with its exams.

In 2019 there were approximately 50 SPACs.  Next year there are anticipated to be over 500 SPACs.

FINRASPACs are shell companies created to acquire unknown private-equity companies.  These entities essentially circumvent the diligence of companies going public by denying analysis of the underlying assets.  The investments create the risk of investing in a private-equity company without the safeguards created to protect average investors from the owning of private-equity companies.

These entities are often referred to as “blank check” companies.   They raise money without ever identifying where the funds will be invested.  This allows it to go public without the scrutiny of underlying assets that is given to a normal IPO.  This saves costs to the SPAC, but these costs are there for a reason.

Reasonable due diligence of an investment involves the analysis of the underlying assets.  This helps identify what the ultimate value of the investment will be and whether the investment is even a legitimate investment.  This safeguard is missing from an SPAC.

Regulators don’t want to get caught flat-footed on the SPAC boom the way they were during the dotcom surge.  FINRA knows that these investments are high-risk and unsuitable for your average investor saving for retirement.  For some investors, it may be too late.  

David Wells of Fifth Third

David Wells of Fifth Third in the Chicago area has surrendered his license after failing to comply with a regulatory investigation into his actions.  If you believe you have suffered losses due to the misdeeds of Wells please call 303-300-5022.  Initial consultation is free and confidential.  We believe his former employers may be responsible.

investingstockphoto 1In June of 2021, Wells resigned from First Third.  This was after admitting that he misappropriated funds from the accounts of three clients.  A brokerage is required to file a Form U5 upon a broker’s employment termination.  This form, filed with the regulators, identifies the circumstances surrounding the termination.  Upon the receipt of the Wells U5, the regulator FINRA began an investigation.  FINRA, the Financial Industry Regulatory Authority, acts under the oversight of the SEC.   This regulator is charged with the regulation of securities brokerages.  Brokers are required to cooperate with FINRA investigations.

Wells chose to not cooperate with the investigation and was barred from the securities industry as a result.  A regulatory settlement agreement identifies that Wells consented to this action.

Prior to his employ with Fifth Third Securities, Wells was a broker of Merrill Lynch.  Wells is relatively young with only four years of experience at the time of the action.  Brokerage firms generally are responsible for training and supervising such young attorneys to guard against negligence and misdeeds.

Ameritrade Option Failure

If you have suffered losses from Ameritrade’s failure to appropriately assign options within its system, please contact our offices at 303-300-5022.

Invest photo 2

Substantial damage occurred when Ameritrade confused long and short options.

During the period between February 10 through February 19, 2021, we believe the system of Ameritrade malfunctioned and treated certain long trades and short trades and vice versa.  Investors suffered margin maintenance calls and lost value in their portfolios by the incorrect liquidation of their Ameritrade accounts at low points.

Securities broker-dealers have fiduciary duties to correctly execute trades.  Brokerages also have obligations under Regulation T, and their duty to act in good faith that prevents them from mismarking long trades as short trades.

As such, investors have many avenues to seek recovery when the circumstances occur.  Please call for a free and confidential initial consultation.

The Law Offices of Jeffrey Pederson specializes in the handling of suits against securities brokerages.  Such suits are required to resolve their disputes through binding arbitration administered by the Financial Industry Regulatory Authority (FINRA).  This is is a specialty only a small percentage of attorneys possess.  Jeffrey Pederson has handled such cases for approximately 20 years.