Altamirano PLLC Files $750,000 GWG L Bonds FINRA Arbitration Claim

Altamirano PLLC has filed a FINRA arbitration claim seeking over $750,000 on behalf of two retired California couples who suffered substantial losses in GWG L Bonds and related GWG investments. The claim alleges that a long-time financial advisor repeatedly recommended and increased the clients’ exposure to GWG securities even as warning signs surrounding the company’s financial condition became publicly apparent.

The FINRA arbitration seeks recovery of over $750,000 tied to concentrated positions in securities issued by GWG Holdings, Inc. The Statement of Claim alleges that the investments were not in the clients’ best interest, were inappropriate for their investment objectives, that adequate diligence was not performed, and that material risks were not fully and fairly disclosed.

The claim involves two married couples in California who were retired or nearing retirement. According to the filing, the customers were directed into high-risk, speculative offerings tied to a troubled alternative investment issuer. The investors were recommended GWG L Bonds through 2021, including substantial additional purchases made shortly before the company suspended distributions and filed for bankruptcy.

GWG L Bonds Marketed as Income-Oriented Investments for Retirees

According to the Statement of Claim, the recommendations to invest in GWG securities began several years ago. The products were characterized as income-oriented opportunities that aligned with conservative goals and a desire for safe income.

As the relationship continued, increasing amounts of the investors’ savings were allocated to GWG L Bond investments. What began as a limited position gradually became a more significant component of their overall portfolios, substantially increasing their exposure to GWG’s credit risk.

Rather than shifting toward broader diversification as retirement progressed, the portfolios became more concentrated in GWG L Bonds. For retirees and near-retirees, the safety of the issuer, the presence of warning signs, appropriate due diligence, and diversification are often critical. The claim contends that these broader risk considerations were not sufficiently explained to the investors.

Claim Cites Dangerous Over-Concentration and Illiquidity in GWG Holdings Securities

A central issue in the FINRA arbitration is the growing concentration of the investors’ retirement savings in GWG L Bonds issued by GWG Holdings, even after the company had suspended L Bond sales in 2021. Concentration occurs when a substantial portion of an investor’s assets are tied to a single company, sector, or type of product.

According to the filing, the investors’ exposure to GWG securities increased over time without adequate reassessment of the overall risk. The claim alleges that the concentration occurred despite developments that raised questions about GWG’s financial condition and stability.

In addition to over-concentration in a single issuer, illiquid investments can restrict an investor’s ability to access funds, rebalance a portfolio, or respond to changing financial needs. For individuals who are retired or close to retirement, liquidity can be especially important. Access to funds for living expenses, healthcare, or unexpected events may depend on having assets that can be readily converted to cash.

Publicly Available Warning Signs About GWG Holdings Were Ignored

The arbitration filing references a range of publicly available information that, according to the claim, raised concerns about GWG Holdings before the investments were recommended.

Public disclosures reflected significant red flags, including:

• Financial strain and reliance on continued L Bond sales to meet obligations to prior bondholders
• A transformative and controversial transaction with Beneficient that materially altered the company’s risk profile
• Multiple late or missed regulatory filings that warranted careful review before recommending the investments to conservative, retirement-age investors

Alleged Violations of Regulation Best Interest and FINRA Suitability Standards

A central aspect of the case involves the standards that apply to financial professionals when making recommendations to retail investors.

Regulation Best Interest (Reg BI), a federal standard of conduct, requires financial professionals to act in the best interest of their customers at the time of each recommendation. This obligation includes exercising reasonable diligence and care to understand the potential risks and rewards of a recommended investment and ensuring that the recommendation aligns with the customer’s investment profile.

Industry suitability standards also require broker-dealers and financial advisors to have a reasonable basis to believe that a recommendation is appropriate in light of a client’s age, financial situation, risk tolerance, and liquidity needs.

The claim alleges that repeated recommendations tied to the same issuer, amid significant red flags, were made in violation of these standards.

Failure to Perform Adequate Due Diligence

The Statement of Claim further alleges that adequate due diligence was not performed before recommending the investments at issue. Reasonable diligence requires more than reviewing marketing materials. It often involves an independent evaluation of an issuer’s financial condition, capital structure, and overall risk profile.

When investments are complex, illiquid, or marketed with elevated yields, heightened scrutiny is generally warranted. According to the filing, a review of publicly available information would have revealed risks that were inconsistent with the investors’ conservative objectives.

The arbitration focuses on what was knowable at the time of the recommendations and whether those facts were appropriately considered in light of the clients’ investment objectives and risk tolerance.

Misrepresentations and Omissions About GWG L Bond Risks

The claim also alleges that material information was not fully disclosed in connection with the recommendations. According to the filing, the investments were presented as suitable for income and stability. However, the claim asserts that important aspects of the securities’ risk profile were not adequately communicated.

Specifically, investors were not adequately informed about:

• The bonds’ subordinated nature and what that meant in the event of bankruptcy
• Limitations on liquidity
• The degree to which repayment depended on GWG Holdings’ financial performance and continued capital raising

The arbitration also references provisions of California securities law prohibiting the sale of securities through communications that omit material facts necessary to make statements not misleading.

The filing contends that had the investors been fully informed of the risks and characteristics of the GWG securities, they would not have agreed to invest such a significant portion of their retirement savings in GWG securities.

Significant Investment Losses Following GWG Holdings Bankruptcy in 2022

Following the issuer’s financial collapse and bankruptcy filing in April 2022, GWG investors have experienced substantial losses. Estimates of potential recoveries have suggested that only a small fraction of principal may ultimately be returned, though outcomes in bankruptcy proceedings can vary.

For retirees who depended on their savings for income and financial security, the impact has been severe. Many GWG L Bond investors nationwide have filed or are considering FINRA arbitration claims alleging violations of Regulation Best Interest, unsuitable investment recommendations, and failures to disclose material risks.

Altamirano PLLC Can Help Protect Retired Investors From Unsuitable Alternative Investment Losses

This case underscores broader concerns about the recommendation of complex and illiquid alternative investments to senior investors. While higher-yielding products can appear attractive, especially in low-interest-rate environments, elevated yields often reflect elevated risk.

When significant portions of a retirement portfolio are tied to a single issuer or illiquid product, the consequences of financial distress can be magnified. Industry rules and regulatory standards are designed to promote careful evaluation, transparency, and alignment between investment strategies and client objectives.

Altamirano PLLC represents investors nationwide in FINRA arbitration matters involving GWG L Bonds and other speculative and high-risk alternative products. Investors who experienced losses in GWG L Bonds may have legal options to pursue recovery through FINRA arbitration claims against brokerage firms or financial advisors.

If you or someone you know is struggling with investment losses and would like to schedule a consultation, we are available. Contact us today.