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In October 2023, a FINRA arbitration panel in Los Angeles ordered former financial advisors Michael Barrows and Eric J. Ludovico to pay more than $1 million in compensatory damages to an investor in GWG L Bonds. The award included interest at 7% per annum and over $10,000 in costs. While the panel denied punitive damages and attorneys’ fees, the award is one of the largest to date in GWG arbitration claims.
If you have suffered losses due to GWG L Bonds claims, contact our elite investor protection firm today.
GWG L Bonds Claims: Background
GWG Holdings raised more than $1.6 billion by selling L Bonds to retail investors across the country. The bonds were marketed as income-producing and secured by life insurance policies, with interest rates typically ranging from 5.5% to 8.5% depending on maturity. They were generally issued in 2-, 3-, 5-, or 7-year terms. Unless investors provided notice before maturity, the bonds automatically renewed into new ones.
The bonds were high-risk, complex, illiquid, and unrated. There was no resale market if investors needed access to their money and the L Bonds were callable at GWG’s discretion. More than half of all outstanding L Bonds were rolled into new ones at maturity, leaving many retirees and conservative investors locked into a product they could not exit.
GWG later transitioned parts of its business to an affiliate, Beneficient Company Group, L.P. The move drew attention from regulators, who raised concerns about GWG’s accounting methods and the way its L Bonds were sold. In October 2020, the SEC issued subpoenas related to these matters, ultimately expanding its inquiry to include several broker-dealers involved in the bond offerings.
The warning signs began in 2021 when GWG’s auditor resigned. Within months, the company missed a $3.25 million interest payment in January 2022. By April, GWG Holdings entered Chapter 11 bankruptcy. The court-appointed Wind Down Trust has since estimated potential recoveries at just 2–3% of invested principal, an outcome that has devastated thousands of investors nationwide.
Arbitration Panel Findings
The investor alleged violations of federal securities laws, California securities statutes, unfair business practices, fraud, breach of fiduciary duty, and negligence.
The panel found that:
- Michael Barrows violated federal securities law Rule 10b-5 and breached his fiduciary duty in the sale of GWG L Bonds.
- Eric J. Ludovico was liable as a controlling person under Section 20(a) of the Securities Exchange Act of 1934.
- Claims under California Corporations Code Sections 25501 and 25504 failed because, according to the panel, the investor did not prove by a preponderance of the evidence that GWG, the issuer, made fraudulent misstatements. Learn more about Securities Violations.
- Negligence claims were established against Barrows and Ludovico, but were superseded by the Rule 10b-5 securities law and fraud findings.
- The panel denied punitive damages, attorneys’ fees, and expungement requests from all three respondents.
- Suitability (FINRA Rule 2111): The panel concluded the bonds were unsuitable for the claimant in the amounts purchased.
This case is notable because it resulted in more than $1 million in damages, one of the largest GWG arbitration awards to date.
About the Award
The arbitration panel awarded the investor:
- $1,035,360.46 in compensatory damages, which included interest from October 2018 through July 2023 at 7% per annum
- Additional interest at 7% per annum from August 1, 2023 until paid
- $10,655.68 in costs
- $400 to reimburse the FINRA filing fee
Requests for punitive damages, attorneys’ fees, and expungement were denied.
Why This Arbitration Award Matters
This case is notable because it resulted in more than $1 million in damages, one of the largest GWG arbitration awards to date. The panel found liability under federal securities laws, breach of fiduciary duty, and negligence, while also clarifying that unsuitability can depend on an investor’s profile and the concentration of purchases in the securities at issue.
Even though GWG filed for bankruptcy, given the trustee’s projection that bondholders may recover only 2–3% of principal invested, investors can still pursue claims against the brokers and firms that sold the bonds. Panels have awarded compensatory damages, interest, and costs in multiple cases. Read more about GWG L Bonds in our GWG L Bonds Claims page. GWG L Bonds are also one example of the risks associated with Alternative Investments, which are often complex and unsuitable for retail investors.
What Are the Key Takeaways for GWG L Bond Investors?
Awards like this show that brokerage firms and individual advisors can be held liable for unsuitable sales of GWG L Bonds. Investors are recovering damages and costs through arbitration, even in the absence of attorneys’ fees or punitive damages.
The award also highlights the importance of supervision. Investors depend on firms to adequately review and update the alternative investments on their “approved lists.” Failures in this oversight put investors at risk and have been a recurring theme in GWG arbitration cases. See our page on Failure to Supervise.
Contact Our Investment Loss Law Firm About GWG L Bond Claims Today
If you invested in GWG L Bonds and have losses, call Altamirano PLLC today. Many investors were told these bonds were “safe” or “low-risk,” but in reality they were high-risk, complex, illiquid, and unsuitable for investors, including retirees and conservative investors. We represent GWG investors nationwide in FINRA arbitration to recover losses from unsuitable sales and misrepresentations.
Call us at (212) 220-6556 to discuss your options. We handle cases on a contingency fee basis, which means you do not owe us a legal fee unless we recover for you.
Securities claims are time-sensitive. Harmed investors are encouraged to act quickly and contact Altamirano PLLC to speak with an experienced securities arbitration lawyer.
