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In April 2024, a single arbitrator in a FINRA arbitration ordered Greenberg Financial Group and one of its representatives to pay $70,058.66 in compensatory damages to an investor in GWG L Bonds. The arbitrator also awarded interest at Arizona’s statutory rate of 10% from February 2022 until paid in full, plus $25,000 in attorneys’ fees and $7,500 in expert costs. This award stands out among GWG arbitration cases because attorneys’ fees and costs were also granted under Arizona law.
GWG Holdings: Some 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 GWG L Bonds were high-risk, complex, illiquid, and unrated. There was no resale market if investors needed access to their money and GWG retained discretion to repurchase the bonds at any time without charge or penalty. 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.
When GWG shifted its capital to Beneficient Company Group, L.P., regulators began to take a closer look. Concerns were raised over the company’s financial statements and the marketing of its L Bond products. The SEC issued subpoenas in October 2020, later examining whether certain broker-dealers had misrepresented or improperly sold the investments.
What began as accounting irregularities in 2021 quickly escalated into a full-blown crisis for GWG Holdings. After its auditor resigned, the company missed a $3.25 million interest payment in early 2022 and could no longer meet its financial obligations. By April, GWG filed for Chapter 11 bankruptcy protection. Today, the Wind Down Trust predicts investors will receive only 2–3% of what they invested, underscoring the depth of the company’s collapse.
Arbitration Panel Findings
The investor asserted claims including breach of fiduciary duty, professional negligence, fraud in the provision of investment advisory services, breach of contract, and negligent supervision. The panel found Greenberg Financial Group and its representative jointly liable.
The arbitrator noted that by the time Greenberg Financial Group procured L Bonds for the investor’s account in 2020, GWG had shown years of losses and negative cash flow, and its financials contained numerous red flags, which the registered representative appeared to either ignore or not understand. Despite this, the firm placed $80,000 of GWG L Bonds into the investor’s account.
Notably, the arbitrator credited testimony that the bonds were not a suitable investment for the investor, or perhaps for anyone, and concluded the respondents breached their fiduciary duties.
- Suitability (FINRA Rule 2111): Brokers must have a reasonable basis to believe an investment fits a client’s financial situation, objectives, and risk tolerance. By 2020, GWG L Bonds failed that test.
The panel rejected punitive damages but awarded attorneys’ fees under Arizona law, and expert costs, finding the fiduciary duties owed arose from the parties’ money management agreement.
Notably, the arbitrator credited testimony that the bonds were not a suitable investment for the investor, or perhaps for anyone, and concluded the respondents breached their fiduciary duties.
What Did the Panel Award the Investor?
The arbitration panel awarded the investor:
- $70,058.66 in compensatory damages
- 10% annual interest from February 1, 2022, until paid in full
- $25,000 in attorneys’ fees
- $7,500 in expert costs
The award also required the investor to remit to Greenberg Financial Group any net amounts later received from GWG’s bankruptcy estate.
The arbitrator awarded attorneys’ fees pursuant to Arizona Revised Statutes § 12-341.01, which allows recovery of fees in cases arising out of contract. The fiduciary duty here was created by a money management agreement between the investor and the firm. Arizona law treats breach of fiduciary duty arising from such an agreement as a contract claim. Based on that, the panel awarded $25,000 in attorneys’ fees and $7,500 in expert costs, with 10% statutory interest accruing on those amounts until paid in full.
Why This Arbitration Award Matters
This case highlights a core issue in GWG arbitrations: by 2020, GWG’s financial condition was deteriorating, yet L Bonds were still being recommended by broker-dealers and sold to investors. Panels have recognized that firms owed a duty to review GWG’s financials and disclose risks before recommending the product.
In an important rebuke to an argument often made by opposing counsel in FINRA arbitration claims, the arbitrator also rejected the respondents’ argument that the investor could have protected himself by reviewing the GWG prospectuses.
This award is also significant because it included attorneys’ fees and expert costs, something not commonly granted in FINRA arbitrations. Depending on the jurisdiction and the arbitration panel, investors may be able to recover not only their losses but also some of the costs of pursuing their claims.
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 brokerage firms that sold the bonds. Arbitration panels have awarded compensatory damages, interest, attorneys’ fees, and costs in multiple cases, underscoring arbitration as a viable path to recovery. 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.
Key Takeaway for Investors
If you purchased GWG L Bonds, recovery through FINRA arbitration is possible. Arbitration panels continue to hear claims and issue awards for investors who suffered losses.
The award also highlights the importance of supervision. Firms must supervise their brokers’ recommendations and sales. See our page on Failure to Supervise.
Contact Altamirano PLLC 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 have recovered millions of dollars in GWG L Bond losses. We continue to 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.
Contact Jorge Altamirano, Principal of Altamirano PLLC
One World Trade Center, 85th Floor
New York, NY 10007
(212) 220-6556
[email protected]
Securities claims are time-sensitive. Harmed investors are encouraged to act quickly and contact Altamirano PLLC to speak with an experienced securities arbitration lawyer.
