FINRA Suspends Rep for Violating Reg BI With L Bond Sales
The Financial Industry Regulatory Authority has suspended and fined a rep for violating Regulation Best Interest via the sale of L bonds, a high-risk investment created by a now-defunct financial services company.
Alan Mason was registered with FINRA through WestPark Capital from March 2018 to March 2023.
In July 2020, while associated with WestPark, Mason recommended that a retail customer invest at least 20% of her liquid net worth in L bonds, a speculative, unrated debt security, according to FINRA’s order.
“This recommendation was not in the customer’s best interest based on her investment profile,” FINRA said, violating Reg Bl and FINRA Rule 2010.
GWG and L Bonds
As FINRA explains, GWG Holdings was a financial services company that purchased life insurance policies on the secondary market. Facing financial struggles, it shifted its business model to providing liquidity to holders of illiquid investments and alternative assets.
GWG sold corporate bonds it called L bonds to fund its operations. These bonds “were not directly secured by GWG’s life insurance portfolio and were not rated by any bond rating agency,” according to FINRA.
GWG sold L bonds to retail investors in four separate offerings through a network of broker-dealers, including WestPark, which entered into an agreement with GWG to sell L bonds in July 2016 and approved the product for sale by its registered reps, FINRA’s order explains.
“The offering documents for the third and fourth L Bond offerings, which commenced in December 2017 and June 2020, respectively, stated the bonds could be considered speculative, involved a high degree of risk, were illiquid, and were only suitable for persons with substantial financial resources and with no need for liquidity,” the order states.
In January 2022, after Mason’s customer made two investments in the L Bonds, “GWG defaulted on its obligations to L Bond investors and suspended further sales of L Bonds. In April 2022, GWG filed for bankruptcy,” the order states.
