Investors Accuse New York-Based Broker-Dealer of Reg BI Violations
Securities lawyers at Shepherd Smith Edwards and Kantas (SSEK Law firm) are looking into claims of losses by investors who were sold GWG Holdings L Bonds by their Cabot Lodge Securities brokers. Cabot Lodge is one of the more than 140 regional brokerage firms that sold high-risk product failures and junk bonds to customers and naive investors. More than a dozen clients were accusing the NY-based brokerage firm of alleged Regulation Best Interest violations when it sold L Bonds to retirees.
GWG Holdings Inc., sold $1.6B of L Bonds, defaulted on $13.6M of payments and interest it owed investors in February 2022. In April 2022, the alternative asset firm filed for Chapter 11 Bankruptcy protection.
If a Cabot Lodge Securities financial advisor sold you faulty financial products, you may have grounds for recovering your investment losses. Contact SSEK Law Firm today to request your free, no-obligation consultation. Our team of seasoned securities lawyers represent GWG L Bond investors throughout the United States against their broker-dealers and financial advisors.
What Is Regulation Best Interest? And How Does This Relate To L Bond Claims?
The Securities and Exchange Commission’s Reg BI establishes a “best interest” standard of conduct for broker-dealers and their registered representatives. Meaning, that any recommendation broker-dealers make to retail customers, including investments, trades, or strategies, must fall within this standard of conduct.
Set up under the Securities Exchange Act of 1934, it was in 2019 that the SEC approved Regulation Best Interest as the new broker-dealer standard of conduct. The standard was implemented in June 2020.
In their Financial Industry Regulatory Authority (FINRA) arbitration claim against Cabot Lodge, 18 investors are contending that the broker-dealer lacked reasonable grounds for continuing L Bonds recommendation in their best interests. This dates as far back as early 2020. One of the reasons is that in 2019, GWG’s life settlement business was allegedly failing and L Bond investors’ funds were no longer being used to buy life insurance policies. Instead, the company was investing in the Beneficient Company Group, which was the alternative finance start-up of the former GWG chairman Brad Heppner. So, that Heppner could allegedly financially benefit himself.
The claimants allege that Cabot Lodge Securities brokers did not satisfy their Reg BI duties when they sold GWG’s financially troubled bonds. Allegedly, the bonds offered customers 5.5% yield while instantly exposing them to the loss of their full principal. Meanwhile, Cabot Lodge and its financial advisors were paid high sales commissions.
Also, in GWG’s bankruptcy filing, the company’s chief financial officer stated that everyone knew that the alternative asset firm was using new L Bond investors’ funds to pay redemptions, interest, and principal payments to current investors. L Bond investors are now saying they were never made aware that their money was being used to invest in Beneficient or to make alleged Ponzi-like payments.
SEC Files REG BI Case Over L Bond Sales
Cabot Lodge Securities is not the only broker-dealer accused of Regulation Best Interest violations involving L Bonds. In June 2022, the SEC filed a civil lawsuit charging brokerage firm Western International Securities and five of its brokers with Regulation BI violations when they sold $13.3.M of L Bonds to retail customers.
Investors Seek Losses Over Best Interest Violations
According to statistics provided by FINRA, Reg BI is now one of the top 15 allegations brought by investors in arbitration. 37 Reg Best Interest cases were filed between January and May 2022.
SSEK Law Firm’s expert securities lawyers represent investors who have suffered losses because their financial advisor violated the Best Interest standard or committed other type of broker misconduct or negligence.