Bankrupt GWG bonds not right for anyone: Finra arbitrator
An arbitrator overseeing a Finra Dispute Resolution Services arbitration claim last week awarded close to $100,000 to a customer who in 2018 and again in 2020 purchased GWG L bonds, calling the bonds “not a suitable investment for the [client,] or perhaps anyone,” in an award that pointed to a broker-dealer and financial advisor ignoring the fiduciary duty owed to a client.
Detailed or reasoned arbitration awards related to securities industry disputes historically have been rare but are becoming more common with time, industry sources observed.
In this claim, the sole arbitrator, Richard Kent Mahrle, cited GWG’s weak financial position in 2020 as a warning sign that the broker-dealer, Greenberg Financial Group, and the financial advisor, David Sherwood, missed.
The client, Michael Lombardi, first bought $80,000 of GWG L bonds in 2018 and then rolled them over two years later, according to the claim. The bonds paid 5.5% interest for two years and the principal was to be paid at the end of that period.
“By the time [Greenberg Financial] procured L Bonds for claimant’s account in 2020, GWG had shown years of losses and large negative cash flows,” Mahrle wrote. “It was also in the process of joining with another company with the goal of diversifying its business and bringing in resources.”
Over the past decade, about 40 broker-dealers sold close to $1.6 billion in GWG L bonds, so-called because they were backed by life settlements. The firm declared bankruptcy in 2022, leaving investors in the lurch as what remains of the company works through bankruptcy court. It’s not clear what value, if any, the GWG L bonds have.
Lombardi’s arbitration award was $102,000 in damages plus fees, along with interest. Specifically, the
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