Broker, executive hit with $1M arbitration loss over GWG bonds

investmentnews.com:

A Southern California registered representative and a broker-dealer executive on Monday lost an arbitration claim of a little more than $1 million in damages to an investor who bought GWG Holdings Inc. L bonds in 2018.

Dozens of broker-dealers sold about $1.6 billion in GWG L bonds, so-called because they were backed by life-settlements, before the firm declared bankruptcy last year, leaving investors in the lurch and potentially inclined to sue their broker or firm who sold them GWG bonds.

The three-person panel, operating under the aegis of the dispute resolution arm of industry self-regulator Financial Industry Regulatory Authority Inc., cited fraud, breach of fiduciary duty and negligence on the part of the broker, Michael Barrows; the executive, Eric J. Ludovico, was cited for fraud and negligence in supporting the claims for the award.

The arbitration award, at 10 pages, was unusual for its detail and wording; most Finra arbitration decisions simply confirm or deny an investor’s claim for damages without any kind of explanation.

The claimant, Ronald J. Inlow, bought the bonds with his savings, said his attorney, Kal Nekvasil. “My client is an electrical contractor and had a million in cash. And the financial advisor recommended he put the entire amount in GWG L bonds.”

The award appears to be the largest yet for a claim involving GWG bonds, according to a scan of Finra’s arbitration claims that have resulted a panel’s decision.

“Their defense was, ‘Who would know there were problems at GWG?’” Nekvasil said. “We have well over 100 GWG arbitration claims, and that number is mounting.”

Inlow filed his claim last year. The compensatory damages he was awarded totaled $1,035,000, including interest. The panel also