FINRA Suspends and Fines Advisor for Misleading L Bond Sales
From the desk of Jim Eccleston at Eccleston Law
The Financial Industry Regulatory Authority (FINRA) has suspended and fined Alan Mason for violating Regulation Best Interest by recommending high-risk L bonds to a retail customer. According to ThinkAdvisor, Mason advised the customer to allocate over 20 percent of her liquid net worth in these speculative, unrated debt securities.
In July 2020, while employed at WestPark Capital, Mason recommended that the customer make substantial investments into L bonds, a product created by the now-defunct financial services company GWG Holdings. This advice was not in the customer’s best interest based on her investment profile, violating Regulation Best Interest and FINRA Rule 2010.
GWG Holdings initially focused on purchasing life insurance policies on the secondary market but later shifted to providing liquidity for holders of illiquid investments. To fund these operations, GWG issued corporate bonds, known as L bonds, which were sold through a network of broker-dealers, including WestPark Capital. WestPark began offering the bonds in July 2016.
The offering documents for the L bonds explicitly described them as speculative, high-risk, and illiquid, suitable only for investors with significant financial resources and no immediate need for liquidity. Despite these warnings, Mason recommended that his customer invest $50,000 into L bonds from GWG’s third offering in February 2020. In July 2020, he recommended an additional $50,000 investment from the fourth offering, resulting in the customer allocating over 20 percent of her liquid net worth into these high-risk bonds.
After GWG defaulted on its obligations to L bond investors in January 2022 and filed for bankruptcy in April 2022, FINRA found Mason’s recommendations not aligned with the customer's moderate risk tolerance. Mason earned $1,324 in commission from the July 2020 recommendation. As a result of these violations, FINRA suspended Mason for two months and ordered him to pay a $5,000 fine and disgorgement of $1,324 plus interest.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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