SEC Sanctions Emerson Equity and Advisor Over GWG L Bond Sales
From the desk of Jim Eccleston at Eccleston Law
The Securities and Exchange Commission (SEC) has announced settlements with Emerson Equity and one of its registered representatives, citing violations of Regulation Best Interest (Reg BI) tied to the sale of GWG Holdings Inc. L bonds. InvestmentNews reports that the bonds are now considered nearly worthless following GWG’s 2022 bankruptcy.
Emerson Equity, based in San Mateo, California, served as dealer-manager for the L bonds. In that role, the firm not only worked with its own advisors to sell the product but also distributed it to other broker-dealers. Close to 40 firms collectively sold about $1.6 billion in the illiquid, high-risk bonds.
According to InvestmentNews, the SEC found that Emerson Equity failed to comply with Reg BI in its sales practices. The firm agreed to pay a $100,000 penalty, along with $5,000 in disgorgement and interest.
Separately, the SEC settled with a Los Angeles–based financial advisor, Tony Barouti, who was affiliated with Emerson Equity. According to the SEC, Barouti marketed the speculative product heavily, including through radio broadcasts targeting the Persian community. He allegedly concentrated unsuitable levels of client assets in the bonds. The SEC also noted that Barouti sold the product to clients in their eighties.
InvestmentNews reports that Barouti agreed to pay a $50,000 penalty, $50,000 in disgorgement, and $12,000 in interest. He, like Emerson Equity, resolved the matter through a settlement without admitting or denying the SEC’s findings.
The SEC pointed to long-standing red flags at GWG, including recurring net losses and insufficient operating cash flows. In a 2020 prospectus, GWG itself disclosed that the L bonds were speculative, illiquid, and appropriate only for investors with high risk tolerance. Despite these warnings, the bonds were widely sold before the company’s collapse.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
Tags: eccleston, eccleston law, sec, emerson equity
