Investors are increasingly finding themselves in complex situations where unsuitable investment products result in significant financial losses. Recent arbitration involving GWG bonds has highlighted critical issues surrounding investment suitability and fiduciary duty. At Bakhtiari & Harrison, our securities attorneys are dedicated to providing legal guidance to investors who have suffered losses due to unsuitable investments like GWG bonds.
Bankrupt GWG Bonds: A Case Study
On April 18, 2024, an arbitrator overseeing a FINRA Dispute Resolution Services arbitration claim awarded nearly $100,000 to a customer who had purchased GWG L bonds in 2018 and 2020. The arbitrator, Richard Kent Mahrle, found that these bonds were “not a suitable investment for the client, or perhaps anyone,” highlighting the failures of both the broker-dealer, Greenberg Financial Group, and the financial advisor, David Sherwood, in fulfilling their fiduciary duties.
The Details of the Arbitration Claim
The client, Michael Lombardi, initially purchased $80,000 of GWG L bonds in 2018 and rolled them over in 2020. Despite paying 5.5% interest for two years, the bonds were unsuitable due to GWG’s weak financial position and significant losses leading up to 2020. The firm’s ongoing attempts to diversify and stabilize were insufficient to mitigate the risks associated with these bonds.
Financial Missteps and Fiduciary Breaches
The arbitration award, totaling $102,000, comprised $70,000 in compensatory damages, $25,000 in attorney’s fees, and $7,500 in costs, all with interest. The arbitrator’s detailed findings pointed to the lack of a suitable investment strategy by Greenberg Financial and Sherwood, who failed to recognize GWG’s financial instability and the associated risks.
The case against GWG L bonds illustrates the critical importance of conducting thorough due diligence and maintaining a robust fiduciary duty towards clients. The arbitrator credited the testimony of industry consultant Sandler Ressler, who emphasized that the L bonds were unsuitable for any investor, given GWG’s financial condition at the time.
The Role of Securities Attorneys
At Bakhtiari & Harrison, our securities attorneys are dedicated to helping clients navigate the complexities of investment losses and arbitration claims. We provide comprehensive support to investors who have suffered due to unsuitable investments like GWG bonds. Our services include:
- Evaluating Investment Suitability: We thoroughly assess the suitability of investment products recommended to our clients, ensuring they align with the client’s financial goals and risk tolerance.
- Arbitration Representation: Our experienced attorneys represent clients in FINRA arbitration claims, advocating for their rights and seeking compensation for losses incurred due to unsuitable investments.
- Fiduciary Duty Compliance: We help clients understand their advisors’ fiduciary duties and ensure that these duties are upheld, protecting their financial interests.
- Expert Testimony and Consultation: We provide access to industry experts who can offer crucial testimony and insights during arbitration proceedings, strengthening our clients’ cases.
GWG Bonds and the Broader Implications
The case of GWG bonds is a stark reminder of the potential pitfalls associated with illiquid alternative investments. Over the past decade, approximately 40 broker-dealers sold close to $1.6 billion in GWG L bonds, which were backed by life settlements. The firm’s bankruptcy in 2022 left many investors in a precarious position, unsure of the value of their investments.
Securities attorneys, like those at Bakhtiari & Harrison, play a vital role in protecting investors from unsuitable products and ensuring that their financial advisors uphold their fiduciary responsibilities. Our goal is to provide robust legal support and help clients recover their losses.
Contact Bakhtiari & Harrison Today 
If you have experienced losses due to GWG bond investments or other unsuitable financial products, contact Bakhtiari & Harrison for expert legal advice and support. Our team of experienced securities attorneys is dedicated to helping you navigate regulatory challenges and achieve successful resolutions.