SEC claims B-D, advisor violated Reg BI in GWG bond sales

The Securities and Exchange Commission on Monday said it had reached a settlement with LifeMark Securities Corp. and one of its financial advisors, Geoffrey Wolterstorff, for violating Regulation Best Interest in sales of bonds issued by GWG Holdings Inc., which declared bankruptcy in April 2022.

About 40 broker-dealers over the past decade sold close to $1.6 billion in GWG L bonds, so-called because they were backed by life settlements.

At the moment, no one knows what the GWG bonds are worth, with some executives and attorneys fearing they could be valued close to pennies on the dollar.

"Between July 2020 and January 2022, LifeMark and Wolterstorff failed to comply with Regulation Best Interest by recommending L Bonds issued by GWG Holdings Inc. to retail customers without exercising reasonable diligence, care, and skill to understand the potential risks, rewards and costs associated with the recommendations," according to the SEC.

According to the SEC, a June 2020 GWG L Bonds prospectus disclosed risks associated with the bonds, including that the bond involved a high degree of risk, including the risk to a client of losing one's entire investment; that investing in L Bonds could be considered speculative; and that L Bonds were suitable for investors with substantial resources.

Without admitting or denying the SEC's findings, LifeMark agreed to a censure, disgorgement of $5,100 and a civil money penalty of $85,000.

Also, without admitting or denying the SEC's findings, Wolterstorff agreed to a censure, disgorgement $28,000, a civil money penalty of $15,000, and a six-month suspension from working with a broker-dealer or registered investment advisor. Wolterstorff did not return a phone call Tuesday morning to comment.

Based in Rochester, N.Y., LifeMark Securities is a mid-sized broker-dealer in with around 200 registered reps, said its CEO, James Prisco. He added in an interview on Tuesday that he personally had invested "in the six figures" in GWG L Bonds, which LifeMark evaluated as a speculative product. Prisco declined to state the specific amount of GWG bonds he bought.

"The situation with the SEC started in January 2022," Prisco said. "They looked at each of our reps who sold GWG and found a single rep who didn’t have enough knowledge of product. He sold to five clients."

"This was not a systemic issue for us, and we limited the amount of GWG to no more than 15%" of a client's portfolio, he said. "A fraction of our reps sold this."

The SEC in June 2022 its first substantive enforcement action involving Regulation Best Interest when it charged a brokerage, Western International Securities, and five of its registered representatives with inappropriate sales of more than $13 million in GWG issued L Bonds.