GWG L Bonds and FINRA Enforcement: A Stark Warning for Investors and Financial Professionals

The collapse of GWG Holdings, Inc. and its speculative “L Bond" offerings has led to a wave of regulatory scrutiny, customer losses, and disciplinary actions across the securities industry. The Financial Industry Regulatory Authority (FINRA) has now issued multiple enforcement decisions against both broker-dealers and individual registered representatives tied to the recommendation and sale of GWG L Bonds. These cases illustrate serious violations of suitability standards, Regulation Best Interest (Reg BI), and supervisory obligations, and offer a cautionary tale for both institutional and retail investors as well as financial professionals.

This blog post unpacks three recent FINRA enforcement actions involving GWG L Bonds: against American Trust Investment Services, Inc., former Kingswood Capital Partners broker Phillip C. Anderson, and former Whitehall-Parker Securities principal Donald J. Everhart. Each case provides insight into what went wrong, what rules were violated, and how investors and industry professionals should respond.

GWG L Bonds: Risky, Illiquid, and Misunderstood

GWG Holdings initially operated by purchasing life insurance policies on the secondary market. But following a 2018–2019 reorganization with Beneficient Company Group, L.P., the company pivoted to an opaque alternative investment strategy of providing liquidity to holders of illiquid investments. To finance its operations, the company turned to issuing high-yield, unrated “L Bonds”. These bonds were not secured by GWG’s life insurance portfolio and carried significant risks. They were illiquid, speculative, and intended only for investors who could afford to lose substantial sums and had no need for short-term liquidity.

Despite these red flags, L Bonds were marketed broadly through a network of broker-dealers. In January 2022, GWG defaulted on its L Bond obligations, and by April 2022, the company filed for bankruptcy, leaving thousands of investors holding worthless securities.

American Trust Investment Services: Regulatory Failures and the Breakdown of Supervision

In April 2025, FINRA issued a disciplinary action against American Trust Investment Services, Inc., citing extensive supervisory deficiencies tied to the sale of GWG L Bonds and other high-risk alternative investments. According to the Letter of Acceptance, Waiver, and Consent (AWC), the firm failed to properly oversee its representatives’ recommendations and lacked the compliance infrastructure necessary to meet modern regulatory standards.

Between July 2020 and April 2021, American Trust permitted three of its registered representatives to recommend GWG L Bonds to eight customers, many of whom were seniors, retirees, or nonprofit entities with conservative to moderate risk profiles. These recommendations resulted in dangerously high concentrations of illiquid investments, ranging from 14% to as much as 72% of the customers’ liquid net worth. For investors whose financial goals did not include speculation, and who had little to no experience with alternative investments, these transactions were neither suitable nor defensible under applicable Reg BI standards.

At the core of the enforcement action was the firm’s failure to comply with Regulation Best Interest (Reg BI), which became effective in June 2020. Reg BI elevated the standard of conduct owed by broker-dealers to retail customers, imposing a “Care Obligation” that requires brokers to exercise reasonable diligence, care, and skill in evaluating an investment’s risks, costs, and alternatives before making a recommendation. It also includes a “Compliance Obligation,” which mandates that firms adopt and enforce written policies and procedures designed to ensure adherence to Reg BI’s standards. American Trust failed on both fronts. It did not implement meaningful Reg BI policies until June 2022, two years after the rule’s effective date, and even then, the procedures were superficial and lacked the operational guidance needed to promote compliance.

These deficiencies also constituted a clear violation of FINRA Rule 3110, which governs the supervisory responsibilities of broker-dealers. Under Rule 3110(a), a firm must establish a supervisory system tailored to its business and product offerings. Rule 3110(b) further requires detailed written supervisory procedures (WSPs) to oversee the conduct of associated persons. At American Trust, those supervisory systems either did not exist or were so general as to be ineffective, particularly with regard to alternative investment products like GWG L Bonds. The firm had no process for detecting high concentrations, no guidance for evaluating investor profiles in light of complex products, and no mechanisms for escalating problematic recommendations for additional review.

In recognition of these and other supervisory failures, FINRA imposed significant sanctions. American Trust was censured, fined $100,000, and ordered to pay $166,000 in restitution to affected customers. Additionally, the firm agreed to retain an independent compliance consultant to overhaul its supervisory systems and Reg BI policies.

Phillip C. Anderson: Unsuitable Recommendations and the Limits of Suitability Review

In a parallel enforcement action, FINRA sanctioned former Kingswood Capital Partners broker Phillip C. Anderson for making egregiously unsuitable recommendations involving GWG L Bonds. The misconduct occurred in March 2019, prior to the implementation of Regulation Best Interest, and was governed by FINRA Rule 2111, the traditional suitability rule that remains in effect for non-retail customers and pre-2020 recommendations.

Anderson recommended that two senior clients invest substantial portions of their net worth in GWG L Bonds, despite both customers having moderate risk tolerances and investment objectives centered on balanced growth. One customer had an annual income under $50,000 and a net worth of less than $100,000 (excluding her residence), yet Anderson recommended she invest $96,000 in the GWG L Bonds, amounting to at least 96% of her total net worth. The other customer, with an annual income under $100,000 and a net worth not exceeding $250,000, was advised to invest $88,000, which translated to at least 35% of his total net worth in these illiquid, speculative securities.

Under FINRA Rule 2111, brokers must have a reasonable basis to believe that a recommended transaction is suitable based on a customer’s investment profile, taking into account factors such as age, income, liquidity needs, risk tolerance, and investment experience. While this standard is less stringent than Reg BI, it still prohibits recommendations that result in concentration levels or risk exposures that are plainly misaligned with the customer’s financial situation and objectives. The speculative nature of GWG L Bonds, coupled with their illiquidity and the absence of any bond rating, rendered these investments inherently unsuitable for investors with moderate or conservative profiles.

FINRA also charged Anderson with violating Rule 2010, which requires associated persons to “observe high standards of commercial honor and just and equitable principles of trade.” This catch-all rule is often invoked in cases where a broker’s conduct reflects poor judgment or ethical lapses that harm investors, even if no fraud is alleged. Anderson’s failure to assess the impact of his recommendations, or to limit his customers’ exposure to high-risk products, reflected a serious breach of professional responsibility.

As a result, FINRA imposed a five-month suspension, a $10,000 fine, and ordered Anderson to disgorge $8,280 in commissions he earned from the sales. While both customers ultimately filed and settled arbitration claims against Kingswood Capital Partners, the regulatory sanctions against Anderson serve as a reminder that brokers remain individually accountable for recommendation-based misconduct, even years after the trades are made and regardless of subsequent firm-level settlements.

Donald J. Everhart: Reg BI Violation and High-Risk Sales to a Conservative Investor

The case against Donald J. Everhart, a former general securities representative of Whitehall-Parker Securities, illustrates a clear-cut violation of Regulation Best Interest and the consequences of failing to align investment recommendations with a client’s financial profile. In October 2020, just months after Reg BI went into effect, Everhart recommended that a retail customer invest $200,000 in GWG L Bonds. The customer, however, had a conservative risk tolerance, an annual income under $20,000, and a net worth of no more than $500,000. Her stated investment goals were income and capital preservation, goals wholly inconsistent with the high-risk, speculative nature of the product being recommended.

Under Reg BI, codified in Exchange Act Rule 15l-1, broker-dealers and their representatives are required to act in the best interest of the retail customer when making a securities recommendation. The rule’s Care Obligation mandates that the representative exercise reasonable diligence, care, and skill in evaluating the recommendation’s risks, costs, and reasonable alternatives, particularly in light of the customer’s investment profile. The standard goes beyond suitability by affirmatively prohibiting recommendations that place the broker’s interests ahead of the client’s. In Everhart’s case, the recommendation resulted in the customer allocating approximately 40% of her net worth to an illiquid, unrated bond, contravening nearly every aspect of the Care Obligation.

FINRA found that Everhart willfully violated Regulation Best Interest and, by extension, FINRA Rule 2010. The violation was not merely procedural, it involved a substantial risk of harm to a vulnerable investor.

To address the misconduct, FINRA imposed a three-month suspension, a $7,500 fine, and ordered Everhart to pay $100,000 in partial restitution to the affected customer. While the customer remains entitled to pursue additional remedies through arbitration or litigation, the regulatory sanctions are themselves significant, and demonstrate FINRA’s growing willingness to enforce Reg BI standards in the post-2020 environment.

This case underscores how Reg BI has reshaped the legal landscape for retail recommendations. It is no longer sufficient for a product to be merely “suitable” in the abstract. Brokers’ recommendations must reflect informed, client-centric reasoning, especially when dealing with complex or speculative offerings like GWG L Bonds.

A Pattern of Failures and a Path Forward

The enforcement actions against American Trust Investment Services, Phillip C. Anderson, and Donald J. Everhart reveal a troubling pattern: high-risk, illiquid products like GWG L Bonds were marketed to investors who were neither equipped to evaluate the risks nor in a financial position to absorb the losses. From unsuitable recommendations to supervisory breakdowns and violations of Regulation Best Interest, these cases illustrate how lapses in judgment and compliance can result in substantial harm to investors and serious regulatory exposure for financial professionals.

What unites these matters is not just the flawed product at their core, but the industry’s failure to heed clear regulatory standards. Reg BI’s Care Obligation and Compliance Obligation were designed to ensure that firms and their representatives prioritize the interests of retail customers. Likewise, FINRA Rule 3110 requires robust supervisory systems capable of identifying, reviewing, and curbing problematic sales practices. Where those systems failed, or were never implemented, investors were left exposed, and brokers and firms now face public sanctions, restitution orders, and potential statutory disqualification.

How AMW Law PLLC Can Help

At AMW Law PLLC, we represent both individual investors and financial professionals in securities-related disputes across the country. For investors who suffered losses in GWG L Bonds or other unsuitable investments, we offer experienced, strategic representation in securities arbitration through FINRA. Our firm is led by investment fraud attorney and former FINRA Senior Enforcement Counsel Artur M. Wlazlo, whose unique perspective as a FINRA lawyer, arbitrator, and defense counsel provides our clients with a distinct advantage.

If you are an investor who relied on misleading advice or now faces account losses due to misrepresentation, overconcentration, or complex product sales, we can help you evaluate your options for recovery. Whether through negotiated settlements or FINRA arbitration, our firm advocates tirelessly to hold brokers and firms accountable. As a trusted investment fraud lawyer, securities arbitration attorney, and investment lawyer, Mr. Wlazlo has represented clients in a wide range of cases involving alternative investments, REITs, variable annuities, and more.

For brokers, advisors, and supervisors under regulatory scrutiny, AMW Law PLLC provides responsive and thoughtful defense services. Whether you're the subject of a FINRA Rule 8210 inquiry, a broker misconduct investigation, or a FINRA arbitration claim, we understand the stakes. We work to preserve your license, protect your reputation, and navigate complex regulatory terrain. If you're seeking a FINRA defense attorney, FINRA arbitration lawyer, or a compliance-focused investment attorney, we are here to help.

Contact Us

If you are an investor seeking recovery or a financial professional in need of regulatory defense, don’t wait. Contact AMW Law PLLC today to schedule a confidential consultation with an experienced securities arbitration lawyer and investment fraud attorney. Let us help you chart a course forward, whether through recovery, defense, or settlement.