Securities Arbitration Lawyer Blog
The Certified Financial Planner Board (“CFP Board”) temporarily suspended Western International Securities Broker Patrick Egan after both the broker and firm were sued by the United States Securities and Exchange Commission (“SEC”) for selling GWG L Bonds that were not in the best interests of their customers. The suspension went into effect on June 21, 2022.
The CFP Board is a non-profit organization that serves at public by administering the Certified Financial Planner certification program. Accordingly, as a result of the suspension, Mr. Egan cannot use the “CFP” designation.
Mr. Egan was one of five brokers that were charged by the SEC on June 15, 2022, for failing to comply with the SEC’s Regulation Best Interest (“Reg BI”) care and disclosure obligations when recommending and selling GWG L Bonds to retail investors and retirees.
Specifically, the defendants were of accused failing to perform due diligence regarding the inherent risks associated with L Bonds. The complaint also alleges that the named brokers misunderstood important issues regarding GWG Holdings, Inc. and the GWG L Bonds, including that GWG significantly changed its business model beginning in 2018 and that GWG L Bonds were not directly collateralized by life insurance policies. As a result, the brokers recommended GWG L Bonds to retail customers without a reasonable basis to believe that the investments were in the customers’ best interest. In addition to Mr. Egan, the other brokers named in the complaint were Steven Graham, Andy Gitipityapon, Thomas Swan, and Nancy Cole.
Iorio Altamirano LLP (www.gwglawyer.com), a law firm that represents GWG L Bond investors in filing individual claims to recover investment losses, encourages all investors who purchased L Bonds through any brokerage firm or financial advisor to contact the law firm for a free consultation to evaluate their options. Collectively, Iorio Altamirano LLP has filed claims seeking to recover over $3 million in losses and damages from brokerage firms for the improper sale of GWG L Bonds.
About GWG L Bonds
An L bond is a financial product created by GWG Holdings, Inc. (GWGH). The L Bonds are speculative, high-risk, illiquid, and unrated alternative investment offerings.
Initially, GWG Holdings pooled money from bond investors to purchase life insurance policies on the secondary market, paid the policy premiums, and then collected the death benefit when the insured individual passed away. However, beginning in 2018, GWG Holdings used the investor capital to invest in a new business model, exposing the company to riskier alternative assets. Many GWG L Bond investors were utterly unaware that GWG materially reoriented its business model, which, in our view, made it a much bigger credit risk. Additionally, many GWG L bond investors were not told by their financial advisors that GWG used investor capital to pay out the high distributions owed to other GWG L Bond investors in a Ponzi-like scheme.
GWG Holdings, Inc., which stopped making interest and maturity payments to GWG L Bond investors in January 2022, filed for Chapter 11 bankruptcy in April 2022.
Many GWG L Bond investors are skeptical that they will receive any significant portion of their principal back. Investment News has reported that one anonymous GWG L bond investor estimates that the GWG L Bonds may now be worth 20 to 30 cents on the dollar.
Brokerage firms like Western International Securities, Inc. and brokers like Mr. Egan are required to make investment recommendations that are suitable and in the best interest of their customers. Brokerage firms and financial advisors must also disclose all material facts and risks of a security when making a recommendation. Firms and brokers must also conduct reasonable due diligence on products they offer before recommending them to any clients. When a firm or advisor fails to meet these standards of conduct, they can be held liable for damages.
Patrick Michael Egan (CRD No. 2973478)
Patrick Egan has been a registered broker with Western International Securities, Inc. in Pasadena, CA, and Glendora, CA, since January 22, 1998. Since July 30, 2007, he has also been an SEC-registered investment advisor with the firm. Mr. Egan has 24 years of experience in the securities industry and has been associated with two different firms.
According to the SEC’s complaint against Western International and Mr. Egan (the “Complaint”), Mr. Egan recommended and sold approximately $184,500 worth of GWG L Bonds to retail investors between July 2020 and April 2021, which generated at least $5,397 in commissions. The Complaint alleges that Mr. Egan failed to comply with Regulation Best Interest’s Care Obligation and constitutes violations of Regulation Best Interest’s General Obligation. Accordingly, according to the Complaint, Mr. Egan violated Rule 15l-1(a)(1) of the Exchange Act, 17 CFR § 240.15l-1(a)(1).
Specifically, with respect to Mr. Egan, the Complaint made the following allegations:
- Mr. Egan took a training course on GWG L Bonds prior to the issuance of L Bonds in June 2020, which may have been the basis for his misunderstanding of important issues regarding GWG and the GWG L Bonds that were disclosed by GWG in the 2020 Prospectus and subsequent public filings.
- Mr. Egan erroneously believed that GWG’s transactions with Beneficient were not significant.
- Mr. Egan acknowledged that the 2020 Prospectus described the GWG L Bonds as high risk but disregarded that disclosure.
- Mr. Egan did not understand the nature of the collateral for GWG L Bonds and failed to appreciate that the life insurance policies themselves did not collateralize the GWG L Bonds.
- Mr. Egan acknowledged that he should have reviewed Beneficient’s financial statements and admitted he did not do so but rather erroneously assumed that Beneficient was profitable.
The Complaint details one of Mr. Egan’s GWG L Bond recommendations. In or around August 2020, Mr. Egan recommended that a 75-year-old retiree with a moderate-conservative risk profile invest $20,000 into a 3-year GWG L Bond. The customer had an annual income of $50,000, a net worth of $250,000, and a liquid net worth of $250,000. He did not include speculation as an investment objective and had limited knowledge of investments in general and of bonds in particular. The GWG L Bonds, which were held in the customer’s individual account, represented 8% of both his liquid and total net worth. In the “rationale” section of the firm’s disclosure forms, Mr. Egan wrote in full: “Client had extra cash in the bank and wanted to earn more interest than can be done in his bank. Client will also have a large cash balance in his bank account in addition to the $20,000 at GWG.” According to the Complaint, besides the rationale section of the Client Disclosure Form, Mr. Egan did not document anywhere his bases for believing that the $20,000 GWG L Bond purchase was in the customer’s best interest. In addition, Mr. Egan did not document why he chose to recommend the GWG L Bonds to the customer as opposed to many other investments that offered higher interest rates than a bank account. The SEC contends that Mr. Egan’s bases for believing that the $20,000 GWG L Bond investment was in the customer’s best interest were unreasonable and not supported by the facts. Accordingly, the Complaint alleges that Mr. Egan did not exercise reasonable diligence, care, and skill to have a reasonable basis to believe his recommendation of the GWG L Bonds was in the customer’s best interest. The Complaint also alleges that Mr. Egan’s supervisor and Western International’s compliance department failed to raise questions or concerns regarding the customer’s bond investment.
Investors who purchased GWG L Bonds through Western International Securities or any other broker-dealer are encouraged to contact Iorio Altamirano LLP (gwglawyer.com) for a free and confidential consultation and to review their legal rights. We can review and analyze potential claims and advise individuals of their legal rights without obligation or cost.
Iorio Altamirano LLP has filed claims seeking to recover over $3 million in losses and damages from brokerage firms across the country for the improper sale of GWG L Bonds.
For the latest on Iorio Altamirano LLP’s investigation of GWG L Bonds, including a key event timeline, visit our firm’s investigation page: Iorio Altamirano LLP’s Investigation of GWG L Bonds.
See Also:
GWG L Bond Investor Recovers Losses After Filing a FINRA Arbitration Claim
GWG L Bond Investors Seek Recourse After GWG Holdings, Inc. Files for Chapter 11 Bankruptcy
About Iorio Altamirano LLP
Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.
We have nearly 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.
If you have invested in L Bonds offered by GWG Holdings through Aegis Capital Corp., contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, call the firm toll-free at (855) 430-4010.