Maloney Securities Settles with SEC Over GWG Bond Violations

Maloney Securities, a mid-sized broker-dealer based in suburban St. Louis, has agreed to pay a total of $437,900 in penalties to the Securities and Exchange Commission (SEC) for violations related to the sale of GWG Holdings Inc. bonds, which later declared bankruptcy in 2022. The settlement involves the firm and three of its financial advisors, who collectively paid $121,000 in disgorgement, interest, and penalties.

Uncovering the Risks and Consequences of the GWG Bond Debacle

Maloney Securities' Regulatory Violations

Maloney Securities and its financial advisors were found to have failed to comply with Regulation Best Interest (Reg BI) in their recommendations of the high-risk GWG "L Bonds" to retail customers. The SEC alleged that the firm and its advisors did not exercise reasonable diligence, care, and skill to understand the potential risks, rewards, and costs associated with the GWG bond recommendations. Additionally, the firm was accused of recommending the purchase of L Bonds to certain retail customers for whom it did not have a reasonable basis to believe the recommendations were in the customers' best interest, given their investment profiles and the potential risks, rewards, and costs of the bonds.

The Troubled History of GWG Holdings and Its Bonds

GWG Holdings, the issuer of the L Bonds, had disclosed that the investments involved a high degree of risk, including the potential for investors to lose their entire investment. The bonds were considered speculative and only suitable for investors with substantial financial resources and no need for liquidity. Furthermore, in November 2021, GWG disclosed that several factors raised substantial doubt regarding its ability to continue as a going concern, foreshadowing the company's eventual bankruptcy filing in April 2022.

The Broader Impact of the GWG Bond Debacle

The GWG bond saga has had far-reaching consequences, with about 40 broker-dealers over the past decade selling close to $1.6 billion in these high-risk securities. As the value of the GWG bonds remains uncertain, with some experts fearing they could be worth close to pennies on the dollar, the impact on investors and the financial industry as a whole is still unfolding.

Maloney Securities' Response and Restitution Efforts

In the wake of the GWG bond scandal, Maloney Securities has agreed to pay a total of $437,900 in penalties, including $58,700 in disgorgement, $8,200 in interest, and a $250,000 fine. The firm's president and chief operating officer, Ted Moloney, stated that the firm is "glad to have finally resolved this matter" and looks forward to continuing to serve its clients.Additionally, at the end of 2022, Maloney Securities agreed to pay $268,000 in restitution to settle with the Financial Industry Regulatory Authority (FINRA) regarding the firm's sale of high-risk securities from GPB Capital Holdings, which had not submitted audited financial statements.

The Importance of Regulatory Compliance and Investor Protection

The Maloney Securities case highlights the critical importance of financial firms and their advisors adhering to regulatory standards, such as Reg BI, to ensure that investment recommendations are in the best interest of their clients. The GWG bond debacle serves as a cautionary tale, underscoring the need for heightened due diligence and risk management practices in the financial industry to protect investors from potentially harmful investments.