SEC Sanctions Lion Street Financial, LLC Regarding Sale of GWG L Bonds

• January 2, 2025
• Lion Street Financial

Lion Street Financial, LLC (CRD# 165828) is a registered brokerage firm in Austin, TX.

Allegations of Misconduct

According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), in November of 2024, the Securities and Exchange Commission (“Commission”) deemed it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Lion Street Financial, LLC (“Lion Street”). The commission finds that: Between June 30, 2020, the compliance date for Regulation Best Interest (“Regulation BI”) and April 2021(The “Relevant Period”), Lion Street did not comply with Regulation BI in connection with recommendation to retail customers of corporate bonds called “L Bonds” offered by GWG Holdings, Inc. (GWG).

According too GWG’s disclosures during the relevant period: (A) : L Bond Investments involved a high degree of risk, including the risk of losing an investor’s entire investment; (B) L Bond investments may be considered speculative; (C) L Bond investments were only suitable for investors with substantial financial resources and no need for liquidity in the investment; and (D) GWG may use a portion of the L Bond proceeds to repay existing L Bond holders.

Despite these disclosures, in recommending the purchase on L Bonds to certain retail customers during the relevant period, Lion Street did not exercise reasonable diligence, care, and skill to understand the potential risks, rewards, and costs associated with the recommendations. Lion Street and one of its registered representatives also recommended L Bonds to six retail customers for whom Lion Street did not have a reasonable basis to believe that the recommendations were in the customers’ best interest based on the customers’ investment profiles and the potential risks, rewards, and costs associated with L Bonds. Lion Street further did not establish, maintain, and enforce written policies and procedures reasonable designed to achieve compliance with Regulation BI prior to February 2021, including written policies and procedures reasonably designed to identify and disclose, mitigate, or eliminate conflicts of interest associated with recommendations. As a result, Lion Street did not comply with Regulation BI’s care obligation, compliance obligation, and conflict of interest obligation. By not complying with Regulation BI’s component obligations, Lion Street willfully violated the general obligation of Regulation BI found in Exchange Act Rule 15L-1(A)(1)(“General Obligation”).

As a result, the firm was ordered to cease and desist; is censured; and shall pay disgorgement of $14,899.55, prejudgment interest of $3,683.32, and a civil money penalty of $135,000 to the SEC.

For a copy of Lion Street’s FINRA BrokerCheck, click here.

Wolper Law Firm Is Investigating GWG Holdings Claims

GWG Holdings (GWGH) formally defaulted on its obligation to L bondholders on February 14, 2022. Red flags were raised among investors after the company notified them that no interest or dividend payments would be made in January 2022, nor would maturity or redemption requests be honored, making the L bonds virtually worthless. On April 20, 2022, the Dallas company, which made a name for itself through life insurance bond sales, filed for bankruptcy protection after financing arrangements could not be made. This is a disastrous outcome for unsecured stock and bond holders as all income payments have ceased and the opportunity for principal recovery appears unlikely.

GWG HOLDINGS’ L BONDS–WHAT YOU NEED TO KNOW

Retail investors in these privately issued, high-interest L bonds purchased more than $1B worth of them through more than 100 broker-dealers. But these alternative securities were created as high-risk, speculative investments–not typically suitable for low-risk tolerance investors who count on the liquidity of their securities. GWG Holdings bought life insurance policies through secondary sales using money raised by L bond sales; when the life insurance policies paid out, those funds repaid investors.

We Help Investors Recover Investment Losses

Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.