Iorio Altamirano LLP, a securities arbitration law firm based in New York, NY, is investigating potential lawsuits and securities arbitration claims against Dempsey Lord Smith, LLC for its sale of L Bonds issued by GWG Holdings, Inc. (GWGH) and limited partnerships created by GPB Capital Holdings, LLC.
On March 21, 2022, the Financial Industry Regulatory Authority (FINRA) ordered Dempsey Lord Smith, LLC (“Dempsey Lord Smith”) to pay nearly $100,000 in monetary fines and restitution for negligently omitting to tell four investors in an offering related to GPB Capital Holdings, LLC (“GPB Capital”) that the issuer failed to timely make required filings with the Securities and Exchange Commission (“SEC”), including filing audited financial statements. In addition, FINRA accused Dempsey Lord Smith of making unsuitable recommendations of GPB Capital securities to four investors. Dempsey Lord Smith consented to the sanctions.
Additionally, upon information and belief, Dempsey Lord Smith was a part of a network of broker-dealers who sold the speculative, high-risk, and illiquid GWG L Bonds. 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.
Investors who purchased GWG L Bonds or any GPB Capital Funds through Dempsey Lord Smith, LLC or any other broker-dealer are encouraged to contact Iorio Altamirano LLP (www.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.
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.
About GWG L Bonds
An L bond is a financial product created by GWG Holdings, Inc. The L Bonds are speculative, high-risk, and illiquid 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 offered the L Bonds with a maturity ranging from 2 to 7 years and paying an interest rate of 5.50% to 8.50%.
GWG L Bonds were likely not suitable for investors with a low-to-moderate risk tolerance or investors who had liquidity needs.
On April 20, 2022, GWG filed for Chapter 11 bankruptcy. According to the bankruptcy filings, the SEC has been investigating the sales practices of brokerage firms related to GWG L Bonds. It has been recently reported that the SEC’s investigation began in May 2021. We believe that this regulatory investigation includes the sales practices of Emerson Equity and its regional broker-dealers, such as Dempsey Lord Smith.
Last month, the SEC’s investigation led to its first lawsuit as the regulator filed a lawsuit against Western International Securities, Inc., and several of its brokers in a federal court in California. The firm is accused of failing to perform due diligence regarding the inherent risks associated with GWG L Bonds and recommending these risky products to customers in situations where they were not in the best interest of the firm’s customers.
Brokerage firms like Western International Securities, Inc. and Dempsey Lord Smith 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.
About GPB Capital Funds
GPB Capital is a New York-based alternative asset management firm founded in 2013. GPB Capital serves as the general partner for limited partnerships formed to acquire income-producing companies. GPB Capital had four flagship funds, which were sold as private placement offerings:
- GPB Holdings, LP / GPB Holdings Qualified, LP.
- GPB Automotive Portfolio, LP.
- GPB Holdings II, LP.
- GPB Waste Management, LP.
In February 2021, the SEC charged GPB Capital, Ascendant Capital, and Ascendant Alternative Strategies with running a Ponzi-like scheme that raised roughly $1.8 billion from securities issued by GPB Capital. In addition, David Gentile, the owner and chief executive of GPB; Jeffry Schneider, the owner and CEO of Ascendant Capital LLC; and Jeffrey Lash, a former GPB managing partner, are all facing criminal and civil fraud charges. The SEC believes that as many as 17,000 retail investors nationwide have been defrauded.
GPB Capital raised capital from private retail investors through private placement offerings that were sold by approximately sixty broker-dealers and investment advisory firms across the country, including Dempsey Lord Smith. In total, the GPB funds have collectively raised over $1.8 million in capital from investors. While GPB Capital and financial advisors used promises of steady, 8% dividends from investment gains to lure investors, “a significant portion of GPB’s distributions were paid directly from investor funds,” according to numerous civil and criminal complaints. There are serious concerns that broker-dealers may have failed to conduct reasonable due diligence about GPB Capital and the GPB funds.
FINRA has stated that “reasonable diligence” means that the firm’s and/or broker’s due diligence “must provide the firm or associated person with an understanding of the potential risks and rewards of the recommended security or strategy.”
Brokerage firms may have failed to conduct reasonable diligence into GPB Capital and the GPB funds before selling the private placement offerings to their customers. The firms’ compliance departments likely ignored or missed many red flags.
For example, according to the SEC’s complaint, beginning in August 2015, GPB Automotive Portfolio LP began to use investor funds to make distributions to other investors. However, GPB Automotive Portfolio’s private placement memorandum stated that distributions would be made from the limited partnership’s operations. The private placement memorandum was updated in June 2016 to disclose that the limited partnership may use investor capital to make distributions, but it had “no present plans to do so,” despite already doing so. These statements were false and misleading. At the time the PPM was issued, GPB Automotive Portfolio had used over $2.5 million of investor capital to pay distributions.
The false statements by GPB Capital were also discoverable by brokerage firms who sold the private placement offering to retail investors for large up-front commissions, including Dempsey Lord Smith. For example, in 2016, GPB Automotive Portfolio’s financial reports revealed that the fund made $14.3 million in distributions to investors; however, it recorded only $5.4 million of income from operations. The significant gap between the amount in distributions paid out to investors and the entity’s operating income should have been a huge red flag to brokerage firms. Instead, the red flag was ignored, and GPB Automotive Portfolio was sold to retail investors by brokerage firms and investment advisory firms. This is just one example of how brokerage firms may have failed their due diligence obligations.
As a result of due diligence failures, or other sales practice violations, GPB investors may have legal claims against brokerage firms or investment advisory firms.
FINRA Letter of Acceptance, Waiver, and Consent No. 2019061213901
FINRA and Dempsey Lord Smith entered into FINRA Letter of Acceptance, Waiver, and Consent No. 2019061213901 (the “AWC”) on June 23, 2022, after FINRA alleged that between May 4, 2018, and June 29, 2018, Dempsey Lord negligently omitted to tell four investors in an offering related to GPB Capital that the issuer failed to timely make required filings with the SEC, including filing audited financial statements. FINRA also alleged that between September 1, 2015, and June 8, 2018, certain Dempsey Lord registered representatives made unsuitable recommendations of GPB Capital securities to four investors. By virtue of the foregoing, Dempsey Lord violated FINRA Rules 2111 and 2010.
Specifically, related to the allegations that Dempsey Lord Smith negligently failed to tell four investors material information concerning a GPB Capital Offering in 2018, FINRA alleged:
- From 2013 through 2018, GPB Capital launched several limited partnerships, each focused on acquiring controlling interests in certain private-sector companies.
- As relevant here, the GPB Capital limited partnerships included GPB Automotive Portfolio, LP (Automotive Portfolio), GPB Cold Storage, LP (Cold Storage), GPB NYC Development, LP (NYC Development), and GPB Waste Management (Waste Management).
- These GPB Capital limited partnerships raised capital by selling limited partnership interests to retail investors. GPB Capital sold the limited partnership interests through, among other channels, broker-dealers.
- The securities GPB Capital sold, including those issued by Automotive Portfolio and Holdings II, were not registered. Instead, the limited partnership interests were sold pursuant to Regulation D of the Securities Act of 1933.
- These four GPB Capital limited partnerships raised a combined amount of more than $1 billion from investors between July 2013 and August 2018.
- The GPB Capital offering documents stated that the limited partnership interests were all illiquid securities that were intended to be held by only “sophisticated investor[s]” who were “able to bear the economic and other risks of [an] investment in the [limited partnership interests] for an indefinite period of time.” The offering documents further stated that the GPB Capital limited partnership interests were “highly speculative investments which involve a high degree of risk of loss of the entire investment.” Such risks involved, among other things, GPB Capital’s lack of an operating history and significant expenses, including commissions GPB Capital typically paid to brokerage firms equal to 8% of the gross proceeds of each sale.
- Dempsey Lord first learned of GPB Capital in or around late 2013. After conducting due diligence on each offering, Dempsey Lord approved Automotive Portfolio for sale by the firm’s registered representatives in April 2015 and then approved Cold Storage in July 2015, NYC Development in April 2016, and Waste Management in August 2016.
- On July 10, 2017, GPB Capital filed a lawsuit in New York against one of its former operating partners who had allegedly failed to acquire certain automotive dealership interests (the New York Litigation). In connection with the New York Litigation, the former partner asserted various counterclaims against GPB Capital and alleged that GPB Capital had falsified financial statements to conceal that GPB Capital was defrauding its investors. GPB Capital denied the former partner’s allegations, and the litigation remains pending.
- On April 27, 2018, GPB Capital released what it characterized as important updates regarding the audited financial statements for certain of its limited partnerships, including Automotive Portfolio. The letters, which were sent to broker-dealers that sold GPB Capital-related investments, including Dempsey Lord Smith, stated that GPB Capital was in the process of registering certain classes of securities issued by certain of the limited partnerships, including Automotive Portfolio, with the SEC. As part of that process, Automotive Portfolio was required to file audited financial statements. The letters further stated that the delivery of Automotive Portfolio’s audited financial statements (which were due to be filed by April 30, 2018) would be delayed pending the completion of a forensic audit. Specifically, GPB Capital disclosed that it and its auditors “determined that it would be prudent to hire a third-party firm to complete a forensic audit in order to endeavor to put [the former partner’s] counterclaims and other allegations to rest.” The offering documents for Automotive Portfolio were not timely amended to disclose that the partnerships would be delayed in filing their audited financial statements with the SEC.
- Dempsey Lord learned of the delays and GPB Capital’s stated intention to complete a forensic audit. Between May 4, 2018, and June 29, 2018, Dempsey Lord sold four limited partnership interests in Automotive Portfolio without informing the customers that the issuer had not timely filed its audited financial statements with the SEC or the reasons for the delay. The delays in filing audited financial statements were material information that should have been disclosed. Dempsey Lord’s four sales of interests in Automotive Portfolio totaled $323,000, and the firm received a total of $25,840 in commissions from these sales.
- By negligently omitting material facts, Dempsey Lord violated FINRA Rule 2010.
Specifically, related to the allegations that Dempsey Lord Smith made four unsuitable sales of GPB Capital Securities:
- FINRA Rule 2111(a) requires that a member or an associated person must have a reasonable basis to believe that a recommended transaction is suitable for the customer.
- One of the three main obligations associated with this Rule is “customer-specific” suitability. The Supplementary Material in Rule 2111.05(b) states that “[t]he customer-specific obligation requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile, as delineated in Rule 2111(a).” A customer’s investment profile includes, among other things, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance.
- Between September 1, 2015, and June 8, 2018, Dempsey Lord registered representatives recommended and sold GPB Capital securities to four customers that were unsuitable in light of the customers’ investment profiles. All of these sales were reviewed and approved by firm principals. The customers include:
- Customer A who made a $100,000 Cold Storage investment in September 2015. At the time of the investment, Customer A was 56 years old with an annual income and net worth that did not qualify her as an accredited investor as required to invest in Cold Storage. Customer A’s GPB investment also violated the firm’s internal concentration guidelines because the sale caused Customer A to exceed the 20% concentration threshold for combined holdings of alternative investments, including private placements. In addition, Customer A’s investment purpose was to save for retirement, and the customer ranked “speculation” as her least important investment objective (out of five options).
- Customer B who made a $50,000 NYC Development investment in June 2016. At the time of the investment, Customer B was 52 years old with an annual income and net worth that did not qualify her as an accredited investor, which was required to invest in NYC Development. Moreover, Customer B had limited investment knowledge with no prior limited partnership experience and an investment purpose to save for retirement.
- Customers Cl and C2 were a married couple who made a $50,000 Waste Management investment in April 2017. At the time of the investment, Customer Cl was over 76 years old and retired, and Customer C2 was over 66 years old and retired. While the customers’ net worth was just over the minimum amount to qualify as an accredited investor, because they already held two other GPB limited partnership interests, the sale of the $50,000 Waste Management investment caused them to exceed the firm’s 20% concentration threshold for combined holdings of alternative investments.
- Customer D who made a $100,000 Automotive Portfolio investment in June 2018. At the time of the investment, Customer D was over 60 years old and retired with a moderate risk tolerance and an annual income and net worth that did not qualify him as an accredited investor as required to invest in Automotive Portfolio.
- Dempsey Lord received a total of $24,000 in commissions from these four sales.
- By making unsuitable recommendations of GPB Capital securities to these four customers, Dempsey Lord violated FINRA Rules 2111 and 2010.
Dempsey Lord Smith, LLC (CRD No. 141238)
Dempsey Lord Smith, LLC has been an SEC-registered broker-dealer and FINRA member since 2007. The firm, which is based in Rome, Georgia, is a full-service introducing broker-dealer licensed to sell securities in 52 U.S. states and territories. Dempsey Lord Smith, LLC currently has a roster of approximately 100 registered brokers across the country and 28 branch offices.
Dempsey Lord Smith has six different regulatory disclosures, according to the firm’s public disclosure report with FINRA.
Financial institutions like Dempsey Lord Smith must supervise financial advisors and customer accounts properly. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.
Dempsey Lord Smith, LLC, has used the following names to conduct business: 1SOURCE, WRS, WEST COBB INVESTMENT GROUP, TIM COUCH PC CPA, THE DIAMOND GROUP INC., SOUTHEAST ASSET MANAGEMENT, SHALIN FINANCIAL SERVICES, INC., SC RETIREMENT PLANNING, S M SHAW, ROGER’S RETIREMENT READINESS ALLIANCE, LLC, RETIREMENT STRATEGY CONNECTION, RETIREMENT SOLUTIONS INC., PREMIER TAX ADVISORS, PREFERRED FINANCIAL SOLUTIONS, LLC, PORTER INSURANCE AND FINANCIAL, PLUS POINT ADVISORS, PINPOINT FINANCIAL SERVICES, INC, PERRY GOSSETT INSURANCE, PARPARI ASSET MANAGEMENT INC., NEXSTONE FINANCIAL SOLUTIONS, INC, NATIC TAYLOR & CO LLC, MORGAN WEALTH MANAGEMENT, MICEL FINANCIAL, LLC, MARK MADDOX FINANCIAL, LYLES WEALTH MANAGEMENT, LEIGH FINANCIAL SERVICES, JLP INVESTMENTS INC, JESSE J GRIFFIN JR, ILLUMINATION FINANCIAL ADVISORS, HYDEPARK WEALTH ADVISORS, HOLLAND WEALTH MANAGEMENT, HN FINANCIAL GROUP, GRANDVIEW WEALTH MANAGEMENT, GIBSON RETIREMENT PLANNING, FRONT PAGE FINANCIAL ADVISORS, LLC, FOOTHILLS FINANCIAL STRATEGIES, FINANCIAL INTEGRITY GROUP, FALK WEALTH MANAGEMENT, EXCLUSIVE FINANCIAL STRATEGIES, DEMPSEY, LORD, SMITH, LLC, DEMPSEY LORD SMITH, LLC, DEANS CONSULTING, CRESCENT WEALTH MANAGEMENT, CRESCENT WEALTH ADVISORS, CORNERSTONE FINANCIAL, LLC, CORE CAPITAL MARKETS, LLC, COLABORATIVE INVESTMENT MANAGEMENT, CLAIR LORD JARRETT, CHARLES MURPHY INSURANCE, BROCK FINANCIAL SERVICES, INC., BREEN FINANCIAL, BLANTON FINANCIAL GROUP, BELMONT CAPTIAL ADVISORS, BAXTER INSURANCE AGENCY, AEGEUS FINANCIAL SOLUTIONS, INC., AAPT, LLC
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 GWG L Bonds or GPB Capital Funds through Dempsey Lord Smith, contact securities arbitration lawyers August Iorio at email@example.com or Jorge Altamirano at firstname.lastname@example.org. Alternatively, call the firm toll-free at (855) 430-4010.