Securities and Exchange Commission

Centaurus Financial Sanctioned and Fined by Regulators for Supervisory Failures for the Second Time in Three Months

Published on: May 10, 2023 | by Iorio Altamirano

In a recent regulatory case, on May 5, 2023, the Financial Industry Regulatory Authority (FINRA) Office of Hearing Officers imposed sanctions on Centaurus Financial, Inc. and its financial advisor Donnie Ingram for engaging in unsuitable and unethical practices, as well as supervisory failures. Centaurus Financial, Inc. was censured and ordered to pay a $50,000 fine and $388,962 in restitution to harmed customers. Donnie Ingram was suspended from association with any FINRA member firm in any capacity for six months, fined $15,000, and ordered to pay $388,962 in restitution to harmed customers. The sanctions were the result of Ingram’s unsuitable recommendations to customers to purchase Unit Investment Trusts (UITs), Bluerock Residential Growth REIT Inc. (BRG), and MacKenzie Realty Capital, Inc. (MAC) at higher costs when there were lower cost options available.

Earlier this year, in February 2023, Centaurus Financial also agreed to pay a $750,000 civil penalty after the SEC charged the firm in connection with the unsuitable recommendation of variable interest rate structured products to retail customers. The SEC’s order found that Centaurus failed to implement, and its branch manager failed to follow, Centaurus’ customer-specific suitability procedures and that Centaurus violated the broker-dealer books and records provisions of the federal securities laws. The SEC’s order found that Centaurus violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”) and Section 17(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 17a-4(e)(5), 17a-4(f)(2), and 17a-3(a)(17)(i)(B)(3) thereunder. The SEC concluded that Centaurus failed reasonably to supervise the firm’s brokers.

Financial institutions like Centaurus Financial, Inc. must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity, such as recommendations to purchase alternative investments, such as GWG L Bonds, UITs, and REITS, 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.

Whistleblower Award Alert: The SEC Awards Record $279 Million to Whistleblower

Published on: May 5, 2023 | by Iorio Altamirano

The Securities and Exchange Commission (“SEC”) announced a whistleblower award of roughly $279 million to a whistleblower who provided information to the SEC, leading to a successful regulatory enforcement action by the SEC and another federal agency. This is the largest amount the SEC has ever awarded to a whistleblower, more than doubling the $114 million the SEC awarded to a whistleblower in October 2020.

Top 10 SEC Whistleblower Awards:

$279 million – May 5, 2023

Heath Goldstein and Western International Securities: Iorio Altamirano LLP Investigating the Sale of GWG L Bonds – Clark Summit, PA

Published on: April 6, 2023 | by Iorio Altamirano

Iorio Altamirano LLP, a securities arbitration law firm based in New York, NY, is investigating potential securities arbitration claims against Western International Securities, Inc. and its Pennsylvania-based broker, Heath Goldstein, for its sale of L Bonds issued by GWG Holdings, Inc. Western International Securities was part of a network of broker-dealers who sold the speculative, high-risk, and illiquid GWG L Bonds to retail investors.

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.

According to court filings, in the four years before the bankruptcy filing, Western International Securities received at least $3 million in commissions from GWG Holdings for selling L Bonds to retail investors, and the firm sold approximately $13.3 million in L Bonds to retail investors between June 2020 and January 2022.

Roshan Perera: SEC Charges Former Aegis Capital Broker with Fraud – Long Island, NY

Published on: March 27, 2023 | by Iorio Altamirano

The Securities and Exchange Commission has charged former Aegis Capital Corp. broker Surage Kamal Roshan Perera and his firm, Janues Capital Incorporated, with fraud and obtaining emergency relief in court, including a temporary restraining order and an asset freeze. The SEC alleges that from February 2022 until March 2023, the Bellrose, NY broker defrauded at least one investor out of millions of dollars by lying about investment opportunities and strategies concerning training losses and using funds received from others to give the victim the promised returns in a Ponzi-like scheme. According to his public disclosure report, Mr. Perera was registered as an investment broker with Aegis Capital Corp until September 12, 2022.

In a separate action, the U.S. Attorney’s Office for the Eastern District of New York filed criminal charges against Mr. Perera. He was arrested on Monday, March 27, 2023, and arraigned on a 16-count indictment charging him with securities fraud, investment advisor fraud, wire fraud, and money laundering, in connection with a scheme to induce an investor to purchase stock in companies that traded on the NASDAQ and New York Stock Exchange (NYSE).

Customers of Mr. Perera or Aegis Capital Corp. who have suffered financial losses as a result of Mr. Perera’s negligence or misconduct can contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation and review of their legal rights.

Broker-Dealers Sold GWG L Bonds Using Aggressive and Misleading Marketing

Published on: February 1, 2023 | by Iorio Altamirano

In a court filing made on December 15, 2022, in the Chapter 11 bankruptcy court, the Official Committee of Bondholders of GWG Holdings Inc. (“Bondholder Committee”) alleged that broker-dealers sold GWG L Bonds using aggressive and misleading marketing even after it became clear that GWG’s business was failing and that the only way to repay bondholders was to continue to sell more L Bonds to existing and additional retail investors. The Bondholder Committee, which represents the interests of GWG L Bondholders in the Chapter 11 bankruptcy proceeding, alleged that “GWG was a class Ponzi Scheme.”

However, much of the court filing, including specific allegations of wrongdoing, was filed under seal.

On February 1, 2023, the United States Bankruptcy Court for the Southern District of Texas unsealed several significant court filings, including a draft adversary legal complaint against certain current and/or former directors and officers of GWG Holdings, Inc., individuals, and corporate entities affiliated with or controlled by Brad Heppner, transferees of certain fraudulent transfers, and key broker-dealers who marketed and sold L Bonds.

SEC Finds That Some Broker-Dealers Are Using Outdated, Incomplete, and Inaccurate Risk Disclosures

Published on: January 31, 2023 | by Iorio Altamirano

On January 30, 2023, the United States Securities and Exchange Commission (“SEC”) published a Risk Alert including its observations from Broker-Dealer Examinations Related to Regulation Best Interest (“Reg BI”). The risk alert highlights deficiencies observed during regulatory examinations, as well as weak practices by broker-dealers that could result in deficiencies.

Reg BI requires that brokerage firms and brokers act in the best interest of a retail customer at the time of a recommendation to purchase, sell, or hold a security or investment strategy. The broker-dealer and broker must place their retail customers’ interest ahead of their own financial interest. The standard of care also applies to recommendations of account types.

Reg BI requires compliance with four component obligations:

“GWG Was a Classic Ponzi Scheme” – Official Committee of Bondholders of GWG Holdings, Inc.

Published on: December 28, 2022 | by Iorio Altamirano

**Update: February 1, 2023** On February 1, 2023, the United States Bankruptcy Court for the Southern District of Texas unsealed several significant court filings, including a draft legal complaint. The complaint was filed by the Official Committee of Bondholders of GWG Holdings Inc. (“Bondholder Committee”) against certain current and/or former directors and officers of GWG Holdings, Inc., individuals, and corporate entities affiliated with or controlled by Brad Heppner, transferees of certain fraudulent transfers, and key broker-dealers who marketed and sold L Bonds. The Bondholder Committee represents the interests of GWG L Bondholders in the Chapter 11 bankruptcy proceeding.

The unsealed complaint has revealed the following allegations, which were made after the bondholder committees reviewed documents and information that are currently not in the public domain:

Together with other insiders, Brad Heppner was the mastermind behind a Ponzi scheme whereby GWG, in conjunction with its broker-dealer network, sold hundreds of millions worth of L Bonds to retail investors even when it became clear that the only way to repay those investors was to sell yet more L Bonds to more retail investors.

Western International Securities Denies Violating Regulation Best Interest in Recommending and Selling Risky and Illiquid GWG L Bonds to Retail Investors

Published on: September 15, 2022 | by Iorio Altamirano

On September 14, 2022, Western International Securities, Inc. filed its Answer to the Securities and Exchange Commission’s Complaint denying that the firm violated the standards under Regulation Best Interest (“Reg BI”) in approving, recommending, and supervising the sale of speculative, high-risk, and illiquid L Bonds issued by GWG Holdings, Inc.

The case, which is being litigated in the United States District Court of the Central District of California, is being closely watched by investors and the securities industry alike because it is the first substantive enforcement action brought by the SEC against a broker-dealer since Reg BI went into effect on June 30, 2020.

Law Firm Investigating Dempsey Lord Smith, LLC for the Sale of GWG L Bonds and GPB Capital Funds

Published on: July 14, 2022 | by Iorio Altamirano

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.

Law Firm Investigating National Securities Corporation for the Sale of GWG L Bonds and GPB Capital Funds

Published on: July 8, 2022 | by Iorio Altamirano

Iorio Altamirano LLP, a securities arbitration law firm based in New York, NY, is investigating potential lawsuits and securities arbitration claims against National Securities Corporation for its sale of L Bonds issued by GWG Holdings, Inc. (GWGH) and limited partnerships created by GPB Capital Holdings, LLC.

On June 23, 2022, the Financial Industry Regulatory Authority (FINRA) ordered National Securities Corporation (“NSC”) to pay nearly $9 million in monetary fines and restitution for violating various SEC, NASD, and FINRA rules, including negligently omitting material facts to retail investors connected with offerings related to GPB Capital Holdings, LLC (“GPB Capital”). NSC consented to the sanctions after FINRA alleged that between April 2018 and July 2018, NSC negligently omitted to tell investors in two offerings related to GPB Capital that the issuers failed to timely make required filings with the Securities and Exchange Commission (“SEC”), including audited financial statements.

Additionally, upon information and belief, National Securities Corporation 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.