The United States Securities and Exchange Commission (SEC) has filed a Complaint charging a Broker-Dealer for the first time with a violation of the recently enacted Regulation Best Interest (Reg BI). The subject of the Complaint was Western International Securities, and five of its registered brokers, Nancy Cole, Patrick Egan, Andy Gitipityapon, Steven Graham, and Thomas Swan.
The Complaint alleges that Western and its brokers sold high risk and potentially illiquid L bonds issued by GWG Holdings, Inc., with many of the sales to customers on fixed incomes and with moderate risk tolerances. The SEC’s press release alleged that the Defendants “failed to comply with Reg BI’s “Care Obligation” both because they did not exercise reasonable diligence, care, and skill to understand the risks, rewards, and costs associated with L Bonds, and also because they recommended L Bonds to at least seven particular customers without a reasonable basis to believe the bonds were in their customers’ best interests.”
The SEC also claimed that the activities and sales violated the compliance component of Reg BI which requires firms to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI.