The Facts

Cape Securities Inc. has been a FINRA member since 1976. It operated out of McDonough, Georgia, with approximately 20 registered representatives and eight branch locations. On March 19, 2026, the firm filed a Uniform Request for Broker Dealer Withdrawal, terminating its registration with FINRA.

Between July 2020 and March 2023, Cape Securities failed to establish and maintain a supervisory system reasonably designed to achieve compliance with Rule 15l-1(a)(1) of the Securities Exchange Act of 1934, known as Regulation Best Interest or Reg BI. The rule requires broker-dealers and their associated persons to act in the best interest of retail customers when making securities recommendations.

On May 8, 2026, FINRA accepted the firm’s Letter of Acceptance, Waiver, and Consent in Case No. 2021069370604. The settlement imposed a censure and ordered partial restitution of $145,072.62, plus interest, to be paid to nine customers.

This matter arose from two firm examinations and two cause examinations. FINRA found that Cape Securities willfully violated Reg BI and violated FINRA Rules 3110 and 2010. The firm also violated FINRA Rules 8210 and 2010 by failing to timely respond to eight requests for information.

The Misconduct

No Procedures to Comply with Regulation Best Interest

From June 30, 2020, through March 2026, Cape Securities failed to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI’s Care Obligation. The firm’s written policies discussed Reg BI only in general terms. They provided no guidance explaining how representatives should exercise reasonable diligence, care, and skill to have a reasonable basis to believe that a recommendation is in the best interest of a particular retail customer.

The firm’s procedures did not address how supervisors should assess the specific risks of complex products, including GWG L Bonds and non-traditional exchange-traded products. The firm did not establish a supervisory system to ensure that representatives actually considered the intended holding period before recommending daily-reset ETPs, despite FINRA guidance warning that such products are typically unsuitable for retail investors who plan to hold them for more than one trading session.

“The firm’s written policies and procedures provided no guidance explaining how representatives should exercise reasonable diligence, care, and skill to have a reasonable basis to believe that the recommendation is in the best interest of a particular retail customer based on that retail customer’s investment profile and the potential risks, rewards, and costs associated with the recommendation.”
— FINRA Letter of Acceptance, Waiver, and Consent No. 2021069370604

GWG L Bonds: Speculative Debt Sold to Seniors

GWG Holdings, Inc., was a publicly traded financial services company that purchased life insurance policies on the secondary market. The company continued to pay premiums on each policy and collected the benefits upon the insured’s death. In 2018 and 2019, GWG reoriented its business and stopped acquiring life insurance policies. It had a history of net losses and did not generate sufficient cash flows to fund its operations. To finance itself, GWG offered corporate bonds known as L Bonds to investors with varying maturity periods and interest rates.

L Bonds were not directly secured by GWG’s life insurance portfolio. They were not rated by any bond rating agency. The offering documents for the fourth L Bond offerings, which commenced in June 2020, stated that the bonds could be considered speculative, involved a high degree of risk, were illiquid, and were only suitable for persons with substantial financial resources and with no need for liquidity.

Cape Securities entered into agreements with GWG to sell L Bonds in October 2017 and June 2020. Between July 2020 and April 2021, two Cape Securities representatives recommended that six retail customers purchase a total of $460,000 of GWG L Bonds.

All six customers had a moderate risk tolerance and investment objectives that did not include speculation. Five of the six customers were seniors. As a result of these recommendations, up to 43% of the customers’ liquid net worth was invested in alternative investments.

In January 2022, GWG defaulted on its obligations to L Bond investors and suspended further sales of L Bonds. In April 2022, GWG filed for bankruptcy.

Cape Securities supervisors took no steps to confirm that the representatives had a reasonable basis for these recommendations. The firm’s alternative products worksheet required supervisors to review concentration of the customer’s liquid net worth in alternative products, but provided no guidance for determining whether a recommendation was in a customer’s best interest or consistent with the customer’s profile.

Non-Traditional ETPs: Daily Reset Products Held for Two Years

Non-traditional exchange-traded products are complex financial instruments designed to return a multiple of an underlying index or benchmark, the inverse of the benchmark, or both, usually over the course of a single day. Due to the effects of compounding daily returns during the holding period, the performance of NT-ETPs held for periods of longer than a single trading session can differ significantly from the performance of their underlying index or benchmark.

In June 2009, FINRA issued Regulatory Notice 09-31, which cautioned that NT-ETPs “typically are not suitable for retail investors who plan to hold them for more than one trading session.” In January 2012, FINRA issued Regulatory Notice 12-03, reminding firms of their heightened supervisory obligations with respect to complex products.

From July 2021 to March 2023, Cape Securities failed to reasonably supervise one of its registered representatives’ NT-ETP recommendations for compliance with Reg BI. During this period, the representative recommended that four retail customers purchase and hold for longer than a day approximately $45,000 in daily reset NT-ETPs that were designed to return three times the return of the benchmark they tracked.

The customers ranged in age from 57 to 92 at the times of the purchases. Three of the four customers had a moderate risk tolerance.

The firm’s assigned supervisor took no steps to determine whether the representative had a reasonable basis to believe the recommendations were in the customers’ best interest given their age and risk tolerance. The firm also failed to determine whether the representative understood the NT-ETPs he recommended, or whether the recommendations to hold the products for more than a single day were in the best interests of his customers given the NT-ETPs’ daily reset feature.

Based on the representative’s recommendations, the four retail customers held the daily-reset NT-ETPs for periods ranging from 253 to 693 days and incurred $15,072.62 in realized losses.

Eight Delayed Responses to FINRA Requests

FINRA Rule 8210 requires member firms to provide information and documents in response to FINRA requests. Failing to timely provide information violates FINRA Rules 8210 and 2010.

In connection with FINRA’s investigation of Cape Securities, FINRA issued requests for documents and information. On numerous occasions, Cape Securities failed to provide timely responses, missed multiple deadlines without requesting extensions, and materially delayed resolution of this matter.

First, for over five months, Cape Securities failed to provide a complete response to FINRA’s May 10, 2023, request for documents and information related to the firm’s supervision of recommendations of L Bonds. Following multiple requests for extensions, multiple missed deadlines, and the issuance of a second request letter on June 23, 2023, the firm provided a complete response on October 11, 2023.

Second, for almost four months, Cape Securities failed to provide a complete response to FINRA’s October 11, 2023, request for documents related to the firm’s sale of L Bonds, the firm’s implementation of Reg BI procedures, and other supervisory issues. Following multiple requests for extensions, multiple missed deadlines, and the issuance of a second request letter on January 9, 2024, the firm provided a complete response on February 8, 2024.

Third, for almost three months, Cape Securities failed to provide a complete response to FINRA’s March 22, 2024, request for documents related to the firm’s registered representatives’ communications with customers who purchased L Bonds. Following Cape Securities’ failure to respond to the March 22 request letter, FINRA issued a second request letter on April 9, 2024. Following the firm’s failure to respond to the April 9 request letter, FINRA issued a Notice of Suspension pursuant to FINRA Rule 9552 on May 20, 2024, which advised that FINRA would suspend the firm’s membership on June 13, 2024, unless the firm complied with this request letter or requested a hearing before the suspension date. After seeking a one-day extension of the suspension date, the firm provided the requested documents and information on June 14, 2024.

Finally, for over four months, Cape Securities failed to provide a complete response to FINRA’s November 13, 2024, request for documents and information related to various supervisory issues. Following multiple requests for extensions, multiple missed deadlines, and the issuance of a second request letter on December 18, 2024, the firm provided a complete response on March 17, 2025.

The Non-Financial Ledger

The regulatory settlement describes nine customers who lost money. It does not describe the phone calls they made to their representatives asking why their bonds were in default. It does not describe the confusion they felt when they learned the company behind the bonds had filed for bankruptcy. It does not describe the hours they spent reading news articles trying to understand what happened to their retirement savings.

Five of the six GWG L Bond customers were seniors. They had moderate risk tolerance. Their investment objectives did not include speculation. They trusted their representatives to recommend investments that matched their profiles. Instead, they were sold unrated, illiquid corporate bonds from a company with a history of net losses.

The four customers who held daily-reset leveraged ETPs ranged in age from 57 to 92. They held products designed to be traded within a single day for periods ranging from 253 to 693 days. The products compounded daily returns. The customers did not understand how compounding would erode their principal. They lost $15,072.62.

The settlement refers to these losses as “realized losses.” That is a precise term. It means the customers sold the positions and locked in the losses. It means they gave up. It means they accepted that the money was gone.

The settlement does not describe what the customers did after they realized the losses. It does not describe whether they reduced their living expenses. It does not describe whether they delayed medical care. It does not describe whether they moved in with family members. It does not describe whether they went back to work.

The settlement describes the firm’s written supervisory procedures. It describes the alternative products worksheet. It describes the information the worksheet collected. It does not describe the information the worksheet ignored. It does not describe the questions supervisors never asked. It does not describe the analysis supervisors never performed.

The settlement describes the firm’s failure to respond to FINRA’s requests for information. It describes the deadlines the firm missed. It describes the extensions the firm requested. It describes the suspension notice FINRA issued. It does not describe the time FINRA staff spent following up on missed deadlines. It does not describe the delay this caused in resolving the matter. It does not describe the impact this delay had on the customers waiting for restitution.

This is the non-financial ledger. It is the record of trust broken, of time wasted, of dignity lost. It is the record of what happens when supervision fails.

Legal Receipts

“From June 30, 2020, through March 2026, Cape Securities failed to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI’s Care Obligation. The firm’s policies and procedures discussed Reg BI only in general terms, without prescribing procedures for complying with the Care Obligation.”
— FINRA Letter of Acceptance, Waiver, and Consent No. 2021069370604, Page 3

“All six of the customers had a moderate risk tolerance and investment objectives that did not include speculation, and five of the six customers were seniors. As a result of these recommendations, up to 43% of the customers’ liquid net worth was invested in alternative investments.”
— FINRA Letter of Acceptance, Waiver, and Consent No. 2021069370604, Page 4

“Despite red flags that the high risk of loss associated with speculative investments in unrated L Bonds may not have been consistent with these customers’ profiles, including their age, investment objectives, and risk tolerances, as well as their concentrations in alternative investments, Cape Securities supervisors took no steps to confirm that Representatives 1 and 2 had a reasonable basis for these recommendations.”
— FINRA Letter of Acceptance, Waiver, and Consent No. 2021069370604, Page 5

“Based on Representative 3’s recommendations, the four retail customers held the daily-reset NT-ETPs for periods ranging from 253 to 693 days and incurred $15,072.62 in realized losses.”
— FINRA Letter of Acceptance, Waiver, and Consent No. 2021069370604, Page 6

“Following the firm’s failure to respond to the April 9 request letter, FINRA issued a Notice of Suspension pursuant to FINRA Rule 9552 on May 20, 2024, which advised that FINRA would suspend the firm’s membership on June 13, 2024, unless the firm complied with this request letter or requested a hearing before the suspension date.”
— FINRA Letter of Acceptance, Waiver, and Consent No. 2021069370604, Page 7

Societal Impact Mapping

Environmental Degradation

This case does not involve environmental harm.

Public Health

Financial insecurity is a public health crisis. The stress of losing retirement savings accelerates cognitive decline in seniors, increases the risk of cardiovascular disease, and correlates with higher rates of depression and anxiety. Five of the six GWG L Bond customers were seniors. The settlement does not measure the health impact of their losses. It measures only the financial loss.

Economic Inequality

This case is a case study in how self-regulatory organizations enforce rules that protect institutional investors while leaving retail investors to fend for themselves. Cape Securities sold speculative, unrated bonds to seniors with moderate risk tolerance. The firm’s supervisors signed off on the transactions without asking whether the investments matched the customers’ profiles. FINRA found violations. FINRA imposed a censure and ordered partial restitution.

The restitution for the five GWG L Bond customers is equal to 50% of the principal value of the customers’ investments. The sixth GWG L Bond customer settled a claim against Cape Securities separately. The settlement does not explain why the five customers received only 50% restitution. It does not explain how FINRA calculated the appropriate restitution amount. It does not explain whether FINRA considered the customers’ lost opportunity cost or the interest they would have earned if their money had been invested in suitable alternatives.

The restitution for the four NT-ETP customers is equal to the customers’ realized losses. This means the customers will be made whole for the losses they locked in by selling the positions. It does not mean they will be made whole for the time they spent holding unsuitable investments or the opportunity cost of capital tied up in those positions.

The settlement notes that pursuant to the General Principles Applicable to all Sanction Determinations contained in FINRA’s Sanction Guidelines, FINRA did not impose a fine after it considered the firm’s revenues and financial resources, the firm’s Form BDW filing requesting to terminate its registration with FINRA, and the firm’s agreement to pay restitution. This is a polite way of saying the firm was broke and could not afford to pay a fine on top of restitution.

The settlement does not address the systemic problem. Broker-dealers that cannot afford to supervise their representatives’ recommendations should not be allowed to sell complex products to retail customers. Self-regulatory organizations that allow broker-dealers to operate without adequate supervision and then settle for partial restitution when supervision fails are not protecting investors. They are protecting the industry.

What Now?

Corporate Watchlist:

• Cape Securities Inc. (CRD No. 7072): Terminated FINRA registration March 19, 2026. Subject to statutory disqualification due to willful violation of Rule 15l-1 of the Securities Exchange Act of 1934.
• GWG Holdings, Inc.: Filed for bankruptcy April 2022. Defaulted on L Bond obligations January 2022. The bankruptcy trustee is administering the estate. L Bond investors are unsecured creditors.
• Representative 1: Not named in settlement. Recommended $360,000 in GWG L Bonds to five customers.
• Representative 2: Not named in settlement. Recommended $100,000 in GWG L Bonds to one customer.
• Representative 3: Not named in settlement. Recommended $45,000 in daily-reset NT-ETPs to four customers who held the products for 253 to 693 days.

Regulatory Oversight Bodies:

• Financial Industry Regulatory Authority (FINRA): Self-regulatory organization overseeing broker-dealers. Operates under delegation from the Securities and Exchange Commission.
• Securities and Exchange Commission (SEC): Federal agency with authority to review FINRA disciplinary actions and rulemaking.

What You Can Do:

If you are a Cape Securities customer who purchased GWG L Bonds or NT-ETPs and you have not received restitution, contact FINRA’s Office of Dispute Resolution. The settlement requires Cape Securities to pay restitution within 120 days of acceptance. If the firm cannot locate you, it must comply with state escheatment and unclaimed property laws. You have a right to that money.

If you are a retail investor working with a broker-dealer, ask your representative to explain in writing how each recommendation is in your best interest. Ask your representative to explain the risks, rewards, and costs of the recommendation. Ask your representative to explain what alternatives they considered and why they rejected those alternatives. If your representative cannot answer these questions, find a different representative.

Support organizations advocating for fiduciary duty standards for all financial advisors. The distinction between broker-dealers and investment advisors is a relic of the 1940 Investment Advisers Act. It exists to protect the industry, not investors. The Consumer Federation of America, the Financial Planning Coalition, and the Institute for the Fiduciary Standard all advocate for stronger investor protections.

Join or start a local financial literacy organization. Mutual aid networks can provide education and support to retail investors navigating predatory sales practices. The National Community Reinvestment Coalition and the Financial Empowerment Network coordinate local chapters focused on economic justice and investor education.