Ten customers were steered toward speculative, illiquid GWG L Bonds. Four other private-placement offerings moved forward without reasonable due diligence. FINRA’s settlement describes a brokerage whose procedures stated the rules but did not reliably turn them into supervision.
Regulation Best Interest Alternative investments Private placementsTL;DR
- FINRA found that WestPark Capital lacked a reasonable system for supervising recommendations of speculative and illiquid GWG L Bonds.
- Five representatives recommended L Bonds to ten customers whose moderate risk tolerances and objectives did not include speculation; four were seniors.
- Alternative investments ultimately represented approximately 11% to 75% of those customers’ liquid net worth.
- FINRA also found deficient due diligence involving four private-placement offerings from two issuers, including failures to investigate identified warning signs.
- WestPark consented to a censure, a $175,000 fine, $345,073 in restitution plus interest, and a remediation certification.
- The firm accepted FINRA’s findings without admitting or denying them and waived a disciplinary hearing and appeal rights.
The central failure was not a missing sentence in a compliance manual. FINRA found that the firm lacked workable processes for testing recommendations, escalating concerns and independently examining risky offerings.
Transparency Notice
This article is based on a FINRA Letter of Acceptance, Waiver, and Consent, or AWC, involving WestPark Capital. FINRA accepted the agreement, and WestPark accepted and consented to the regulator’s findings without admitting or denying them.
An AWC is a settled regulatory action, not a judicial opinion following a trial. WestPark waived its rights to a complaint, disciplinary hearing and appeal. The findings reported below are FINRA’s accepted regulatory findings; they should not be described as independent court findings or admissions by the firm.
The Facts
Between March 2019 and February 2021, five WestPark representatives recommended GWG L Bonds to ten retail customers. FINRA found that the recommendations were not suitable for, or in the best interests of, those customers.
Every one of the ten had a moderate risk tolerance. None had an investment objective that included speculation. Four were seniors. Yet the product placed before them was, according to the AWC, high-risk, speculative and illiquid.
The resulting concentration was substantial: approximately 11% to 75% of each customer’s liquid net worth ended up in alternative investments, either in GWG L Bonds alone or together with other alternative products.
FINRA did not frame this merely as five representatives making ten isolated mistakes. It found that WestPark lacked a reasonable supervisory process for deciding whether recommendations matched customers’ finances, risk tolerance, liquidity needs and investment objectives.
The Rules Were Clear. The Review Process Was Not.
Before June 30, 2020, FINRA Rule 2111 required brokers to have a reasonable basis for believing a recommendation was suitable for a customer. From June 30, 2020, recommendations covered by Regulation Best Interest became subject to a stronger formulation: a broker must act in the retail customer’s best interest without placing the broker’s financial or other interests ahead of the customer’s.
In practical terms, both standards required attention to the person behind the account number. Age, finances, existing investments, experience, time horizon, liquidity needs, objectives and risk tolerance all mattered. A highly concentrated position can make an already risky product even less compatible with a customer’s profile.
FINRA Rule 3110 separately required WestPark to maintain and enforce a supervisory system and written procedures designed to achieve compliance. Procedures are supposed to explain who reviews a recommendation, what is reviewed, when a concern must be escalated and how the decision is documented.
FINRA found that WestPark’s written materials generally repeated the governing requirements but did not provide procedures for carrying out the necessary reviews. They also did not explain whether or how supervisors should escalate concerns about individual recommendations or broader sales patterns.
The Compliance Gap in FINRA’s Words
“The firm’s written procedures generally recited the requirements of Reg BI and FINRA Rule 2111, but they did not include procedures for conducting reviews to comply with those requirements.”
FINRA AWC No. 2021070498107, page 4
The distinction matters: a manual can contain the correct regulatory vocabulary and still fail as a supervisory system if it does not tell people how to detect, investigate and stop a problematic recommendation.
What Made the L Bonds So Risky
GWG Holdings had historically acquired life-insurance policies on the secondary market, paid their premiums and collected benefits when the insured people died. After transactions in 2018 and 2019 with Beneficient Company Group, L.P., GWG changed direction and focused on providing liquidity to holders of illiquid investments and alternative assets.
The company had a history of net losses and had not generated enough operating and investing cash flow to fund its operations. It raised money through corporate debt called L Bonds. Those bonds were not directly secured by GWG’s life-insurance portfolio and were not rated by a bond-rating agency.
The offering documents for the fourth L Bond offering, launched in June 2020, said the bonds could be considered speculative, involved a high degree of risk, were illiquid and were suitable only for people with substantial financial resources and no need for liquidity.
That description sat awkwardly beside the customer profiles FINRA later identified: moderate risk tolerances, no speculative investment objectives and, in four cases, senior investors.
The product documents described an investment for people able to absorb risk and live without liquidity. FINRA found that WestPark’s customers included people whose stated objectives did not include speculation at all.
WestPark entered an agreement with GWG to sell L Bonds.
The ten customer recommendations covered by FINRA’s L Bond findings occurred during this period.
Regulation Best Interest became applicable to covered retail recommendations.
GWG defaulted on its obligations to L Bond investors and suspended further L Bond sales.
GWG filed for bankruptcy.
The bankruptcy court confirmed GWG’s plan in June; a litigation trust became effective in August to investigate and pursue potential third-party claims.
The Concentration Problem
FINRA found that WestPark did not have a reasonable process for assessing whether representatives had properly understood the L Bonds’ risks, rewards and costs. The firm also lacked a reasonable method for identifying recommendations that appeared inconsistent with a customer’s investment profile.
That second failure is especially visible in the concentration figures. Alternative investments made up as little as approximately 11% and as much as 75% of the affected customers’ liquid net worth. Concentration does not merely repeat the underlying risk; it amplifies the consequences if the investment becomes inaccessible or loses value.
The Customer Profiles
“All ten customers had moderate risk tolerances and investment objectives that did not include speculation. Four of the customers were seniors.”
FINRA AWC No. 2021070498107, page 5
Six of the ten customers began and settled arbitration proceedings against WestPark. The AWC ordered restitution for the remaining four.
The Second Failure: Private-Placement Due Diligence
The L Bond findings concerned whether particular recommendations fit particular customers. The private-placement findings exposed another layer of the system: whether WestPark had adequately investigated the investments before recommending them at all.
FINRA guidance states that a firm cannot rely only on information from an issuer. It must conduct a reasonable investigation to independently verify material representations and claims, examine the issuer and its management, review business prospects and assets, understand the intended use of investor funds, and preserve records of both the work and the conclusions.
More investigation is expected when an issuer is young or when warning signs appear. FINRA found that WestPark’s procedures recited a general obligation to conduct due diligence but did not specify the documents to collect, the people responsible, the steps to perform, the timing of those steps or how conclusions should be recorded.
According to the AWC, those deficiencies affected four offerings from two issuers.
Issuer A: No Revenue, No Operating History
Issuer A was a development-stage cannabis company formed in October 2018. It had no revenue or operating history and was not yet licensed to operate a cannabis business.
From December 2018 through January 2020, WestPark sold approximately $3.1 million of its first offering to 72 retail customers. FINRA found that the firm failed to reasonably investigate the feasibility of the licensing application or the company’s plan to generate enough revenue to make investor distributions and support a $600,000 annual CEO salary.
WestPark later sold approximately $365,000 of a subsequent offering to eight customers. FINRA found that it failed to reasonably investigate warning signs including a default on monthly distributions from the first offering and a landlord’s legal proceeding over unpaid rent.
Issuer B: Reports Supplied by the Issuer
Issuer B operated rent-to-own stores. WestPark participated in sales of approximately $3.9 million to 90 retail customers between September 2019 and January 2020, followed by approximately $2.7 million to 44 customers between May 2022 and December 2023.
FINRA found that WestPark’s investigation was limited to reviewing third-party reports commissioned by Issuer B. The firm did not conduct independent due diligence or follow up on identified concerns.
Those concerns included a high debt-to-equity ratio and Issuer B’s inability to redeem approximately $30 million in notes from previous offerings when they matured.
This was the narrative turn in FINRA’s findings: weak supervision did not end at the point of sale. The regulator found that WestPark also lacked a reasonable process for independently investigating the products entering its sales pipeline.
The Earlier Regulatory Warning
The AWC also records a prior disciplinary event. In 2021, FINRA found that WestPark made negligent misrepresentations and omissions to investors in multiple private-placement offerings and failed to supervise representatives during those offerings.
WestPark consented in that earlier matter to a censure, a $250,000 fine and undertakings that included offering rescission to holders of 19 notes.
The current AWC concerns its own periods, products and findings. Still, the juxtaposition is difficult to ignore: after an earlier case involving private placements and supervision, FINRA again found deficient supervision and private-placement due diligence.
What FINRA Found and Required
FINRA found that WestPark violated Rules 3110 and 2010 and willfully violated Exchange Act Rule 15l-1(a)(1), part of Regulation Best Interest. The AWC uses “willfully” as a formal regulatory finding; it does not separately describe a motive to harm customers.
Rule 2010 requires FINRA member firms to observe high standards of commercial honor and just and equitable principles of trade. Rule 3110 addresses the supervisory systems and written procedures needed to comply with securities laws and FINRA rules.
The settlement imposed a censure, a $175,000 fine and $345,073 in principal restitution, plus interest calculated for the period from April 20, 2022, through December 7, 2023.
| Customer | Principal restitution | Interest | Total |
|---|---|---|---|
| A | $45,073 | $4,883.41 | $49,956.41 |
| B | $50,000 | $5,417.23 | $55,417.23 |
| C | $200,000 | $21,668.91 | $221,668.91 |
| D | $50,000 | $5,417.23 | $55,417.23 |
The restitution order does not prevent customers from pursuing their own actions for restitution or other remedies. WestPark was also required to provide proof of payment—or documented efforts to make payment—within 120 days of the notice accepting the AWC.
Within 90 days of that notice, a registered principal in senior management was required to certify that the firm had remediated the identified issues and implemented a supervisory system designed to achieve compliance with Regulation Best Interest. The certification had to include a narrative and supporting exhibits, and FINRA retained the ability to request additional evidence.
The settlement further states that the willful Regulation Best Interest violation makes WestPark subject to statutory disqualification with respect to FINRA membership. That language means the finding carries potential membership consequences; the AWC does not itself say that the firm was expelled.
What a Legitimate Fix Looks Like
A certification is useful only if it describes a system that works under pressure. The failures identified by FINRA point to three practical tracks for reform.
Regulatory Track
- Test remediation against actual customer files and transactions rather than accepting a rewritten manual as proof that supervision has changed.
- Review whether concentration alerts identify risky alternative investments across a customer’s full portfolio, not only one security at a time.
- Require documented follow-up when issuer reports disclose high leverage, missed payments, litigation or an inability to redeem earlier notes.
Legislative Track
- Consider standardized, plain-language disclosure of how much of a customer’s liquid net worth would be concentrated in illiquid or speculative products after a proposed transaction.
- Assess whether investors should receive clearer disclosure when due-diligence materials were commissioned or paid for by the issuer being investigated.
Corporate Governance Track
- Assign named employees to each due-diligence step, with deadlines, required documents and a permanent record of how warning signs were resolved.
- Create mandatory escalation thresholds for seniors, moderate-risk customers, illiquid products and unusually high concentrations.
- Require independent verification rather than treating issuer-commissioned reports as a substitute for the broker-dealer’s own investigation.
- Give compliance personnel authority to stop an offering or recommendation until unresolved concerns are documented and cleared.
What to Watch
- FINRA: Any public record concerning WestPark’s remediation certification, proof of restitution or additional evidence requested by enforcement staff.
- WestPark senior management: Whether the firm’s revised system contains operational review and escalation steps rather than another restatement of regulatory standards.
- FINRA membership authorities: Any consequence arising from the statutory-disqualification status identified in the AWC.
- GWG bankruptcy litigation trust: Developments involving the potential third-party claims the trust was established to investigate and prosecute.
- Affected customers: The settlement expressly preserves their ability to pursue separate remedies.
The source document sets deadlines for certification and restitution proof, but it does not establish in its substantive findings whether those steps were later completed. The unresolved issue is therefore concrete: whether WestPark’s replacement controls can detect the same mismatches and warning signs before customer money is committed, rather than documenting them after the investment has failed.
The source document for this investigation is attached below.
You can read this FINRA documentation from their website by visiting this website link: https://www.finra.org/sites/default/files/fda_documents/2021070498107%20WestPark%20Capital%2C%20Inc.%20CRD%2039914%20AWC%20ks.pdf
