David Francis La Grange (also known as David Francis LaGrange), of Winterset, Iowa, a stockbroker registered with Moloney Securities Co. Inc., has been fined $12,500.00 by United States Securities and Exchange Commission (SEC) and ordered to cease and desist violating federal securities laws based upon findings that he made the unsuitable investment recommendation of GWG Holdings Class L bonds. Order Accepting Offer of Settlement, File No. 3-22217 (September 27, 2024).
According to the Order, La Grange recommended a corporate bond product known as L Bonds, issued by GWG Holdings Inc., to investors between June 30, 2020—the date Regulation Best Interest or Reg BI took effect—and approximately January 15, 2022. During this period, La Grange and others affiliated with Moloney Securities recommended these bonds without adequately evaluating whether the investment was in the best interest of those customers.
According to the settlement, the Securities and Exchange Commission (Commission) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are against Moloney Securities Co., Inc. (Moloney), Donald R. Hancock, David F. La Grange, and Laura B. Barnes (collectively, the Respondents). In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement which the Commission has determined to accept.
The Commission found that These proceedings arise out of Respondents’ failures to comply with Regulation Best Interest (Regulation BI) in connection with recommendations of corporate bonds called L Bonds offered by GWG Holdings, Inc. (GWG) to retail customers between June 30, 2020, the compliance date for Regulation BI, and approximately January 15, 2022 (the Relevant Period). According to GWG’s disclosures during the Relevant Period: (a) L Bond investments involved a high degree of risk, including the risk of losing an investor’s entire investment; (b) L Bond investments may be considered speculative; (c) L Bond investments were only suitable for investors with substantial financial resources and no need for liquidity in the investment; and (d) GWG would use a portion of the L Bond proceeds to repay existing L Bond holders.
In addition, in November 2021, among other things, GWG disclosed that several enumerated factors raised substantial doubt regarding its ability to continue as a going concern. Despite these disclosures, in recommending the purchase of L Bonds to certain retail customers, Moloney failed to exercise reasonable diligence, care, and skill to understand the potential risks, rewards, and costs associated with the recommendations. Moloney also recommended the purchase of L Bonds to certain retail customers for whom it did not have a reasonable basis to believe that the recommendations were in the customers’ best interest based on the customers’ investment profiles and the potential risks, rewards, and costs associated with the L Bonds.
Moloney also failed to establish written policies and procedures reasonably designed to identify and disclose, mitigate, or eliminate conflicts of interest associated with recommendations and enforce those policies and procedures that it did have and to disclose material conflicts of interest associated with its recommendations of L Bonds created by its Chief Executive Officer’s and other employees’ personal ownership of GWG securities. Moloney further failed to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Regulation BI.
As a result, Moloney failed to comply with Regulation BI’s Care Obligation, Conflict of Interest Obligation, Disclosure Obligation, and Compliance Obligation. During the Relevant Period, Hancock, Moloney’s CEO, was responsible for the firm’s day-to-day operations and its sales of L Bonds to retail customers and caused Moloney’s failures to comply with the Care Obligation, Conflict of Interest Obligation, and Disclosure Obligation, in violation of the General Obligation of Regulation BI. In addition, Hancock, La Grange, and Barnes failed to exercise reasonable diligence, care, and skill to understand the potential risks, rewards, and costs associated with the recommendation of L Bonds to certain retail customers.
La Grange and Barnes further recommended the purchase of L Bonds to certain retail customers for whom they did not have a reasonable basis to believe the recommendations were in the customers’ best interest based on the customers’ investment profiles and the potential risks, rewards, and costs associated with the L Bonds. As a result, Hancock, La Grange, and Barnes failed to comply with the Care Obligation and willfully violated the General Obligation of Regulation BI and Moloney willfully violated the General Obligation of Regulation BI found in Exchange Act Rule 15l-1(a)(1).
SEC’s findings highlight that L Bonds came with significant risks, including the possibility of losing the entire investment. GWG’s own disclosures described these bonds as speculative and emphasized that they were suitable only for investors with considerable financial resources who could afford to forgo liquidity. Also, GWG announced in November 2021 that it had serious concerns about its ability to continue as a viable business. Despite these red flags, the SEC determined that La Grange did not exercise sufficient, care, diligence, or skill to fully understand the rewards, risks, and costs associated with recommending L Bonds to customers.
SEC found that La Grange failed to assess whether these investments matched their customers’ financial profiles and goals. SEC also stated that the securities broker dealer failed to enforce effective written policies and procedures to identify and manage conflicts of interest. These conflicts included the personal ownership of GWG securities by key personnel within the firm. Therefore, La Grange was found to have violated Regulation BI.
FINRA Public Disclosure also shows that on November 18, 2024, a customer filed an investment related complaint involving LaGrange’s conduct in which the customer requested $38,000.00 in damages based upon allegations that LaGrange was negligent and made unsuitable recommendations in corporate bonds when LaGrange was associated with Moloney Securities Co. Inc.
LaGrange is also referenced in a customer initiated investment related complaint filed on December 31, 2024, in which the customer requested $72,000.00 in damages based upon allegations that LaGrange was negligent and made unsuitable recommendations in corporate bonds when LaGrange was associated with Moloney Securities Co. Inc.
LaGrange has been associated with Moloney Securities Co. Inc. in Winterset, Iowa since July 31, 2012, and has been associated with Moloney Securities Asset Management LLC in Winterset, Iowa since February 23, 2016.
