About 40 broker-dealers sold close to $1.8 billion in GWG Holdings Class L bonds, and GWG Holdings, Inc. had over 25,000 individual bondholders before filing for Chapter 11 bankruptcy in April 2022.
Since 2020, there have been thousands of these investors who have filed claims against their brokerage firms or securities broker-dealers in connection with the unsuitable recommendation and sale of these highly speculative securities, the failure to conduct due diligence, or have a reasonable basis to make these recommendations to anyone, breach of fiduciary duty, and of course, the violation of Regulation Best Interest.
Many securities broker-dealers have withdrawn their securities registrations or have become insolvent, or are otherwise defunct, as the result of customer claims, legal proceedings, and regulatory actions, arising from the sale of alternative investments. These FINRA Securities Arbitration claims are typically defended on the basis that the customer (as opposed to the broker) should have read the offering materials more carefully, or that the broker and the brokerage firm is excused from liability because the customer, at the direction of the broker, was required to sign a risk disclosure document typically stating or acknowledging that the customer could lose their entire investment. Actions by securities regulators are often sparse, but the factual findings of regulators are always helpful.
On August 11, 2025, the United States Securities & Exchange Commission issued an Orders against a securities broker-dealer, Emerson Equity, LLC, In the Matter of Emerson Equty, LLC, Securities Exchange Act of 1934, Release No. 103674 (August 11, 2025), and one of its registered representatives, Tony Barouti, Securities Exchange Act of 1934, Release No. 103675 (August 11, 2025) based upon the failure to comply with Regulation Best Interest in connection with recommendations of GWG Holdings, Inc. (“GWG”) corporate bonds called “L Bonds” to retail customers.
Emerson Equity, LLC, is a registered securities broker-dealer headquartered in San Mateo, California, Emerson Equity has approximately 200 registered representatives (“RRs”) and 72 investment adviser representatives operating from more than 50 branch offices throughout the United States. Through its regisistered representatives, Emerson Equity sells various securities to retail customers, including alternative investments, such as L Bonds.
Tony Barouti, since 2013 has been a registered representative of Emerson Equity operating from a branch office located at 11661 San Vicente Blvd, Suite 414, Los Angeles, CA 90049. According to FINRA Public Disclosure, Barouti has been associated with ten (10) different securities broker-dealers, including Newport Coast Securities Inc., which was expelled from FINRA membership in June 2018. As of even date, Barouti has been subject to sixty-three (63) customer initiated, investment related complaints, thirty-eight (38) of which have been settled for a total of more than $5 million.
All or most of these claims relate to the sale of GWG Holdings, Inc. “L Bonds” to retail customers. According to the SEC Order, Barouti recommended that one customer age 85, invest approximately 40% of his liquid net worth in seven year GWG Holdings, L Bonds.
GWG Holdings, L Bonds are a highly speculative illiquid investment. According to the SEC Order, the Investor Suitability Questionnaires for many of Barouti’s retail customers below stated that these customers had “Extensive (10+ years)” of investment experience in all listed asset classes, including but not limited to “Options/Derivatives,” “Venture Capital,” and “Commodities.” However, this did not accurately represent the actual investment experience of these customers, as in fact, many of these customers had very little investment experience and did not know what products constituted options, derivatives, or venture capital.
GWG Holdings, Class L Bonds
GWG was a publicly traded financial services company.
Prior to 2018, GWG’s business model involved acquiring life insurance policies in the secondary market. Following several corporate transactions in 2018 and 2019 with the Beneficient Company Group, L.P., GWG reoriented its business to focus on Beneficient’s business model of providing liquidity to holders of illiquid investments and alternative assets.
The L Bonds at issue were offered by GWG pursuant to a prospectus dated June 3, 2020. In the June 2020 Prospectus, GWG disclosed several risks associated with L Bonds, including that: (a) investing in L Bonds involves a “high degree of risk, including the risk of losing [one’s] entire investment[;]” (b) “[i]nvesting in L Bonds may be considered speculative” and (c) “L Bonds are only suitable for persons with substantial financial resources and with no need for liquidity in this investment.”
According to the SEC, GWG depended on financing – primarily debt financing, such as L Bonds to fund its operations. Since 2012, GWG had raised funds for its operations by selling corporate bonds – initially called Renewable Secured Debentures, but since 2015 known as L Bonds – to retail customers through a nationwide network of broker-dealers.
GWG L Bonds were not rated by any bond rating agency, and there was no secondary market for the bonds. Except in cases of death, bankruptcy or total permanent disability, L Bond investors had no right to redeem their L Bonds prior to their respective maturity date; GWG could, in its sole discretion, redeem L Bonds for a 6% fee upon an investor’s request.
In April of 2021, GWG temporarily suspended the sale of L Bonds because it was unable to file its Form 10-K for the year ended December 31, 2020. GWG subsequently filed its 2020 Form 10-K on November 5, 2021m and resumed selling L bonds shortly thereafter.
However, on January 10, 2022, GWG again suspended sales of L Bonds. GWG did not make the January 15, 2022 interest or principal payments on outstanding L Bonds and did not make any subsequent interest or principal payments on L Bonds.
On April 20, 2022, GWG filed for Chapter 11 bankruptcy.
Regulation Best Interest
As stated above, the SEC actions arise out of Emerson Equity and Barouti’s failure to comply with Regulation Best Interest in connection with recommendations of the GWG L Bonds to customers.
Regulation Best Interest’s General Obligation requires, in relevant part: “[a] broker, dealer, or a natural person who is an associated person of a broker or dealer, when making a recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer, shall act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker, dealer, or natural person who is an associated person of a broker or dealer making the recommendation ahead of the interest of the retail customer.” Exchange Act Rule 15l-1(a)(1); see also Regulation Best Interest: The Broker-Dealer Standard of Conduct, Exchange Act Release No. 86031, at 45-46 (June 5, 2019).
Registered representatives or “Associated Persons” of a broker-dealer can satisfy Regulation Best Interest’s General Obligation only if they comply with the applicable component obligations, including exercising reasonable diligence, care, and skill to have a reasonable basis for making the recommendation (“Care Obligation”). See Exchange Act Rule 15l-1(a)(2)(ii); Adopting Release at 13. Because all of Regulation Best Interest’s component obligations are mandatory, failure to comply with any component obligation constitutes a violation of the General Obligation.
As set forth in both actions, during the Relevant Period, Barouti, and Emerson Equity willfully violated Regulation Best Interest’s Care Obligation, Exchange Act Rule 15l-1(a)(2)(ii), when Barouti during the course of his association with Emerson Equity, recommended L Bonds to retail customers without exercising reasonable diligence, care, and skill to have a reasonable basis to believe the recommendation was in the best interest of each particular customer based on that retail customer’s investment profile and the potential risks, rewards, and costs associated with the recommendation (the “Customer-Specific” prong of the Care Obligation). Exchange Act Rule 15l-1(a)(2)(ii)(B).
As stated above, as of even date, Barouti has been subject to sixty-three (63) “disclosed” customer initiated, investment related complaints, thirty-eight (38) of which have been settled for a total of more than $5 million.
The remaining or pending customer claims ostensibly exceed another $5 million, and while Emerson Equity reports that it maintains Errors and Omissions liability insurance to protect itself from potential damages and/or legal costs associated with certain arbitration proceedings, it is uncertain whether these claims are covered or excluded by any outstanding Errors and Omissions Insurance Policy. However, at least according to its SEC Filing, the disposition of these matters, in the opinion of management, should not have a material adverse effect on the Emerson’s financial position. No evaluation of the likelihood of an outcome or reasonable estimate of range or potential loss can be made by legal counsel or management on the open arbitrations as such, no liability has been recorded.
As of December 2024, according to the company’s SEC Form X17-A-5 audited Annual Report, as also filed with the SEC, Emerson Equity reported its Net Capital as $3,137,807, and its net income from operations for 2024 to be $3,483,798. During the year ended December 31, 2024, Emerson Equity also disclosed that it earned approximately 50% of its total revenue from five customers.
Based upon a variety of disclosures, it would appear that Emerson Equity and Barouti sold more than $10 million of GWG L Bonds to its customers.
However, according to the SEC Order, the Barouti agreed to pay $50,140 in disgorgement, $12,501 in prejudgment interest, and a civil money penalty of $50,000 to the Securities and Exchange Commission. Emerson Equity LLC agreed to pay $4,035 in
disgorgement, $1,006 in prejudgment interest, and a civil money penalty of $100,000 to the Securities and Exchange Commission.
It may not seem like much. However, the factaul findings of regulators are always helpful.
Investors who lost money from investing in GWG Holdings Class L Bonds are urged to consult with counsel. Not only are these claims time sensitive, but there is also a chance that the broker-dealer selling these securities may become insolvent. As Justice Oliver Wendell Holmes, Jr. once said, a person who sleeps on their rights, may lose them. (He actually wrote: “equity aids the vigilant, not those who slumber on their rights, ” (The Common Law 1881,). In any event, the time to act is now.
The Guiliano Law Group, P.C.
For more than thirty years, our practice is limited to the representation of investors.* We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or a confidential evaluation of your claim. For more information, contact us at (877) SEC-ATTY.
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