The Financial Industry Regulatory Authority has imposed a $520,000 penalty on WestPark Capital Inc., a small Los Angeles-based broker-dealer, for violations related to the sale of GWG L bonds. The firm, which employs 55 registered representatives, failed to ensure that recommendations of these high-risk bonds complied with Regulation Best Interest's care obligations, according to a FINRA settlement announced last week.
From March 2019 through the present, WestPark Capital did not reasonably supervise the sale of GWG L bonds to 10 retail customers. FINRA determined that these recommendations were not in the customers' best interests or suitable for their financial profiles. The penalty includes a $175,000 fine and $345,000 in restitution to affected clients.
The GWG L bond debacle has been unfolding for several years. In May, a Manhattan jury convicted Bradley Heppner, former chairman of GWG Holdings and Beneficient, on all federal charges, including securities fraud, wire fraud, and conspiracy. Heppner faces up to 20 years in prison on each fraud count, with sentencing scheduled for October. Prosecutors alleged he siphoned more than $150 million from GWG through a shell company called Highland.
GWG Holdings filed for bankruptcy in 2022, leaving thousands of retail investors holding more than $1 billion in now-worthless bonds. The bonds were illiquid and did not trade on any exchange. According to FINRA, GWG had a history of net losses and insufficient cash flows to fund operations. In January 2022, GWG defaulted on its obligations to L Bond investors and halted further sales.
WestPark Capital, founded in 1996, consented to FINRA's findings without admitting or denying the allegations. CEO Richard Rappaport did not respond to requests for comment. The firm is not the first to face regulatory scrutiny over GWG bond sales; FINRA has previously penalized other small and mid-sized broker-dealers for similar misconduct.
This case highlights ongoing regulatory focus on suitability and supervision in complex product sales. For advisors, it underscores the importance of rigorous due diligence and adherence to Reg BI's care obligations, particularly when recommending illiquid or high-risk investments. The GWG L bond collapse serves as a cautionary tale about the consequences of inadequate oversight.
Related developments include a recent Sixth Circuit decision rejecting a FINRA jurisdiction challenge, which could affect how such cases are adjudicated. Additionally, FINRA expelled New York B-D Reid & Rudiger for churning and excessive trading, signaling the regulator's heightened enforcement stance.
