A group of investors who bought bonds issued by the bankrupt GWG Holdings Inc. on Friday won an arbitration dispute of almost $1.08 million in damages, including interest and attorney’s fees, with part of their complaint seeking “emotional distress damages” against the broker-dealer, Ages Financial Services Ltd., that sold them the GWG bonds.
Two of the half-dozen investors each were awarded $75,000 of “emotional distress damages” by the three-person arbitration panel, which operated under the aegis of Finra Dispute Resolution Services.
While investors request “emotional distress damages” regularly, Finra arbitration panelists do not readily award cash damages to clients over the issue.
For instance, according to a scan of Finra’s arbitration database, 15 arbitration claims decided by panels this year have included claims of “emotional distress.” Of those claims, including last Friday’s against Ages Financial Services, only two resulted in the Finra panelists awarding money to those people filing the complaints for that reason.
The total of $150,000 “is one of the largest emotional distress damages awarded in Finra’s history,” said Adam Gana, the plaintiff’s attorney who filed the claim in 2022 on behalf of the group of investors, which was led by George Wilson. “Firms load up clients in alternative investment products, and then then the investors lose their life saving. It can take a huge and dramatic toll on clients.”
“The loss of life savings is absolutely devastating to investors,” said Joe Peiffer, a plaintiff’s attorney and current head of the Public Investors Advocate Bar Association. “Judges and juries awarded these types of damages for years. I’m glad arbitration panels are starting to recognize this, too.”
William McCance, the president of Ages Financial Services, on Monday morning did not return a call to comment about the matter. Ages Financial Services, a small broker-dealer in suburban Boston, lost a Finra arbitration decision last fall to investors stemming from the sale of GWG bonds and totaling $246,000.
About 40 broker-dealers sold close to $1.6 billion in GWG L bonds, so-called because they were backed by life settlements, before the firm declared bankruptcy in 2022, leaving investors in the lurch.
The group of GWG bond investors claimed breach of fiduciary duty, suitability and other allegations in their complaint and were originally seeking compensatory damages of $648,000.
An arbitrator this April overseeing a Finra arbitration claim awarded close to $100,000 to a customer who in 2018 and again in 2020 purchased GWG L bonds, calling the bonds "not a suitable investment for the [client,] or perhaps anyone," in an award that pointed to a broker-dealer and financial advisor ignoring the fiduciary duty owed to a client.
Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.
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"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.
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