Closing broker-dealer’s financials ‘were horrible’

Arizona-based Arque Capital Ltd. sold bonds issued by bankrupt GWG Holdings Inc.

A small broker-dealer based in Scottsdale, Arizona, that sold bonds issued by the bankrupt GWG Holdings Inc. is closing down.

Arque Capital Ltd. filed its termination letter with the Financial Industry Regulatory Authority Inc. last month, according to the firm’s BrokerCheck profile. The firm had just $6 million in RIA assets, according to its Form ADV, and nine client accounts.

Arque Capital’s interim president and CEO, Audrey Kuwabara, did not return messages Thursday to comment.

In May, Kuwabara and two other executives at the firm settled an investor complaint involving GWG bonds for $230,000, according to her BrokerCheck profile. The client’s claims were “without merit” and the executives denied any allegations, according to Kuwabara’s response about the matter on her BrokerCheck report.

Arque Capital opened in 2005, according to Finra, and has four disclosure issues on its BrokerCheck report. In one of those issues, which resulted in a $50,000 fine in 2014, the firm said it was the broker-dealer manager for renewable, secured debentures issued by GWG Holdings; the fine was related to allegedly faulty information in a sales brochure.

Arque Capital is not the first broker-dealer linked to GWG bonds to hit such a hard patch. JRL Capital Corp., a small broker-dealer based in Irvine, California, which also sold the defunct GWG bonds, filed for Chapter 7 bankruptcy May 2 in U.S. Bankruptcy Court for the Central District of California.

A plaintiff’s attorney, Jeff Erez, said he has about 20 investor claims against broker-dealers that sold GWG bonds, which were backed by life settlements, but none against Arque Capital, although he did take a close look at the firm.

“I looked at [Arque Capital’s] financials and they were horrible,” Erez said. “But GWG bonds were sold by hundreds of broker-dealers.”

After missing payments to investors, GWG Holdings filed for bankruptcy in April 2022. The company sold $1.6 billion in bonds backed by life settlements through a network of independent broker-dealers. It’s not clear what value, if any, those bonds currently have.

“There’s a lot of chatter about what the recovery rate for clients who own GWG bonds could be, maybe 15 to 25 cents on the dollar is the range discussed,” Erez added.

Small broker-dealers like Arque Capital are susceptible to problems when products, particularly high-risk, high-commission alternative investments, go sideways.

In Arque Capital’s March financial statement filed with the Securities and Exchange Commission, the company said it had errors and omissions insurance and was using it to cover the costs of defending itself against an investor claim. However, the firm does not mention pending litigation stemming from sales of GWG bonds in that SEC filing.