Philly broker in hot water, again, over alt sales

Half-a-dozen years after being fined $200,000 by the state of Pennsylvania over the sale of complex investments, a Philadelphia-area broker, Austin Dutton, last week lost an industry arbitration claim of $43,645 to a client related to sales of GWG Holdings Inc. L Bonds.

GWG Holdings, which sold $1.6 billion in bonds backed by life settlements through a network of independent broker-dealers and registered reps like Dutton, filed for Chapter 11 bankruptcy protection in April 2022. While some investors who bought GWG bonds have sued brokers and broker-dealers through arbitration overseen by the Financial Industry Regulatory Authority Inc., many are waiting for the bankruptcy court to decide what value, if any, the bonds actually have before filing claims, according to recent conversations with plaintiff's attorneys.

Dutton, who has 33 separate disclosure items on his BrokerCheck profile, was was well known in Philadelphia a decade ago for selling nontraded real estate investment trusts managed by Nicholas Schorsch’s private firm, American Realty Capital, now AR Global. In July 2017, the Pennsylvania Department of Banking and Securities fined Dutton $200,000, citing “dishonest or unethical practices in the securities business” in the sale of a security.

The claimant in the recent Finra arbitration was an investor, Robert Jordan, who last year sued Dutton and two of his former broker-dealers, Primex and American Trust Investment Services Inc. Jordan alleged violations of various federal and Pennsylvania securities laws, breach of fiduciary duty, negligence and gross negligence related to the GWG bonds in the matter, according to the Finra arbitration award, which was issued last Tuesday.

“I argued that, all the way back in 2017, the business model at GWG Holdings was not working,” said the attorney for the plaintiff, Kal Nekvasil. Jordan, his client, bought the GWG bonds in September and October of 2019.

“How can a broker recommend an investment that’s lost $180 million over the prior two years?” Neksavil said, adding that he further argued in arbitration that GWG bondholders would be lucky to get back 10 cents to 20 cents on the dollar via the bankruptcy proceeding.

Jordan had initially asked for at least $100,000 in damages, according to the award. He removed the firm American Trust from the complaint before last week's decision.

Nekvasil said the award of almost $44,000 accounted for Jordan's total losses related to the GWG bonds. "I’ve got hundreds of GWG bond cases," he added.

Dutton didn't return phone calls on Tuesday morning to comment. The three-person arbitration panel dismissed Jordan's claim against Primex because it did not find evidence that Primex was notified about the claim.

Dutton has been registered with nine different broker-dealers since 1996, according to his BrokerCheck profile, but hasn't been licensed to sell securities since January 2022, when he last worked at America Trust Investment Services. He has two dozen settled customer complaints on his BrokerCheck history, and Finra suspended him for 2½ months last summer from the securities industry for failing to respond to the regulator's requests for information, an industry mandated rule.