Lion Street Financial

On November 15, 2024, the Securities and Exchange Commission (SEC) announced administrative proceedings and a cease-and-desist order against Lion Street Financial, LLC, for violations of Regulation Best Interest (Reg BI) regarding the sale of GWG Holdings, Inc. (GWG) L Bonds to retail investors.

Between June 2020 and April 2021, Lion Street recommended and sold approximately $4.77 million of GWG L Bonds to retail customers. These bonds were illiquid, speculative, and high-risk, as disclosed in GWG’s offering documents. Despite these risks, Lion Street failed to exercise reasonable diligence, care, and skill when recommending the bonds and did not ensure they were in the best interest of certain retail investors based on their investment profiles.

The SEC found that Lion Street violated multiple Reg BI obligations:

• Care Obligation: Lion Street did not sufficiently understand the risks associated with GWG L Bonds, especially after GWG underwent significant changes in its business model in 2018 and 2019.
• Compliance Obligation: Lion Street lacked adequate written policies and procedures to ensure compliance with Reg BI until February 2021, eight months after Reg BI’s compliance date.
• Conflict of Interest Obligation: Lion Street failed to identify, mitigate, or eliminate conflicts of interest tied to the sale of L Bonds.

Lion Street also recommended L Bonds to six retail customers without a reasonable basis to believe these recommendations were in the customers’ best interests. Examples included retirees and individuals with limited liquid net worth who were advised to allocate substantial portions of their assets to high-risk L Bonds.

The SEC ordered Lion Street to:

• Cease and desist from committing or causing future violations of Reg BI.
• Pay $14,899.55 in disgorgement, $3,683.32 in prejudgment interest, and a $135,000 civil penalty.
• Establish a Fair Fund to return disgorged funds and penalties to harmed investors.

If you or someone you know purchased GWG L Bonds through Lion Street Financial and experienced financial losses, you may have grounds to pursue recovery. At ChapmanAlbin, we specialize in representing investors harmed by unsuitable investment recommendations. Contact us today to discuss your options.