Cape Securities Ordered to Pay $145K in Restitution Over GWG L Bond Sales
Cape Securities Inc. has been censured and ordered to pay $145,072.62 in partial restitution after the Financial Industry Regulatory Authority found the McDonough, Ga.-based broker-dealer failed to supervise its registered representatives’ recommendations of GWG L bonds and nontraditional exchange-traded products, or NT-ETPs, in violation of Regulation Best Interest.
The firm signed a letter of acceptance, waiver, and consent with FINRA without admitting or denying the findings.
The action is the firm-level resolution of an enforcement thread that has already involved two Cape Securities personnel. In March 2026, FINRA suspended and fined Lester Joel Hochler, the firm’s former chief compliance officer, for failing to exercise reasonable diligence in overseeing GWG L bond recommendations. In April, FINRA disciplined registered representative William S. Morris for unsuitable GWG L bond sales to five retail customers between February and April 2021, four of whom were seniors.
Reg BI Failures Across Two Product Lines
FINRA found that from July 2020 through March 2023, Cape Securities failed to establish written policies and procedures reasonably designed to achieve compliance with Reg BI’s care obligation. The firm’s written supervisory procedures addressed Reg BI only in general terms and provided no meaningful guidance to supervisors for evaluating whether representatives had a reasonable basis to believe their recommendations were in customers’ best interests.
On GWG L bonds, the firm’s WSPs required supervisors to review an alternative products worksheet when a customer purchased alternative products on a single day — but provided no guidance for assessing best interest or customer profile consistency. Between July 2020 and April 2021, two representatives recommended that six retail customers purchase a total of $460,000 in GWG L bonds. All six customers had moderate risk tolerances with investment objectives that did not include speculation, and five of the six were seniors. The purchases left up to 43% of customers’ liquid net worth concentrated in alternative investments. Supervisors took no steps to evaluate whether the recommendations were in the customers’ best interest, FINRA found.
GWG Holdings defaulted on its L bond obligations in January 2022 and filed for bankruptcy in April 2022.
On NT-ETPs — leveraged and inverse exchange-traded products designed to return a multiple or inverse of a benchmark over a single trading session — the firm’s procedures similarly failed to address how supervisors should assess the specific risks of those products, including the effect of holding daily-reset instruments longer than one trading session. From July 2021 to March 2023, one representative recommended that four retail customers purchase approximately $45,000 in triple-leveraged NT-ETPs. The customers, ranging in age from 57 to 92 and mostly with moderate risk tolerances, held the products for periods ranging from 253 to 693 days and incurred $15,072.62 in realized losses.
FINRA also found that from May 2023 through March 2025, the firm failed to respond timely to eight Rule 8210 requests for documents and information — missing multiple deadlines without requesting extensions and materially delaying resolution of the matter. One failure to respond triggered a FINRA Notice of Suspension in May 2024, with the firm coming into compliance only one day before a threatened suspension would have taken effect.
Sanctions and Status
FINRA did not impose a monetary fine, citing the firm’s limited financial resources, its pending withdrawal from FINRA membership, and its agreement to pay restitution. Partial restitution totaling $145,072.62 — $130,000 representing 50% of the principal value of five customers’ GWG L bond investments, and $15,072.62 representing realized losses incurred by the four NT-ETP customers — is to be paid to nine customers identified in the AWC. A sixth GWG L bond customer was excluded from the restitution order because she had previously settled a separate claim against the firm.
Cape Securities filed its Form BDW requesting to terminate its FINRA registration on March 19.
The Cape Securities matter is the latest in an ongoing wave of GWG-related regulatory and legal proceedings. Earlier this month, a Manhattan federal jury convicted Bradley Heppner, the former chairman of GWG Holdings, on all four counts brought against him — securities fraud, wire fraud, conspiracy to commit securities fraud and wire fraud, and making false statements to auditors — with sentencing scheduled for October 2026. Federal prosecutors had unsealed the indictment against Heppner in November 2025, alleging he misappropriated more than $150 million from the company. The approximately $1.6 billion in L bonds sold through roughly 40 broker-dealers left many investors facing recovery of roughly three cents on the dollar under a proposed bankruptcy settlement.
Visit the AltsWire directory page.
