A Mooresville, N.C.-based broker is the latest registered representative ensnared in the fallout from the sale of GWG “L bonds."
The Securities and Exchange Commission is suing Garrett Moretz, 53, in federal court in Charlotte for the fraudulent sale of high-risk, unrated bonds that he told clients were guaranteed. The bond issuer, GWG Holdings, subsequently declared bankruptcy in 2022.
From at least September 2019 until about August 2020, Moretz, who ran Moretz Wealth Management in Mooresville and was a representative of Life Mark Securities, misrepresented L Bonds as “guaranteed” to four customers who subsequently purchased about $250,000 of the bonds, the SEC said in its complaint. The sales “continued a long standing pattern of misrepresenting L Bonds as guaranteed to investors and potential investors,” the agency said.
Prior to 2018, GWG’s business model involved purchasing life insurance policies from consumers who no longer wanted or needed them. GWG continued to pay the premiums and collected the policy benefits upon the insured’s death. But in 2018, GWG stopped acquiring life insurance policies and transitioned its business model to focus on providing liquidity to a broader range of alternative assets, the SEC said.
GWG had a history of net losses and had never generated sufficient cash flows to fund its operations, the SEC said. As such, GWG depended on financing, primarily debt financing, including the sale of L Bonds to the public, to fund its operations, the SEC said. The company filed for Chapter 11 bankruptcy on April 20, 2022, the SEC said.
The SEC’s complaint alleged that Moretz's emails to a customer made multiple references to L Bonds being guaranteed. "These are guaranteed to pay the specified rate of return MONTHLY for the predetermined period after which you get your full investment returned,” Moretz said, according to the SEC.
The complaint alleges that Moretz knew or was reckless in not knowing that investors were not guaranteed to receive interest payments on L Bonds or the return of principal invested in L Bonds. The company routinely reported operating losses in its prospectuses.
Moretz, who did not respond to a phone call placed to his firm, is the latest in a long line of advisor-reps, broker-dealers and RIAs to become ensnared in arbitration and enforcement proceedings as a result of GWG L bond sales.
On Monday, the SEC ordered Moretz’s broker-dealer and RIA firm, Rochester, N.Y.-based LifeMark Securities, to pay $85,000 and an additional $4,410 in disgorgement for violating Regulation Best Interest via the sale of high-risk L bonds, According to the SEC’s order, between July 2020 and January 2022, LifeMark and one of the firm’s registered representatives, Geoffrey Wolterstorff of Eau Claire, Wis., failed to comply with Reg BI rules. In a separate order, Wolterstorff was ordered by the SEC to pay $24,991 in disgorgement, $3,430 in prejudgment interest and a civil money penalty of $15,000. He was also suspended from the securities industry for nine months, the SEC said.
Another broker who sold GWG L Bonds, Anthony B. Liddle, 41, of Wausau, Wis., pleaded guilty to duping clients out of $1.9 million and was sentenced to eight years in federal prison for wire fraud and money laundering in July 2023.
In February 2023, the SEC charged Western International Securities and five of its registered representatives—Nancy Cole, Patrick Egan, Andy Gitipityapon, Steven Graham, and Thomas Swan—with violating Reg BI violations for allegedly selling $13.3 million in L bonds and other unrated junk bonds that were not in the best interest of retirees and other risk-adverse retail customers.
Center Street Securities, a broker-dealer in Nashville, Tenn., filed a termination notice with the Financial Industry Regulatory Authority to shutter its doors in December 2023, citing 34 arbitration claims clients filed seeking more than $9 million from the firm for selling GWG bonds.