What Did Your Brokerage Firm or Investment Adviser Do Wrong With GWG
Published On: February 17, 2021

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors who’ve sold their clients municipal bonds or funds that have defaulted or lost money. One of the many falsehoods that brokers tell their clients is that all municipal bonds “are a sure thing.” While most highly-rated “munis” are generally secure investments, some aren’t and you could get burned.

Investors recently lost money in municipal bonds sold to finance operations at Graceland, the legendary Memphis home of Elvis Presley. While Graceland has remained a steady tourist attraction over the years, like many venues, it was hit hard during the COVID crisis.

To put it mildly, 2020 was a rotten year for most businesses depending upon tourism and hospitality. Bonds sold to finance those kinds of businesses didn’t fare well. Reports Bloomberg:  “More than 50 municipal-bond issues worth $5 billion have defaulted, the most since 2011, according to Municipal Market Analytics, an independent research firm. Nearly two dozen more have drawn on reserve funds since the start of the year to cover debt payments when revenue fell short, a potential sign of more stress to come, according to data compiled by Bloomberg.”

In a normal year, municipal bonds have enough revenue backing them to cover payments to investors. When they don’t – which is what happened during the pandemic – investors don’t get paid. Some municipal issues are high risk, which indicates a greater chance of default due to lower or “junk” credit ratings. And munis aren’t always backed by government entities, which can often raise taxes to cover debt repayment. Since riskier bonds carry higher yields, they appeal to investors who are willing and able to take on more default risk in diversified portfolios. That’s why the sale of high-yield muni bonds have exploded in recent years as plain-vanilla government and corporate bond yields have sagged.

Muni issues often cover more speculative projects, luring investors with above-average yields. Adds Bloomberg: “Sales of high-yield debt by state and local government agencies — for projects like nursing homes, charter schools and real estate development — surged by 31% in 2019 to nearly $17 billion, the most since at least 2012, according to Bank of America Corp. More than $10 billion was sold only to big institutional buyers able to handle the risk.”

Of course, clients who are sold defaulting individual high-yield bonds or funds that contain them can be left holding the bag. The higher coupon may not be worth it in a portfolio that is overconcentrated in these investments. Under federal and state rules, broker-advisors are paid to ensure that the bonds they sell to investors are sound. When they aren’t – or they don’t disclose the default risks to clients — they can be cited in arbitration cases, in which case their clients have a chance to get their money back.

Have you invested with brokers who have invested your money in high-risk investments or not honestly reported their performance? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk, you may have a case in arbitration. Firms are also legally required by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.

If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!


The posting on this site are mere OPINIONS and NOT statements of fact in any way whatsoever. The information should not be relied upon and there have been no findings made against the firms or individuals referenced on this site. In addition, this Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Stoltmann Law Offices (161 N Clark Street 16th Floor Chicago, IL 60601). The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


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