What Did Your Brokerage Firm or Investment Adviser Do Wrong With GWG
Published On: March 26, 2019

Investors who were solicited to invest in Direct Lending Investments (DLI) in Glendale, California by their financial advisor may have actionable claims to recover their money.  This week, the Securities and Exchange Commission (SEC) charged registered investment advisor Direct Lending Investments LLC with a fraud spanning multiple years that caused an $11 million over charge of management and performance fees to its private funds https://www.sec.gov/litigation/litreleases/2019/lr24432.htm.  The company allegedly fraudulently inflated it annual returns by 2 percent to 3 percent per year for multiple years.

According to the SEC:
Brendan Ross, DLI’s owner and then-chief executive officer, arranged with QuarterSpot to falsify borrower payment information for QuarterSpot’s loans and to falsely report to Direct Lending that borrowers made hundreds of monthly payments when, in fact, they had not. The SEC alleges that many of these loans should have been valued at zero, but instead were improperly valued at their full value, because of the false payments Ross helped engineer.

Unfortunately, the interests in this peer to peer company were sold to hundreds of retail investors both in California and nationally.  Many of the investments were sold to elderly or retired investors.  The brokerage firms who sold the investment had a duty to perform reasonable due diligence.  Brokerage firms and Registered Investment Advisors both have stringent duties and obligations to only recommend investments after an exhaustive review of the merits of the investment.  As noted by FIRNA in April of 2010, the “SEC and federal courts have long held that a BD that recommends a security is under a duty to conduct a reasonable investigation concerning that security and the issuer’s representations about it.  The duty emanates from the BD’s ‘special relationship’ to the customer, and from the fact that in recommending the security the BD represents to the customer ‘that a reasonable investigation has been made and that [its] recommendation rests on the conclusions based on such investigation.’”

Brokerage firms who solicited Direct Lending Investments were under an obligation to investigate potential red flags.  Firms were responsible for making certain the representations made by the company were accurate and truthful.  The failure to do so can make the brokerage firm legally liable through a Financial Industry Regulatory Authority (FINRA) arbitration claim or lawsuit.  If you were recommended Direct Lending Investments LLC by your financial advisor, please call our Chicago based law firm to learn about all legal options for recovering your losses on a contingency fee basis


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