The CFP Board temporarily suspended an advisor named in the Securities and Exchange Commission’s first charges filed against a registrant for violating Regulation Best Interest.
According to the CFP Board, the interim suspension against Patrick M. Egan was effective as of June 21. Egan cannot use the CFP certification marks pending a “completed investigation and possible further disciplinary proceedings” on the part of the Board.
Egan was one of five reps charged with Reg BI violations when working for the Pasadena, Calif.–based brokerage firm Western International Securities (the firm was also named in the SEC complaint). According to the commission’s complaint, the firm (which is owned by Atria Wealth Solutions) violated the rule’s care and disclosure obligations when recommending and selling high-risk "L" Bonds to retail investors and retirees.
The commission had previously made Reg BI compliance a facet of firm examinations, and previously filed complaints and settled charges against firms for failing to file and deliver their Form CRS (which went into effect in tandem with Reg BI in June 2020).
But the Western International Securities complaint marked the first time the commission charged a defendant with violating the rule itself. According to SEC Enforcement Director Gurbir S. Grewal, the case underscored that brokers must act in the “best interest” of customers.
“When they fail to do so, as we allege happened here, they put retail investors at risk and we’ll hold them accountable,” he said.
The “L” Bonds were offered by GWG Holdings, and were meant to pay interest on a customer’s principal but were illiquid and high-risk, according to the issuer’s prospectus. Earlier this year, GWG Holdings suspended sale of the bonds. But between July 2020 and April 2021, Western reps sold more than $13 million of the securities to retail customers.
While the firm’s CCO prepared due diligence reports on the GWG bonds, Western reps, supervisors and other compliance professionals never acted on them, and the firm failed to set thresholds for customers to meet in order to purchase the bonds, according to the commission.
Instead, reps recommended the bonds to clients even though the clients often had an “insufficient, and sometimes erroneous” understanding of the product, according to the complaint. While the complaint doesn’t name any retail customers, it describes a number of allegedly harmed investors who were retirees with moderate risk tolerances.
In a statement after the SEC complaint was filed, Julian Arenzon, a spokesperson for Western International Securities, said the firm would defend itself against the SEC’s claims and wouldn’t offer additional comments on the litigation.
“The firm takes its clients’ best interests very seriously and believes it complied with Reg BI and the regulatory guidance available during the pertinent time frame,” he said.
Egan has been with Western International Securities since 1998, according to his FINRA BrokerCheck profile; additionally, he was with Coordinated Wealth Management from 2015 to 2019. Egan is listed as a co-founder of that firm, which offers its "securities and advisory services" through Western International Securities, according to its site.
He did not respond to requests to comment.
The CFP Board noted that the interim suspension order was a “temporary sanction,” and wouldn’t discount the possibility of further disciplinary action. The board could vacate the interim order if the underlying disciplinary issue is “vacated or reversed”; the order could also be overturned if the respondent (in this case, Egan), successfully petitions the Board’s Disciplinary and Ethics Commission (DEC) to vacate it.
