Kingswood Capital Fined Over GWG Sales to Senior Citizens in California
In late 2025, the Financial Industry Regulatory Authority (FINRA) accepted a Letter of Acceptance, Waiver, and Consent (AWC) from Kingswood Capital Partners, LLC, a San Diego–based broker-dealer, resolving allegations that the firm failed to properly supervise the sale of illiquid alternative investments to elderly customers. The case, while limited to a small number of transactions, provides a revealing look into how supervisory breakdowns, inadequate written procedures, and concentration risks can expose vulnerable investors to catastrophic losses—and expose firms to serious regulatory consequences.
At its core, the Kingswood matter underscores a fundamental principle of securities regulation: firms that choose to offer complex, high-risk, and illiquid products must have supervisory systems and procedures capable of protecting customers, particularly seniors, from unsuitable recommendations.
Kingswood and Its Business Model
Kingswood Capital Partners has been a FINRA member since 2018. At the time of the conduct described in the AWC, the firm operated a nationwide business with roughly 200 registered representatives across 67 branch offices. Like many independent broker-dealers, Kingswood permitted its representatives to recommend a broad range of products, including alternative investments that are not publicly traded and are often illiquid.
Alternative investments—such as non-traded real estate products, private placements, and speculative corporate bonds—can be appropriate for some investors. But they also carry unique risks: lack of liquidity, limited transparency, valuation challenges, and the potential for total loss. For these reasons, FINRA has long emphasized that such products require heightened supervision.
The Regulatory Framework: Supervision and Suitability
FINRA’s case against Kingswood rests primarily on Rule 3110, which requires broker-dealers to establish and maintain a supervisory system reasonably designed to ensure compliance with securities laws and FINRA rules. This includes not only having supervisors in name, but also maintaining written supervisory procedures (WSPs) that meaningfully guide those supervisors in reviewing transactions.
Closely related is the suitability rule—FINRA Rule 2111—which, during the relevant period, required firms and their representatives to have a reasonable basis to believe that a recommended investment was suitable based on the customer’s full investment profile. Age, income, net worth, risk tolerance, liquidity needs, and investment objectives all play a central role in this analysis.
FINRA has repeatedly warned that even an otherwise legitimate product can become unsuitable if it results in an excessive concentration of a customer’s assets in a single investment or category of investments—particularly illiquid ones.
The Product at Issue: GWG Holdings L Bonds
One of the primary products involved in this case was the so-called “L Bonds” issued by GWG Holdings, Inc. GWG was a publicly traded financial services company that historically invested in life insurance policies purchased on the secondary market. By the late 2010s, however, GWG had pivoted its business model toward providing liquidity solutions for holders of illiquid alternative assets.
To fund its operations, GWG issued corporate bonds to retail investors, branded as L Bonds. These bonds were speculative, unrated, and not directly secured by GWG’s underlying assets. Offering materials explicitly warned that the bonds involved a high degree of risk, were illiquid, and were suitable only for investors with substantial financial resources and no need for liquidity.
Kingswood approved GWG L Bonds for sale by its representatives in April 2018, thereby assuming responsibility for supervising how those bonds were recommended and sold to customers.
The risks embedded in the product ultimately materialized. In January 2022, GWG defaulted on its obligations to L Bond investors and suspended further sales. Just months later, in April 2022, GWG filed for bankruptcy, leaving many retail investors facing significant losses.
A Critical Failure in Written Supervisory Procedures
FINRA’s findings make clear that Kingswood’s problems were not limited to isolated supervisory lapses. Instead, the firm’s written supervisory procedures themselves were fundamentally inadequate when it came to illiquid alternative investments.
Although Kingswood’s WSPs required supervisors to review transactions for suitability, they failed to explain how supervisors should evaluate concentration risk in illiquid products. The procedures did not identify relevant factors to consider, did not define what level of concentration might be excessive, and did not instruct supervisors on what steps to take if a proposed transaction appeared problematic.
Equally important, the WSPs did not require meaningful documentation of supervisory reviews or decisions. In practice, this meant that red flags could be identified but not meaningfully addressed—a scenario that played out repeatedly in the customer transactions at issue.
The Customers: Seniors with Moderate Risk Profiles
The enforcement action focuses on recommendations made to three senior customers between March and June 2019. In each case, the customers shared similar characteristics: advanced age, moderate risk tolerance, balanced growth objectives, and limited financial resources relative to the size of the recommended investments.
Customer A
Customer A was 81 years old, with an annual income under $50,000 and a net worth of less than $100,000 excluding her primary residence. Her stated investment objective was balanced growth, and her risk tolerance was moderate.
Despite these facts, a Kingswood representative recommended that Customer A invest $96,000 in GWG L Bonds. Kingswood approved the transaction even though it resulted in approximately 96% of Customer A’s net worth being concentrated in a single illiquid, speculative investment. A supervisor noted the potential overconcentration but failed to take any meaningful follow-up action before allowing the transaction to proceed.
Customer B
Customer B was 66 years old, earned less than $100,000 annually, and had a net worth of no more than $250,000 excluding his primary residence. Like Customer A, his risk tolerance was moderate and his investment objective was balanced growth.
In March 2019, the same representative recommended that Customer B invest $88,000 in GWG L Bonds. Kingswood again approved the transaction, even though it resulted in at least 35% of Customer B’s net worth being concentrated in the bonds.
Customer C
Customer C, age 80, presented an even clearer case of cumulative concentration risk. Earlier in 2019, she had already invested $200,000 in other illiquid, non-traded alternative investments through Kingswood. In June 2019, the representative recommended an additional $100,000 in illiquid alternatives.
Although Customer C had a higher net worth—approximately $1.2 million excluding her primary residence—the additional purchases resulted in roughly 25% of her net worth being tied up in illiquid alternative investments. Kingswood approved these transactions without adequately evaluating whether the cumulative concentration was appropriate given her age, objectives, and liquidity needs.
Red Flags Ignored
FINRA emphasized that these transactions were not approved in a vacuum. In each case, the customer’s account documents contained clear indicators—“red flags”—that should have prompted heightened scrutiny. Advanced age, moderate risk tolerance, limited income, and balanced growth objectives are all factors that typically weigh against heavy exposure to speculative, illiquid products.
Yet Kingswood failed to conduct a reasonable supervisory review. In the case of Customer A, a supervisor explicitly recognized the potential for overconcentration but failed to act on that concern. With Customers B and C, Kingswood did not adequately analyze concentration risk at all.
FINRA concluded that this pattern reflected systemic supervisory weaknesses rather than mere oversight.
Arbitration Claims and Representative Discipline
The consequences extended beyond regulatory sanctions. All three customers, or their beneficiaries, filed arbitration claims against Kingswood related to the alternative investments. Those claims were ultimately settled.
Separately, the registered representative involved in making the recommendations entered into his own AWC with FINRA. He consented to a five-month suspension, a fine, and the disgorgement of commissions earned from the unsuitable sales—an outcome that further underscores FINRA’s view that the conduct was serious and avoidable.
Sanctions Imposed on Kingswood
Without admitting or denying FINRA’s findings, Kingswood consented to a public censure and a $150,000 fine. The firm also waived its right to contest the allegations through a disciplinary hearing or subsequent appeals.
As with all AWCs, the settlement becomes part of Kingswood’s permanent disciplinary record and is publicly available through FINRA’s disclosure system. The firm also agreed not to make public statements denying the factual basis of the settlement.
Broader Lessons for Investors and Firms
The Kingswood case illustrates several broader lessons that resonate well beyond this single firm or product.
First, offering illiquid alternative investments carries heightened regulatory expectations. Firms must do more than rely on generic suitability language or high-level supervisory checklists. They must implement procedures that meaningfully address concentration risk, liquidity constraints, and the unique vulnerabilities of senior investors.
Second, written procedures matter. FINRA consistently views vague or incomplete WSPs as evidence of supervisory failure, particularly when problems arise that those procedures should have prevented.
Third, red flags must be acted upon. Identifying a problem is not enough; supervisors are expected to investigate, document, and, where necessary, prevent unsuitable transactions from proceeding.
Finally, the case underscores the human cost of supervisory failures. While the enforcement action focuses on rules and procedures, the underlying reality is that elderly investors were exposed to significant losses in products they were ill-equipped to bear—losses that later became all too real when GWG collapsed.
Free Consultation
FINRA’s action against Kingswood Capital Partners serves as a cautionary tale about the dangers of inadequate supervision in the sale of complex financial products. It reinforces longstanding regulatory principles while highlighting how those principles apply in real-world scenarios involving seniors, illiquid investments, and concentration risk.
If you or someone you know lost money investing in GWG L bonds or with Kingswood Capital Partners, call MDF Law PLLC for a free and confidential consultation.