Moloney Securities Sells High Risk Legion Capitol Notes and GWG L-Bonds to Low-Risk Investors

Stoltmann Law Offices, a Chicago-based securities and consumer protection law firm, is representing investors in FINRA Arbitration cases involving brokerage firms and speculative, high-risk investments.  One of the firm’s latest filings on behalf of an investor is against FINRA registered brokerage firm Moloney Securities. The firm is headquartered in Manchester, Missouri and offers a wide range of  brokerage services to its clients in all fifty states.  Moloney Securities also uses dozens of other names depending which state it is operating in, which are identified in the tags below.

The recent claim, reported in FINRA Case No. 22-01465, involves two speculative investments masked as fixed-income – GWG L-Bonds and Legion Capital Bonds. The issues with GWG L-Bonds have been written about extensively by Stoltmann Law Offices. These L-Bonds were speculative, illiquid bonds that were subordinated to hundreds of millions in debt, in a company that was nothing more than a penny-stock niche finance company that had lost hundreds of millions of dollars in 2019 and 2020. That barely scratches the surface when it comes to issues related to GWG and what investors were not told by aggressive financial advisor-sales reps.

This specific claim also involves debt obligations issued by Legion Capital, which is a publicly-held private equity company that provides loans for real estate development. Although public (LGCP), the stock has virtually no trading volume is worth $0.00020 per share, and trades “OTC” or “over the counter”.  Financial records establish that Legion Capital has thirteen employees, has virtually no net-income, and has revenue of under one million dollars. Legion has a market cap of about $3,280 and is registered as a Regulation A company.

According to publicly available records, Legion Capital issued $20 million in two-year bonds and another $20 million in preferred stock pursuant to a Form 1-A under Regulation A of the Securities and Exchange Act, on or about June 2, 2021. These two year bonds were for a 5.5% annualized interest rate, paid monthly. An investment in this tiny company’s bonds is speculative and extremely risky. To make it worse, only paying investors 5.5% per year to put their capital at such risk, meant that investors are grossly under-compensated for taking this level of risk.

Regulation A is a federal securities registration exemption for public companies that are short duration (offered for less than twelve months) and seek limited capital raises (no more than $20 million for Tier 1 offerings and $75 million for Tier 2 offerings).  Regulation A was originally adopted in 1936 as an exemption for small issuers seeking to raise up to $5 million in capital. The Regulation was amended in 2015 increasing the offering limitations to $50 million within a 12-month period, subject to other terms and conditions. Compared to the more common Regulation D private offerings, Regulation A offerings raised about 1,000 times less capital from 2015 through 2019 than Regulation D offerings. The conclusion to draw is that Regulation A is simply not utilized nearly as much as the more common registration exemptions found under Regulation D. Regulation A issuers, like Legion Capital, are typically small and relatively new companies seeking limited amounts of investor capital. Securities issued under Regulation A are not traded and are by nature illiquid.

When a brokerage firm like Moloney Securities recommends that clients invest in debt issued by penny-stock companies like GWG or no-revenue start-ups like Legion Capital, it must comply with Regulation Best Interest and all applicable securities rules, laws, and regulations. The existence of reasonably available alternatives dooms these recommendations under Regulation Best Interest. Instead of exposing client money to the risk of total loss – pure speculation – for a mere 5.5% return, a “reasonably available” alternative recommendation would include a basket of dividend-paying stocks or bond-ETFs which offer similar yields and virtually no chance of total loss. Brokers sell these speculative bonds because they pay huge commissions – that is where the story begins and ends with these recommendations.

If you were sold GWG L-Bonds or Legion Capital bonds, you should contact Stoltmann Law Offices, P.C. for a free, no obligation initial consultation with a securities lawyer. Call 312-332-4200 today. Stoltmann Law Offices offers representation to defrauded investors nationwide on a contingency fee basis, which means we do not get paid until you do!

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