FINRA Suspends Former Cape Securities CCO for Supervision Failures Tied to GWG L Bonds and Complex ETPs
From the desk of Jim Eccleston at 蘑菇传媒
The Financial Industry Regulatory Authority (FINRA) recently suspended and fined Lester Joel Hochler, the former Chief Compliance Officer of Cape Securities Inc., for failing to reasonably supervise recommendations of speculative debt securities and complex exchange-traded products to retail customers. The resolution stems from a FINRA Acceptance, Waiver and Consent ("AWC") letter concluding two FINRA cause examinations.
According to AltsWire, between February 2021 and March 2023, Hochler failed to exercise reasonable diligence in overseeing two registered representatives at Cape Securities. This period fell squarely within the implementation of Regulation Best Interest (Reg BI), the rule requiring broker-dealers to act in the best interest of retail customers at the time a recommendation is made.
From February to April 2021, Hochler approved recommendations made by "Representative 1" for four retail customers to invest a combined $335,000 in GWG L bonds, unrated, speculative, and illiquid debt securities. Those customers held concentrations in alternative investments ranging from 11 percent to 43 percent of their liquid net worth. Three of the four customers were older adults, and all four carried moderate risk tolerances that did not include speculation. Despite clear red flags, Hochler took no steps to confirm that the representative had a reasonable basis for those recommendations before approving them.
AltsWire also reports that Hochler failed to reasonably supervise "Representative 2," who recommended that four retail customers, aged 57 to 92, invest approximately $45,000 in daily-reset non-traditional exchange-traded products (NT-ETPs). These complex products are designed to return multiples of a benchmark over a single trading day and are typically not suitable for retail investors who hold them for longer periods.
GWG Holdings Inc. raised capital primarily through L bonds sold to retail investors, predominantly retirees seeking income. The company defaulted on its obligations in January 2022 and filed for bankruptcy in April 2022. The fallout for investors has been severe. As reported by AltsWire, investors who purchased $1.6 billion in GWG L bonds received a proposed settlement offering approximately $31.48 per $1,000 L bond unit, roughly three cents on the dollar after deductions. Approximately 40 broker-dealers sold these bonds. In November 2025, federal prosecutors unsealed an indictment charging Bradley Heppner, GWG's former chairman, with misappropriating more than $150 million from the company.
Without admitting or denying its findings, Hochler consented to a one-month suspension from associating with any FINRA member in all principal capacities and a $5,000 fine. FINRA also requires Hochler to retake and pass the requisite principal examinations before acting in that capacity again.
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Tags: eccleston, eccleston law, finra enforcement, gwg l bonds, failure to supervise, complex etps, broker-dealer compliance
