(This story was updated to correct a misspelling and because an earlier version included an inaccuracy.)
U.S. Securities and Exchange Commission officials recently settled cases with a pair of Winterset stockbrokers, including an official on multiple city and nonprofit boards.
David LaGrange and Laura Barnes of Bridges Financial agreed to pay fines after the SEC accused them of selling risky securities to their customers, according to a Sept. 27 settlement. The two sold about $4.4 million worth of “speculative” corporate bonds offered by GWG Holdings, a financial services company.
LaGrange and Barnes sold some of the bonds even after GWG officials disclosed “substantial doubt” about their ability to operate. Five months after that disclosure, GWG filed for Chapter 11 bankruptcy with about $2 billion of debt. Many customers are still waiting to get some of their money back.
The SEC accused Barnes and LaGrange of violating the federal care obligation, which requires brokers to “exercise reasonable diligence, care and skill” when making recommendations. The two did not return the Des Moines Register’s calls or emails with detailed lists of questions.
In addition to selling securities and insurance products, LaGrange is the chair of the Winterset Airport Authority and the Winterset Planning and Zoning Commission, a board he was reappointed to for a new term Monday night. LaGrange was also the president of the nonprofit Madison County Development, according to a 2023 tax filing.
He and Barnes sell investments as representatives of Moloney Securities, based in Manchester, Missouri.
“Moloney Securities is glad to have worked with the SEC to finally resolve this matter,” company president Ted Moloney said in a statement Tuesday. “Our firm cooperated with the commission and its staff for more than 2 years concerning these novel Regulation Best Interest issues, and we are pleased to have the matter behind us and look forward to continuing to serve our valued clients.”
The case against Barnes and LaGrange centers on their sale of bonds offered by GWG, which once invested the proceeds in life insurance policies. In 2018, GWG merged with Beneficient Co. Group, a Dallas-based financial firm that invested in private equity and venture capital funds.
According to the Wall Street Journal, Beneficient’s leaders said they pooled money together in a way that let retail customers take stakes in assets that usually only the country’s wealthiest investors could obtain.
GWG, in turn, changed its investment strategy after the merger, according to the SEC. Rather than buying life insurance policies, GWG injected its bond proceeds into Beneficient’s assets.
In a June 2020 offering, GWG allowed investors to buy up to $2 billion of bonds, known as L Bonds. According to the company’s prospectus, these bonds came with a “high degree of risk.” Much of the proceeds went toward paying back previous debts.
“L Bonds are only suitable for persons with substantial financial resources and with no need for liquidity in this investment,” GWG representatives wrote in the prospectus.
In October 2020, the SEC subpoenaed GWG for documents concerning the company’s accounting and its transactions with Beneficient, according to the Journal. Five months later, GWG paused selling bonds after failing to file a 2020 annual report, according to the SEC.
By November 2021, however, GWG was selling again. Under SEC scrutiny, the company filed a 2020 financial report that showed GWG lost $215 million. The report disclosed that GWG needed to issue more bonds to continue operating.
Moloney Securities Co. advised brokers to limit customers’ investment in GWG’s bonds to less than 10% of their net worth. According to the SEC, Barnes and LaGrange brokers exceeded that limit with some customers, earning a commission on the sales.
In December 2021, a month after GWG issued its financial report, one of LaGrange’s customers bought $23,000 worth of bonds from the company. That acquisition brought the customer’s total investment in GWG bonds to $38,000, representing 30% of the customer’s net worth.
A Barnes customer, meanwhile, bought $59,000 worth of GWG bonds in December 2021, bringing the customer’s total investment to $144,000. The investment represented 14% of the customer’s net worth.
In January 2022, according to the Journal, SEC officials told brokers that regulators would investigate them if they continued to sell GWG’s bonds. The company defaulted on debt payments that same month.
Soon after, Dan and Brenda Kirchmann realized they had a problem. The Kirchmanns, who farm in Sumner, bought GWG bonds from 2015 through 2021. Their broker recommended the investment, which paid interest at a rate of about 5.5-6% − much higher than the 1-2% they earned on certificates of deposit at the time.
Dan Kirchmann said their broker explained that GWG was pouring the money into lucrative investments, making enough money to pay high returns to bondholders. The Kirchmanns bought the bonds after strong farming years, hoping to build a line of “fun money” when they retire.
“It was hard-earned money,” Dan Kirchmann said. “Farming’s kind of tough to make some money in. We did well some years. And we invested it, instead of buying crap. We kept it around for a rainy day.”
The Kirchmanns did not know that the SEC was investigating GWG. But in February 2022, Brenda Kirchmann noticed that the company failed to make its monthly deposit into the couple’s account. GWG filed for bankruptcy two months later. According to a filing in that case, the company owes the Kirchmanns $56,000.
“I don’t know what we’re going to get out of it yet,” Dan Kirchmann said. “I’d like to know where the money is. It’s millions.”
According to the SEC, LaGrange sold about $3.7 million worth of GWG’s bonds. As part of his recent settlement, LaGrange will pay about $35,000. About $20,000 of that is disgorgement, representing the commissions he earned selling the bonds.
Barnes, meanwhile, sold about $634,000 worth of GWG’s bonds. She agreed to pay $27,000, including $13,000 in disgorgement.
Bridges Financial is located on East Court Avenue in Winterset’s main city square. According to the company’s website, LaGrange purchased the company in 2007.
Correction: A previous version of this story inaccurately stated that the Kirchmanns’ stockbroker worked for RBC Wealth Management.
Tyler Jett is an investigative reporter for the Des Moines Register. Reach him at tjett@registermedia.com, 515-284-8215, or on X at @LetsJett. He also accepts encrypted messages at tjett@proton.me.