Court Enters Final Judgement Against Anthony B. Liddle For Defrauding Senior Citizen Investors

On February 28, 2024, the U.S. District Court For the Western District Of Wisconsin entered a final judgment against Defendant Anthony B. Liddle (“Liddle”) for defrauding investors who were senior citizens. Liddle led Prosper Wealth Management (“PWM”), an investment adviser firm previously registered with Wisconsin.

Facts Of The Case

Liddle obtained his initial securities license in 2008. From 2011 to May 2022, he served as a registered and investment adviser representative with various SEC and state-registered broker-dealers and investment advisers, including PWM, offering guidance on securities investments to clients and potential clients. His compensation comprised commissions from product sales and advisory fees based on managed client assets.

Around December 2016, Liddle founded PWM in Rhinelander, Wisconsin, providing securities and advisory services through SEC-registered broker-dealers and as a State of Wisconsin-registered investment adviser. In this capacity, Liddle offered investment advice to over 150 advisory clients, with PWM receiving a portion of clients' commissions and advisory fees, from which Liddle drew compensation.

From June 2019 until May 2022, Liddle orchestrated a fraudulent scheme, victimizing at least 13 advisory clients, mostly senior citizens. In this scheme, he misled clients about the risk associated with GWG L Bonds and similar investments, falsely portraying them as lower-risk alternatives to their existing holdings. Clients were persuaded to sell their current investment and transfer the proceeds to PWM, ostensibly to purchase the new, supposedly safer securities.

However, Liddle never made the promised investments, instead pocketed around $1.9 million of clients' funds. He also fabricated investment statements and "interest payments" using client money to sustain deception.

Liddle's Deceptive Practices Regarding Investment Risks for Advisory Clients

From June 2019 until May 2022, Liddle advised certain advisory clients to liquidate their existing securities or other investments, employing various falsehoods to convince them he was pursuing safer investment avenues on their behalf.

For instance, around mid-2020, amid the COVID-19 pandemic's market turbulence, Liddle contacted clients, many of whom were elderly, advising them to divest from their holdings, ostensibly to transition into purportedly safer, lower-risk investments. However, his true intent was to acquire liquid assets as the initial step in his fraudulent scheme.

Starting in March 2020 at the latest, Liddle misled numerous advisory clients about the risks associated with GWG L Bonds. Despite being aware, or negligently unaware, that GWG had disclosed the high-risk nature of investing in L Bonds in their 2020 Prospectus, Liddle continued to assert to his clients that these investments were low-risk. He obtained materials concerning GWG L bonds’ high risk from SEC-registered broker-dealers he was affiliated with, and he was also aware of the suspensions affecting GWG in 2021 and 2022.

Despite knowing the risks associated with GWG L Bonds since at least the release of the March 30, 2020 Prospectus, Liddle consistently assured his clients orally, in writing, and through electronic communications that these bonds were low-risk investments. For example, in December 2021, he assured a client at a nursing home about the safety of L Bonds, even guaranteeing monthly interest payments accruing from the bonds, received $110,000 from the client yet never invested the client's $110,000.

During both the 2021 and 2022 suspensions of GWG L Bond sales, Liddle deceived certain clients about the availability of these bonds. In one instance, in May 2021, a month after the 2021 suspension commenced, despite knowing the bonds weren't available, Liddle persisted in recommending them to elderly clients, leading one of the senior investors to apply for the bonds despite their unavailability.

Throughout the scheme, Liddle falsely promised clients regular monthly interest payments from GWG L Bonds and other securities. For example, in approximately June 2021, he misled an 81-year-old client into believing her $40,000 had been invested in GWG L Bonds when he hadn't. Despite the absence of actual investments, Liddle continued to make purported monthly returns to maintain the illusion of investment activity. These deceitful practices inflicted substantial financial harm on his clients, undermining their trust and leading to significant losses.

Liddle's Misrepresentations Regarding the Use of Client Funds

Between June 2019 and May 2022, Liddle deceitfully informed his advisory clients that their funds were invested in securities products yielding regular returns, including GWG L Bonds. He instructed clients to send funds directly to PWM, promising to make the investments on their behalf. However, he was aware that PWM did not hold custody of client funds, and there was no legitimate reason for clients to send funds directly to PWM.

Several clients even indicated the specific security on the memo line of their checks, believing Liddle had purchased for them. Despite these assurances, Liddle never executed the recommended transactions and diverted client funds to a secret PWM account he opened in June 2019. He then used these funds to fabricate interest payments and support his fraudulent activities.

To sustain the illusion of legitimate investments and returns, Liddle provided forged PWM client statements to certain clients, falsely indicating their investments in GWG L Bonds or similar products. In one instance in January 2022, he assured a client via email that her GWG investment was secure and available for withdrawal, despite never actually purchasing the bonds. These deceptive practices enabled Liddle to conceal his fraudulent activities while exploiting his clients' trust and finances for personal gain.

Complaint Filed Against The Defendant

Between June 2019 and May 2022, defendant Anthony B. Liddle orchestrated a fraudulent scheme, diverting approximately $1.9 million from clients of PWM, an investment adviser under Liddle's control and registered with the State of Wisconsin at the time. Liddle also deceived at least 13 advisory clients, many of whom were senior citizens, by providing false information about the utilization of client funds and the risk associated with their investments. These misrepresentations occurred through personal interactions, email correspondence, and telephone conversations.

Liddle falsely asserted that the securities held within clients' portfolios had become less secure, proposing alternative investments that he claimed were lower risk. Relying on Liddle's misleading representations, clients sold their securities holdings and transferred funds to PWM to follow Liddle's investment advice. Liddle subsequently confirmed the execution of these recommended investments, even providing written statements. However, in reality, Liddle never executed any of these transactions. Instead, he misused clients' funds and sustained the deception by providing fictitious "interest returns" on their investments, sourced from pooled victim funds.

The SEC initiates this civil enforcement action to safeguard investors against future harm and to hold Liddle accountable for his fraudulent actions.

Background Of The Defendant

Anthony B. Liddle, aged 40, resides in Wausau, Wisconsin. Liddle has been active in the securities industry since 2008 and has served as an investment adviser since at least 2011, holding various licenses granted by the Financial Industry Regulatory Authority (“FINRA”). Between June 2019 and May 2022, Liddle held roles as an investment adviser representative, broker representative, and registered representative affiliated with two SEC-registered firms, each dually registered as a broker-dealer and investment adviser.

On June 14, 2022, FINRA imposed a ban on Liddle, prohibiting his association with any FINRA member. Subsequently, on August 4, 2022, the Wisconsin Department of Financial Institutions, Division of Securities (“WI DFI”) issued a summary order permanently prohibiting Liddle from registering with the WI DFI in any capacity. Liddle initiated a voluntary Chapter 7 bankruptcy filing in the Western District of Wisconsin.

Background Of The Related Entity

Prosper Wealth Management, LLC, a now-defunct Wisconsin limited liability company, operated primarily from Wausau, Wisconsin. From June 2019 to May 2022, PWM provided financial advisory services and was registered as an investment adviser with the State of Wisconsin. Employing approximately three individuals, Liddle served as the owner, managing member, and overseer of the firm's operations, including control over its bank accounts.

GWG Holdings, Inc. is a publicly-traded company headquartered in Dallas, Texas. GWG’s common stock was delisted from the Nasdaq Stock Market on May 17, 2022. Before 2018, GWG, through its various subsidiaries, specialized in acquiring life insurance policies on the secondary market.

However, in 2018 and 2019, GWG shifted its focus to providing liquidity and other services to investors holding illiquid alternative assets. GWG marketed L Bonds, which were unrated, illiquid, high-risk, and potentially speculative securities. GWG temporarily halted the sale of L Bonds from April 2021 until November 5, 2021 (“the GWG 2021 Suspension”) due to its inability to file its 2020 Form 10-K.

On November 5, 2021, in its annual Form 10-K filing, GWG publicly disclosed its auditor's going concern qualification for its 2020 financial statements, indicating serious concerns about the company's viability.

Subsequently, on January 10, 2022, GWG suspended further sales of L Bonds due to its inability to meet interest payments on the L Bonds (“the GWG 2022 Suspension”). On April 20, 2022, GWG filed for Chapter 11 bankruptcy.

Court Gives Final Judgment Against The Defendant

Liddle is permanently restrained and enjoined from violating Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. He used means in connection with the purchase or sale of any security:

to employ any device, scheme, or artifice to defraud or
to make any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading or
to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

Liddle is permanently restrained and enjoined from violating Section 17(a) of the Securities Act of 1933 (the “Securities Act”) in the offer or sale of any security by the use of any means

to employ any device, scheme, or artifice to defraud
to obtain money or property using any untrue statement of a material fact or any omission of a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading; or
to engage in any transaction, practice, or course of business that operates or would operate as a fraud or deceit upon the purchaser.

Additionally, Liddle is permanently restrained and enjoined from violating Sections 206(1) and (2) of the Investment Advisers Act of 1940 (“Advisers Act”) by the use of means -

employing any device, scheme, or artifice to defraud any client or prospective client
engaging in any transaction, practice, or course of business deemed as fraud or deceit upon any client or prospective client.
Liddle is also liable for disgorgement of $1,662,041.80, representing net profits gained from the conduct alleged in the Complaint
Further, Liddle is barred from serving as an officer or director of a publicly-held corporation under Section 21(d)(2) of the Exchange Act.

Key Takeaways For The Investors

The key takeaways for investors from this case are:

Due Diligence

Investors should conduct thorough due diligence before entrusting their funds to any financial adviser or investment firm. This includes researching the background, qualifications, and adviser’s track record, and verifying their registration status with relevant regulatory authorities.

Red Flags

They should be vigilant for red flags such as promises of high returns with low risk, unsolicited investment advice, or pressure to make quick investment decisions. These can be indicators of potential fraudulent activity.

Regulatory Compliance

Investors should ensure that the financial adviser or investment firm they are considering is registered with the appropriate regulatory authorities and complies with all relevant laws and regulations. This can provide investors with additional protections and avenues for recourse in case of misconduct.

Documentation and Communication

Investors should maintain all investment documents and related communications they have with their financial adviser. This can help investors track their investments, identify discrepancie, and provide evidence in case of disputes.

Gayatri GuptaApril 24, 2024

Nasdaq Compliance

The Nasdaq Stock Market features three tiers of listed companies, namely: (1) The Nasdaq Global Select Market, (2) The Nasdaq Global Market, and (3) The Nasdaq Capital Market. These tiers are characterized by progressively stringent listing requirements, with the Nasdaq Global Select Market setting the highest standards for initial listings and the Nasdaq Capital Market serving as the entry-level tier, particularly suitable for most small-cap issuers.

To list securities on Nasdaq, a company must fulfill minimum listing requirements, encompassing defined criteria related to financial performance, liquidity, and corporate governance. Nasdaq retains extensive discretion in the listing process and reserves the right to reject an application, even if the technical prerequisites are satisfied, if it deems such denial essential to safeguard the interests of investors and the public.

After securing a listing on Nasdaq, a company is obligated to adhere to ongoing listing standards. To initiate the listing process, a company seeking inclusion on Nasdaq must diligently complete and submit a comprehensive listing application to Nasdaq. This application should include specific documents and information as outlined by Nasdaq's requirements.

Typically, the application process spans a duration of four to six weeks. Once the application is submitted, a Nasdaq analyst is designated as the primary liaison with the company. Within two to three weeks of submission, the company can expect to receive an initial comment letter. The comment and review process persists until a decision is reached on the approval or denial of the application. Similar to filing with the SEC, a meticulously prepared Nasdaq application tends to attract fewer comments and facilitates a more streamlined process. Generally, the company's securities counsel assumes a leading role, serving as the primary contact for preparing the application and engaging in communication with Nasdaq.

Similarly to the SEC review process, Nasdaq conducts a thorough examination of publicly accessible information pertaining to a company. This encompasses, but is not limited to, SEC filings, the company's website, management communications and speeches, as well as press releases. The iterative nature of the review process typically doesn't necessitate a formal protocol, and communication is commonly facilitated through email correspondence and phone calls.

Listing Criteria For Nasdaq
For a company to list its securities on Nasdaq, it must satisfy the following criteria:

Specific Initial Requirements:
- Quantitative Standards: Meeting defined thresholds for both quantitative and qualitative factors.
- Qualitative Standards: Fulfilling certain qualitative benchmarks.
Continuing Requirements:
- Quantitative Criteria: Adhering to ongoing quantitative benchmarks.
- Qualitative Criteria: Maintaining specified qualitative standards.

The initial quantitative thresholds are typically set at a higher level than those required for continued listing. This distinction aims to ensure that companies achieve a sufficient level of maturity before being listed. Additionally, Nasdaq imposes rigorous corporate governance standards that listed companies must adhere to throughout their tenure on the exchange.

Before formally submitting a comprehensive listing application, a company has the option to pursue a preliminary listing eligibility review. In this stage, the Listing Qualifications Staff conducts a thorough examination of the company's public filings to assess its compliance with numerical listing requirements. Additionally, the team evaluates the company's adherence to corporate governance requirements outlined in the Marketplace Rules ("Rules"). This preliminary review provides valuable insights into the company's eligibility for listing on Nasdaq before committing to the full application process.

Upon completion of the preliminary review, the Listing Qualifications Staff will make an assessment regarding whether the company meets the numerical listing criteria. Additionally, any corporate governance or regulatory concerns raised during this phase will be considered to determine their impact on the listing approval. It's important to note that while the preliminary review provides insights, final approval necessitates the submission of a formal listing application. This application undergoes a thorough examination by the NASDAQ Listing Qualifications Staff. Furthermore, the final approval process involves satisfactory compliance with specific qualitative reviews. This includes an examination of the regulatory history of the company's officers, directors, and significant shareholders. Meeting these criteria is integral to obtaining the final approval for listing on Nasdaq.

Financial And Liquidity Requirements

    Requirements

    Equity Standard
    Market Value of Listed Standard
    Net Income Standard

    Listing Rules

    5505(a)
and
5505(b)(1)
    5505(a)
and
5505(b)(2)
    5505(a)
and
5505(b)(3)
    
    Stockholders Equity

    	$5 million
    	$4 million
    	$4 million
    
    The market value of publicly held shares

    $15 million
    $15 million
    $
      5 million
    
    Operating History

    	Two years
    N/A
    N/A
    
    The market value of listed securities

    N/A
    $50 million
    N/A
    
    Net income from continuing operations (in the latest fiscal
a year or in two of the last three
fiscal years)

    N/A
    N/A
    $750,000
    
    Publicly held shares

    	1 million
    	1 million
    	1 million
    
    Bid Price

    	$4
    	$4
    	$4)
    
    Closing Price

    	$3
    	$2
    	$43
    
    Corporate Governance

    Yes
    Yes
    Yes
    
    Total Shareholders

    300
    300
    300

Corporate Governance Requirements

Across all three tiers of the Nasdaq Stock Market, corporate governance requirements remain largely consistent. The categories encompassing corporate governance standards include:

Distribution of Annual or Interim Reports
Independent Directors
Audit Committee
Compensation Committee
Nomination of Directors
Code of Conduct
Annual Meetings
Solicitation of Proxies
Quorum
Conflict of Interest
Shareholder Approval
Voting Rights

These governance elements play a crucial role in ensuring transparency, accountability, and ethical conduct within listed companies, irrespective of the specific tier within the Nasdaq Stock Market.

Companies seeking listing on Nasdaq must adhere to specific corporate governance standards, including the following:

Compensation Committee with Independent Directors:
- The company is required to establish a compensation committee comprised of independent directors.
- The committee must consist of at least two members.
- Rule 5605(d)(2)(A) introduces an additional independence test for compensation committee members.
Responsibility for Executive Compensation:
- The compensation committee is tasked with determining or recommending to the entire board the compensation of the chief executive officer (CEO) and all other executive officers.

These standards are designed to ensure a level of independence and scrutiny in the decision-making processes related to executive compensation within the company.

The Application And Documents

The Nasdaq application package encompasses several key components:

Symbol Reservation Form:
- Used to request the reservation of a specific trading symbol for the company.
Listing Application:
- Requires supplemental documents and details about the company's financials, operations, and other pertinent information.
Listing Agreement:
- A formal agreement outlining the terms and conditions of the listing on Nasdaq.
Corporate Governance Certification:
- A certification affirming the company's commitment to meeting Nasdaq's corporate governance standards.
Initial Application Fee:
- Payable via check or wire transfer, this fee is a prerequisite for initiating the listing process.
Logo Submission Form:
- Used for submitting the company's logo for use in Nasdaq's materials.

These application forms are completed through the Nasdaq website listing center, utilizing the online platform to facilitate the submission of supplemental and supporting documents. It is advisable to thoroughly review all required paperwork in advance, ensuring that the necessary information is readily available before initiating the application process.

Symbol Reservation Form

The symbol reservation form is a concise, one-page electronic form where applicants input information for Nasdaq's consideration. Nasdaq symbols, limited to 1-5 characters, adhere to guidelines established by the Intermarket Symbols Reservation Authority (ISRA). The ISRA system is designed to organize symbols efficiently, prevent duplication, and reduce programming and operational complexities. The ISRA operates within the framework of the NMS Symbology Plan, a plan utilized by Nasdaq.

Key details about the symbol reservation process:

Symbol Choices:
- The form allows applicants to propose three symbol choices in order of preference.
- While Nasdaq generally honors the first choice if available, it retains the authority to assign, rescind, or reassign a trading symbol at its discretion.
ISRA and Nasdaq Authority:
- The ISRA and Nasdaq have overarching authority in managing the assignment of symbols.
Additional Information:
- The form captures essential details about the issuer and the planned public offering.
- Information may include the name of the attorney, lead underwriter (if applicable), CEO and CFO names, yearly revenues, company website, and the sector in which the company operates.

Completion of this symbol reservation form initiates the process of securing a trading symbol on Nasdaq, and it's essential to provide accurate and comprehensive information to facilitate this stage of the listing application.

The Application

The Nasdaq listing application process is comprehensive and varies based on the circumstances surrounding the listing sought. There are twelve distinct listing applications catering to different situations, including changes of control, switches from other exchanges or markets, spin-offs, and initial public offerings (IPOs). Each application, spanning approximately seven pages, collects detailed information about the company, covering areas such as address, contact and billing details, securities attorney and auditor information, transfer agent particulars, and the company's officers and directors. Specific information on the company's securities, including type, par value, and cusip number, is also required.

Furthermore, the application mandates disclosure of legal proceedings involving the company, its officers or directors, or significant shareholders over the past ten years. This encompasses inquiries, investigations, lawsuits, litigation, arbitrations, and other legal and administrative proceedings. Documents supporting the backup and final disposition of these matters must be provided.

Regarding private offerings within the prior six months, including bridge financings, shelf registrations, and Regulation S offerings, the company is required to disclose such activities. Additionally, the application delves into the company's background, posing questions to ensure compliance with seasoning rules.

While Nasdaq retains the right to request relevant supporting documents, specific documents are mandatory based on the application type. For an uplisting from an existing U.S. market, the application must include letters from three market makers confirming their commitment to making a market in the subject securities. Other required documents include a listing agreement, a logo submission form, a corporate governance certification form, regulatory correspondence over the past 12 months, and shareholder confirmation documents. Nasdaq often seeks confirmation from the company's transfer agent regarding the eligibility of the security for the direct registration program (DRS).

During the review of an up listing application, Nasdaq may request additional information, such as a Broadridge share range analysis and NOBO list, a certified shareholder list, details about mitigating any going concerns or opinions, income statement and/or balance sheet projections for the next 12 months, and confirmation of Sarbanes Oxley Section 302 and 906 certifications by the company, among other inquiries related to compliance and financial matters.

The Listing Agreement

The Listing Agreement is a concise document, spanning two pages, serving as a formal affirmation of the company's commitment to adhere to all rules and regulations set forth by the Nasdaq Stock Market. It includes provisions for indemnifying and holding Nasdaq harmless from liability. Notable points in the agreement include:

Compliance Assurance:
- The company explicitly agrees to comply with all rules and regulations stipulated by the Nasdaq Stock Market.
Indemnification Clause:
- The company indemnifies Nasdaq, meaning it undertakes to compensate or reimburse Nasdaq for any losses or damages incurred. This includes harm resulting from third-party trademark infringement claims related to the company's symbol and logo, as well as Nasdaq's use of the same.
Disclaimer of Warranty and Liability:
- The agreement contains a disclaimer of warranty and liability against Nasdaq for trading issues, with the exception of those resulting from gross negligence or willful misconduct.

This agreement establishes a clear framework for the relationship between the listed company and Nasdaq, emphasizing the company's commitment to regulatory compliance while providing indemnification for certain specified matters and delineating the scope of Nasdaq's liability.

Corporate Governance Certification Form

The corporate governance certification form certifies compliance with the governance requirements related to an audit committee, director nomination process, compensation committee, board composition, executive sessions, quorum, and codes of conduct. Where an exemption applies, the form requires specification of the exemption terms. The document specifies the different rules and exceptions in a check-the-box format.

Logo Submission Form

The logo submission form contains the guidelines for the logo and affirms Nasdaq’s rights to use the same. Nasdaq uses company logos in its marketing materials, on the MarketSite Video Wall and Tower, and websites.

Fees

Entry fees are based upon the aggregate number of shares to be listed at the time of initial listing, regardless of class, with a maximum cap of $75,000. Fees are assessed on the entry date in The Nasdaq Capital Market, except for $5,000, representing a non-refundable application fee. This fee must be submitted with the company’s application.

Nasdaq does not charge application or entry fees for any securities transferred from a national securities exchange.

Benefits Of Trading On An Exchange

There are many benefits to trading on an exchange instead of the OTC Markets. The most significant benefits to a business are the ability to attract analyst coverage and institutional investors and the corresponding increase in liquidity that comes with both. Stocks that trade on Nasdaq tend to have a lower bid/offer spread — again encouraging trading volume and liquidity. Exchange-traded securities are exempt from the penny stock definition, allowing more market maker and broker-dealer participation. As further explained below, a broker-dealer cannot recommend a penny stock transaction to its retail clients. Therefore, no analysts, financial advisors, or institutional investors make recommendations for purchases of penny stocks.

As an aside, this is one of the reasons that OTC Markets created the OTCQX market tier, which does not list penny stocks. It is also why the small-cap industry is pushing for a supported valid venture exchange (for further reading.

In today’s world, depositing stock and/or trade-in non-exchange traded securities is increasingly difficult. Despite the congressional efforts and SEC rulemaking in support of small-cap capital formation (for example, the JOBS Act, including the emerging growth company regulations, new Regulation A+ and Title III Crowdfunding and the new FAST Act), through enforcement and investigative proceedings, both the SEC and FINRA continue to apply pressure on broker-dealers, clearing firms and transfer agents to reduce the secondary trading and free flow of penny stocks. For more information on difficulties in depositing stocks.

Further On Penny Stocks

NASDAQ and NYSE MKT traded securities are exempted from the definition of a “penny stock” due to the initial and ongoing listing standards. Penny stock rules focus on broker-dealers’ activity in effectuating trades in penny stocks. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (the “Penny Stock Act”) prohibits broker-dealers from effecting transactions in penny stocks unless they comply with the requirements of Section 15(h) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The rules promulgated thereunder, particularly Exchange Act rules 15g-1 through 15g-100 (the “penny stock rules”).

Section 15(h) of the Exchange Act provides that no broker or dealer may effectuate a customer’s purchase or sale of any penny stock unless such broker or dealer.

Approves the customer for the specific penny stock transaction and receives a written agreement to the transaction from the customer.
Furnishes the customer a risk disclosure document describing the risks of investing in penny stocks.
Discloses to the customer the current market quotation, if any, for the penny stock, including the bid and ask prices and the number of shares that apply to such bid and ask prices.
Discloses to the customer the amount of compensation the firm and its broker will receive for the trade.

In addition, after executing the sale, a broker-dealer must send its customer monthly account statements showing the market value of each penny stock held in the customer’s account.

Moreover, brokers and dealers subject to the penny stock rules are subject to additional disclosure requirements outlined in Rules 15g-2 through 15g-9. For my information on penny stocks and the rules affecting broker-dealer activity.

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