A retired Missouri couple has lodged a six-figure lawsuit versus Center Street Securities regarding losses incurred in GWG Holdings, Inc. (NASDAQ: GWGH). The plaintiffs had entrusted their money to the brokerage company because they were both inexperienced traders with health difficulties.
However, Center Street Securities dealer Joe Latour, a licensed investment advisor of the Latour Financial Group, acting on their behalf, offered them GWG L Bonds that were not suitable for them. He did so while failing to provide a complete view of the dangers. The investors are now seeking damages of up to $500K for their losses.
The couple claims incompetence, mistruths and inaccuracies, unsuitability, aggressiveness, gross negligence, deceit, breach of fiduciary duty, and other claims in the FINRA arbitration action. These senior retirees have filed a FINRA arbitration action versus Center Street Securities.
The appellants invested $134,000 in L Bonds on the advice of Center Street Securities. These are high-risk, highly speculative, and extremely illiquid investments. GWG Holdings can buy back these notes without penalties, which is a disadvantage to investors because they are unlisted, junior debt bonds offered for six months to seven years.
Someone cannot dispose of their L Bonds before the maturity date. Unless such an investor decides differently before the bond’s maturity date, these bonds will automatically renew. Over half of the existing GWG L Bonds weren’t redeemed when they reached maturity. They were merely replaced with a different bond.
Although the Bonds are reportedly collateralized, the firm’s principal assets are shareholding stakes in subsidiaries and affiliates. Furthermore, bond repayment to clients was similar to a Pyramid scheme in that they were funded by the issuance of L bonds to new buyers.
The plaintiffs’ financial planner at Center Street Securities allegedly advised them to buy inappropriate non-traded investment alternatives considering the couple’s investment characteristics, financial aspirations, and low-risk appetite. The corporation asserted that most of the offerings were conservative and safe alternatives while focusing these investors’ assets on riskier alternative investments.
The financial services firm headquartered in Texas was created in 2006. GWG Holdings was created to earn non-correlated yields on life insurance policies, allowing policyholders to get better returns on the secondary market compared to what they would from other typical options. On the other hand, the company has cost investors tens of millions of dollars.
GWG Holdings missed its $3.25 million principal payments plus $10.35 million interest payments owed to investors in February 2022. However, there were warning signals of disaster even before the default.
- The US SEC subpoenaed GWG in October 2020, following worries regarding its accounting procedures and other issues. The investigation was not made public until the coming month.
- December 2020: GWG had sold approximately $200 million in existing senior debt and more than $1.6 billion in existing L Bonds and other debts by December 2020. It failed to submit its yearly accounts for 2020.
- GWG stopped selling new L Bonds in April 2021.
What is an L Bond? Life Insurance Bonds
According to the GWG brochure, an investment in L Bonds can be risky. You could lose your entire investment and it may be considered speculative. We have a senior borrowing agreement that subordinates the rights to payment and shares collateral securing the L Bonds to our senior secured borrower.
L Bonds are an alternative investment. An L Bond is an alternative investment that offers a high yield and a chance to bear the risk of the insurance premium defaulting. It is unrated security that is used to finance premium payments and the purchase of life settlement contracts bought in the secondary market.
GWG Holdings sells alternative investment products to fund its life insurance portfolio. Compared to assets linked to the bond and stock markets, these life insurance assets can earn attractive returns for their owners. Brokers may not always highlight the higher risk in investments when making a sale.
Haselkorn & Thibaut (InvestmentFraudLawyers.com) is currently investigating GWG Holdings and broker-dealers that sold their products. Investors can call 800-856-3352 for a free consultation on investment loss recovery options including lawsuits and FINRA claims.