GWG Holdings Lawsuit (FINRA) Update and Investigation

GWG Holdings Lawsuit

GWG Holdings Inc. (NASDAQ: GWGH), also known as GWG, recently filed for Chapter 11 protection in the US Bankruptcy Court in the Southern District of Texas (case number 22-90032). Investors have filed a GWG Holdings lawsuit “FINRA” claim to recover losses for alleged suitability issues. The company reported approximately $2.1 billion in total liabilities. For investors owning GWG Holdings l bonds, preferred stock, or common stock the recent declines in value, as well as the bankruptcy, could be devasting because it may mean they have or will incur investment losses on the value of those securities investments.

GWG failed to make January 15, 2022, GWG Holdings L Bonds principal and interest payments of $3.25 million and $10.35 million, respectively. These failed payments signaled some other significant issues at GWG.  As a result, investors are looking at potential lawsuits and FINRA arbitration claims as possible avenues for investment loss recovery for GWG L Bonds and GWG Preferred stock.

Haselkorn & Thibaut, P.A., is currently investigating GWG Holdings investments in stocks, preferred stocks, GWG Holdings L bonds, as well as financial services firm and broker dealers that sold these investments (GWG L Bonds & GWG Preferred Stock) to retail investor customers.

Investors can call 1-888-614-9356 for a fast, friendly, free consultation that will clarify how GWG’s bankruptcy action impacts their individual investment loss recovery options including securities fraud lawsuits, class actions, or potential FINRA claims.

Following the early 2022 missed payments, understandably many financial advisors fielded immediate client inquiries and concerns.  Initially, many financial advisors downplayed the issue, isolating it to a temporary issue only impacting GWG L Bond holders and noting that there was a purported grace period of 30 days for payment after becoming due, and while the missed payment was in fact considered a default, investors should not worry as it could still be addressed and possibly cured in the near term and was not effecting other securities issued by GWG.

As more time passed, along with the grace period expiration, investor fears came to fruition with more negative news and now most recently GWG’s bankruptcy filing. How the bankruptcy filing impacts GWG investors is an open issue, but on the surface, it would appear that GWG L bond investors are not in great shape and real losses are likely to result.  In addition, GWG holders of common and preferred stock should be concerned as well, as they are lower on the ladder compared to bond holders. 

GWG’s bankruptcy filing confirmed what had been recently rumored that GWG had significant cash flows and potential liquidation or restructuring alternatives were apparently the most viable option.  In its bankruptcy filing, GWG appears to blames some or all its challenges on investigations conducted by the SEC concerning its sales practices.  While that remains unclear, most investors are not concerned with the blame game as much as they are concerned with their investment losses.  

As per GWG’s filings with the Securities Exchange Commission (SEC) on 18th January, the decreased volume of sales of its L Bonds led to a shortage of capital being raised which resulted in a shortage of available cash. At that time, GWG Holdings Inc. has also indicated that the timely filing of the Annual Return of Form 10-K is also jeopardized as the accounting firm entrusted with the job has declined to offer itself for reappointment. This delay could also result in the sale of L Bonds being voluntarily suspended, and that was even before the grace period noted above had expired.L Bond sales were suspended.

Many investors are now concerned not just about the missed interest payments of L bonds, but also about the potential loss of investment principal as well due to the bankruptcy.  Some investors have already decided to take action, and are finding that one avenue of a potential recovery of investment losses appears to be a securities arbitration claim against the final advisor and/or firm that sold them the investments.  These claims are typically administered through the Financial Regulatory Authority (typically referred to as a FINRA claim). 

The nature of these types of claims often centers on the lack of due diligence efforts by the firm, the lack of proper supervision by the firm, or sales practice issues related to the manner in which the investment was marketed by the firm and pitched by the financial advisor to the investor. Alternative investments have strict compliance rules for brokerage firms because they are illiquid investments. L Bonds would be considered alternative investments.

For example, if the investor was mistakenly led to believe they were purchasing safe, conservative income producing securities that were low risk, and, they are only now finding out these were in fact riskier investments and may in some cases be sold in an inappropriate manner, those are claims that can be addressed more quickly, efficiently and confidentially, often on an expedited basis (and with no depositions or extensive discovery or motion practice).

Pending GWG Holdings Class Action Lawsuit & Complaints

News sources are reporting that several law offices are considering filing class action lawsuits against GWG Holdings L Bonds. As of today, we have not seen a class period, lead plaintiff deadline, or significant progress made.

It is alleged by investors that the GWG L Bond sales were not suitable to many investors. They seek to recover losses with GWGH investments (GWG L Bonds or Preferred Stock) may not see any recovery for years.

Many investors are filing FINRA complaints, and securities arbitration, for GWG L Bond sales. With over 50 years of experience, we have found that investors prefer this option over a traditional security fraud lawsuit because it is often faster and larger amounts for loss recovery. Please contact our experienced investment loss recovery lawyers at  1-888-614-9356 for a free consultation.

What is going on with GWG Holdings?

The answer is that GWG Holdings Inc. filed for Chapter 11 bankruptcy On April 2022 in the Southern District of Texas (case number 22-90032). There is not currently any payments made to GWG L Bond investors and several have filed lawsuits.

Is GWG in Trouble

The short answer is that GWG is very serious financial trouble and has filed for Chapter 11 Bankruptcy protection. GWG Holdings is currently unable to pay its creditors. The company has also stated that it will not be able to file its Annual Report on Form 10K.

What are the risks of L Bonds?

The answer is that most financial advisors would consider L bonds to be very risky and not suitable for most investors. L Bonds are highly illiquid and spectucaltive because there is high-risk insurance policy premiums or benefits that may not be paid. Investors owning L Bonds are

GWG Holdings Complaints – FINRA Arbitration & Legal Options

The Financial Industry Regulatory Authority (FINRA) requires brokers to ensure that a recommended investment meets the requirements of the customer, due diligence has been done and all risks are highlighted. Failure to do so, or supervise representatives doing so, could expose the firm to recovery claims by customers losing money on account of such a sale. FINRA makes available dispute resolution through arbitration mechanism for the same.

GWG Holdings investors have many options to recover losses. One of the most ways is through FINRA arbitration. It is typically faster and easier than traditional lawsuits.

Haselkorn & Thibaut, a national investment fraud law firm that has offices in Florida, New York, Arizona, Texas, and North Carolina, is investigating several cases against brokerage firms that pertain to improper selling of L Bonds and other high-risk investments, to investors.

If you have concerns about your investment in GWG L Bonds or other alternative investments, we encourage you to reach out to our investment lawyers for a free initial discussion. You can reach us for a free consultation by calling 1-888-902-6872.

GWG Holdings Financial Services Company Financials and Financial Data

GWG Holdings Inc balance sheet includes tangible assets in the form of the fair value receivable of life insurance policies, as well as policy benefits, if any, which amount to $794.7 million. Cash, including restricted cash, is valued at $67.7 million and its investments in alternative assets at $226.1 million.

Against this, they had $327.7 million worth of senior credit outstanding, along with outstanding L Bonds valued at $1.552 billion. This indicates an imbalance with liabilities significantly exceeding the value of tangible, realizable assets.

What are L Bonds?

The short answer is that a L bond is an “unrated life insurance bond” (meaning a credit company has not rated it) in which the sales were used to finance the purchase and premium payments of life insurance settlement purchased in the secondary market.

The GWG brochure says, “An investment in the L Bonds involves significant risks, including the risk of losing your entire investment, and may be considered speculative. Importantly, we maintain a senior borrowing arrangement that subordinates the right to payment on, and shared collateral securing, the L Bonds to our senior secured lender.”

An L Bond is an alternative investment. The holder stands to earn a high yield for bearing the risk of default on the underlying insurance policy premium being defaulted. It is an unrated security the purpose of which is to finance the premium payments as well as the purchase of life insurance settlement contracts purchased in the secondary market, as also mentioned on Investopedia.

GWG Holdings is in the business of selling alternative investment products to finance its life insurance asset portfolio. These life insurance assets are offered as investments with the potential to earn attractive returns for holders as compared to assets that are linked to the stock and bond markets. However, the higher risk, though implicit in most investments, may not always be highlighted by brokers while making a sale.

Chronology of developments for GWG Holdings Inc

We are currently investing the actions and building a time of events for GWG Holdings Inc. This is what we currently have.

December 2019

An amendment was filed by the company that related to the Debt Coverage Ratio in the indenture and a related transaction.

February 2020

GWG Holdings Inc announced a partnership agreement that The Beneficient Company Group, L.P. (BEN) entered into with the Chairman and CEO of GWG, Jon Sabes. According to the statement, this would result in a significant expansion of the strategic partnership between GWG and BEN, and that “the expanded partnership enhances and accelerates one of the most innovative service and liquidity providers in the rapidly growing alternative asset industry,” through a series of transactions.

GWG also announced a delay in its annual report filing for 2018, apparently caused by the reverse merger transaction with BEN leading to the fair valuation of the life policies not being completed in time, apart from the accounting issues pertaining to certain balance sheet items.

The strategic partnership had been launched with a transaction that was completed on the 28th of December, 2018. The prior transaction resulted in GWG being the holder of 86% of ‘common partnership units’ of BEN, apart from commercial loans receivable worth $193 million.

GWG, on its part, issued 27 million (approximately) shares of its common stock and L Bonds of a value of $367 million to a few trusts from whom the ‘common partnership units’ of BEN were purchased.

The outcome is that 79% of the common stock, and the corresponding voting rights, which amount to voting control, will rest with the seller trusts. BEN, on its part, will hold 7.6% along with proportionate voting rights.

March 2020

Revised trust charter applications were apparently submitted by BEN on 6th February, to the Texas Department of Banking. The Department was understood to be actively reviewing and considering the submissions.

Having already closed a number of transactions, as and when trust charters are issued, BEN is understood to be looking to expand its operations significantly.

Compared to a net loss of $18.9 million in the first quarter of 2019, the company reported a net loss of $49.4 million in the same period in 2020.

Before control changed on the 31st of December, 2019, the investment GWG made in BEN was classified as an equity investment. The 2020 first-quarter results, for the first time, included the results of BEN. The company also advised that its future focus was to move away from the acquisition of new life insurance policy business and towards the BEN investment. The existing life insurance portfolio would, however, continue to be actively managed.

The company, as part of this strategy, has ended its Life Care Exchange program that had been set up for policy purchases.

July 2020

The company issued a press release on 15th May noting its continued capital expansion despite the impact of and uncertainty due to the Covid-19 onset. It clarified that it continued to receive policy benefits, receive and pay income and dividends and meet its operating obligations.

According to filings to SEC, BEN, on 15th May, is reported to have signed a Term Sheet with its lender amending subordinated as well as senior credit arrangements. A key change was that of extending to 10th April 2021 the maturity date of both loans, including a transfer to GWG, or a subsidiary of GWG, pursuant to BEN’s trust company charters being issued by the Texas Department of Banking. The term sheet was subject to definitive agreements being executed after discussion and negotiation, as well as the closing conditions being satisfied.

August 2021

An announcement by GWG indicated that the annual report issued for 2019, reports for the first three quarters of 2020, as well as some other financial statements, “should no longer be relied upon.”

What was this determination based on?

This, apparently, was based on consultations with the SEC’s Office of the Chief Accountant (SEC OCA). This led to GWG deciding to move to consolidate the financials of its trusts who are the holders of the secondary alternate assets for which loan financing had been provided by GWG, as one of its core offerings, with its own financial statements.

The annual report for the year ended December 2020 had not been filed. The 10-Q form for the first quarter had also not been filed. The explanation offered was that GWG had undertaken an exercise of restatement of the financials for 2019 as well as for the first three quarters of 2020 and that it was “unable at this point to estimate when those restatements will be complete.”

Clarifying that “these restatements do not arise from or cause any negative changes in the Company’s operations, the underlying economics attributable to the Company or its subsidiaries, the terms of the Company’s existing assets, or its expected prospects for future business.” GWG stated that all obligations under its L Bonds and preferred equity would continue to be serviced. Further, it was working on strategies to bolster its cash position.

Failure to file the 2020 annual report in time led to GWG suspending the L Bonds offering, following which several board members are understood to have resigned in Q2 of 2021.

This is not considered attorney advertising and the law offices of Haselkorn & Thibaut announce that investors with substantial losses have the opportunity to lead the securities fraud complaints against GWG Holdings, Inc. (“GWGH” or the “Company”) (NASDAQ: GWGH). All applicable law and ethical rules apply.HT Law group.

Scroll to Top