Many individuals find themselves in difficult financial situations, needing cash urgently. Companies like GWG Holdings Inc. acquire life insurance policies from these people. This blog post will guide you through the recent developments and controversies surrounding GWG’s life settlement activities.
Haselkorn & Thibaut (InvestmentFraudLawyers.com) offer a free confidential consultation for GWG investors by calling 1-800-856-3352.
Prepare to uncover the truth.
Key Takeaways
Table of Contents
GWG Holdings, a life settlement firm, filed for Chapter 11 bankruptcy protection in April 2022 to reorganize and meet financial obligations after defaulting on payments to L Bond investors.
L Bond investors, who had invested around $1.6 billion in GWG’s high-yield, unrated bonds, filed a class-action lawsuit alleging that GWG misled them about the risks associated with its life settlements business.
GWG’s life settlement business involved acquiring life insurance policies from policyholders for cash and earning returns from the premiums paid and eventual death benefits collected.
The bankruptcy proceedings and lawsuits have exacerbated uncertainties surrounding the recovery of invested funds for L Bond holders, many of whom were retirees or nearing retirement age.
The case highlights the importance of thoroughly researching and understanding the risks associated with alternative investments like life settlements before investing.
Understanding GWG Life Settlements
GWG plays a key role in the life insurance asset industry. It facilitates transactions involving life settlements – policies sold by owners to third parties. GWG acquires and manages these policies as investments.
Role of GWG in Life Insurance Asset Investments
GWG Holdings invests in life insurance policies on the secondary market. It buys policies from owners selling them for cash. The company earns returns from premiums paid on policies until insured individuals pass away.
It collects death benefits from insurance companies upon the demise of insured persons.
GWG acquires whole life and universal life policies. It targets policies with high net death benefits at discounted prices. This arbitrage strategy generates high yields for GWG’s portfolio.
Recent Developments in GWG Holdings
GWG Holdings, a life settlement firm, filed for voluntary Chapter 11 bankruptcy protection, impacting L Bond investors who had invested in the company’s high-yield bond offerings. Explore the details to understand the recent developments and their implications.
Voluntary Chapter 11 Bankruptcy Filing
GWG Holdings filed for Chapter 11 bankruptcy protection. The company took this step to reorganize and meet financial obligations. It plans to maximize asset value through the reorganization process.
GWG Holdings’ Chapter 11 plan received over 99% acceptance from voting parties. The US Bankruptcy Court for the Southern District of Texas confirmed the reorganization plan. With overwhelming creditor support, the company’s path forward is now set.
Impact on L Bond Investors
GWG Holdings defaulted on payments to L bond investors. It missed interest and principal payments due on January 15, 2022. About 40 broker-dealers sold close to $1.6 billion in GWG L bonds over the past decade.
These high-yield, unrated bonds faced collateral security risks post-default.
Investors sought recovery for their GWG L bond investments. A class-action lawsuit alleged GWG misled investors about its life settlements business. As an alternative asset manager dealing in life insurance policies, GWG took risks that ultimately impacted bondholders’ returns.
Controversies Associated with GWG Holdings
GWG Holdings faced a class-action lawsuit from L Bond investors and missed payments to investors over its life settlement business. Class actions and lawsuits are concepts related to controversies associated with GWG Holdings.
To learn more about the controversies surrounding this firm, continue reading.
Class-action Lawsuit by L Bond Investors
L Bond investors filed a class-action lawsuit. They accused GWG Holdings’ chairman Brad K. of improper actions. White Law Group pursues securities claims against broker-dealers who may have improperly recommended L Bonds.
Class actions seek damages for groups of investors who lost money due to GWG Holdings and L Bonds issues.
The class action could impact the litigation trust’s potential proceeds distribution.
Missed Payments to Investors
Failing to honor payment obligations, GWG Holdings missed interest payments to L Bond investors in January 2022. This breach severely impacted the financial security of many individuals relying on the expected returns.
Regulators scrutinized GWG’s inability to meet contractual commitments, leading to a class-action lawsuit from aggrieved investors seeking compensation for damages.
GWG’s liquidity crisis escalated, culminating in the company’s voluntary Chapter 11 bankruptcy filing in April 2022. This decision aimed to restructure debt obligations and explore potential asset sales or mergers to fulfill investor claims.
Conclusion
GWG Holdings’ bankruptcy highlights risks in life settlement investments. Investors faced losses from L Bonds backed by life insurance policies. Lawsuits and restructuring processes continue amid regulatory scrutiny.
Thorough research proves crucial when exploring alternative assets like life settlements.
FAQs
1. What is a life settlement?
A life settlement involves selling an existing whole life insurance policy to a third party for a lump sum that is higher than the cash surrender value but less than the death benefit.
2. Who typically buys life settlements?
Life settlements are often purchased by institutional investors, such as investment funds or companies, seeking alternative assets with potentially higher yields than traditional investments like bonds or stocks.
3. What types of life insurance policies are eligible for settlement?
Both whole life insurance and universal life insurance policies may be eligible for life settlements, provided the policy holder meets certain criteria, such as being of advanced age or having a terminal illness.
4. How are life settlement investments regulated?
Life settlements are regulated by state insurance laws and the Financial Industry Regulatory Authority (FINRA). Investment advisers dealing in life settlements must also comply with securities regulations.
5. What are the potential risks of investing in life settlements?
Investing in life settlements carries risks, including the possibility of inaccurate life expectancy estimates, policy lapses or rescissions, and the illiquid nature of the investment. Thorough due diligence is essential.
6. How are life settlement proceeds taxed?
The taxation of life settlement proceeds depends on factors like the policy’s cash surrender value, premiums paid, and the sale price. Portions may be taxed as ordinary income or capital gains.
