Epperson & Greenidge is investigating brokerage firms that recommended GWG L Bonds to investors

On April 20, 2022 GWG Holdings, Inc. (GWG) filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas (case 22-90032). According to an article in the Wall Street Journal, published on the same day, the bankruptcy was due to “accounting issues and the resignation of its auditor prevented it from continuing to sell its products.”

At this point it appears that GWG entered bankruptcy with more than $1.6 billion of its L Bonds outstanding.  Most of this $1.6 billion in L Bonds is owned by individual investors who purchased these investments based on recommendations and sales pitches from regional broker-dealers who sold the L Bonds on GWG’s behalf for compensation.

GWG’s L Bonds, in simple terms, used money from investors to purchase life-insurance policies and intended to use payouts from these policies at the insureds’ death to repay investors.

According to the Wall Street Journal, “GWG was forced to stop selling additional L Bonds because of accounting problems that delayed the filing of its 2020 annual report, as well as the resignation of its auditor, leading the company to fail to make interest payments to L Bond holders in January.”

It appears that many L Bonds investors are elderly or retired and some have invested the bulk of their life savings in these GWG investment products.

The U.S. Securities and Exchange Commission (SEC) submitted questions to GWG regarding its merger with a financial services firm called Beneficient Co. in 2018.  It appears that GWG may have changed its business model after merging with Beneficient.  GWG delayed filing its annual report for 2020, in part because it had to resolve questions that it had submitted to the SEC regarding the Beneficient merger.  This delay in its 2020 report forced GWG to suspend sales of L Bonds repeatedly.

In addition to the SEC investigation regarding the Beneficient merger, GWG was facing multiple lawsuits leading up to its bankruptcy filing, including a class action lawsuit from L Bond holders.  And in November 2021, GWG revealed that it had received a subpoena from the SEC’s division of enforcement ordering the company to produce documents.

In a “declaration” filed in the bankruptcy proceedings, Timothy Evans (GWG’s chief financial officer) attributed the company’s financial difficulties to “a liquidity crisis precipitated by external factors outside of the Debtors’ control[.]” Mr. Evans stated in his declaration that:

• “[i]n October 2020, the Enforcement Division of the SEC served a subpoena on GWGH in connection with an investigation regarding certain accounting matters and GWGH’s issuance of Bonds. This investigation is ongoing and has involved the full cooperation of the Company, and, to GWGH’s knowledge, has not demonstrated the violation of any accounting standards or securities laws by GWGH or any other wrongdoing. On February 15, 2021, with the concurrence of its prior auditor Grant Thornton, LLP, the Company posed two accounting questions to the SEC’s Office of Chief Accountant. This consultation concluded on July 26, 2021, resulting in the late filing of certain financial statements and the voluntary suspension of Bond sales by GWGH for approximately eight months between April and November of 2021. The late filings arising from the consultation resulted in the voluntary suspension of Bond sales, which severely constrained the Debtors’ liquidity by foreclosing access to the capital markets. The Company has actively sought sources of ongoing liquidity, but has been unable to secure such funding outside of a [bankruptcy] case.”

Later in Mr. Evans’s Declaration, he appeared to place some of the blame for GWG’s financial difficulties on the brokerage firms selling the L Bonds. He states that “[t]he Public L Bonds have historically been sold by a seller network most recently comprised of approximately 145 Broker Firms.” And he further notes that part of the SEC’s investigation into GWG included issuing “subpoenas and document requests to individual Broker Firms that were selling or were considering selling GWGH Bonds.” According to Mr. Evans:

• “the SEC’s investigation, particularly its focus on how the Bonds were sold by selling group firms, has had the effect of significantly impacting the Company’s ability to access the capital markets. As noted, in connection with the SEC’s investigation, the SEC has issued subpoenas and document requests to many of GWGH’s Broker Firms, in some instances issuing information requests on an ongoing, or even daily, individual transaction-level basis. As a result, a number of Broker Firms indicated that they would not resume sale of the Bonds until further notice due to concerns of getting involved further in the SEC’s investigation.”

Our law firm is looking to speak with investors who purchased GWG L Bonds through the recommendation of the “approximately 145 Broker firms.” From GWG L Bond prospectuses filed with the SEC, it appears that the broker firms may have received up to 8% commissions for recommending these investments. Further, perhaps motivated by the large commissions, stockbrokers or financial advisors may have made unsuitable recommendation to investors who did not understand the nature of these illiquid investments or the risk involved. These brokers are members of FINRA and our firm specializes in bringing claims in FINRA arbitration to help investors recoup their losses.

If you, or a loved one, invested in GWG L Bonds based on the advice of a stockbroker or financial advisor, please call us at 877.445.9261 or contact us on-line for a free consultation. We work on a contingency fee basis, and we are only compensated if we obtain a settlement or a successful award for our clients.