Issuer of L Bonds Says SEC’s Probe Contributed to Its Demise
In the US Bankruptcy Court for the Southern District of Texas on April 20, 2022, GWG Holdings, Inc. (GWGH) voluntarily filed for Chapter 11 bankruptcy protection. The move was expected in the wake of the regulatory and financial woes plaguing the Dallas-based alternative firm.
GWG Holdings’ bankruptcy is bad news for investors, many of whom are retail customers, including elderly investors and retirees. In February 2022, the company, which sold $1.6B in life-settlement backed bonds via independent brokerage firms, had defaulted on $13.6M in principal payments and interest it owed investors of its L Bond series.
In its bankruptcy filing, GWG Holdings said that the Securities and Exchange Commission’s (SEC’s) investigation into brokerage firms for selling L-Bonds to their customers contributed to the alternative asset firm’s collapse. Some 145 broker-dealers, including managing brokerage firm Emerson Equity, sold L Bonds to investors.
GWG stated that after it resumed the sale of these high-yield bonds in December 2021, the SEC began sending subpoenas to the brokerage firms that were selling or thinking of selling GWG L Bonds. These firms then became reluctant to sell financial instruments to clients, which led to significantly low sales.
GWG Holdings said that all of this affected its ability to “access the capital markets.” The company stopped selling L Bonds again in January 2022. (The firm had been using money from L Bond sales to, in part, pay those holding earlier issued L Bonds.)
Upon announcing its bankruptcy filing, GWG disclosed that it had secured $65M in debtor-in-possession financing for its restructuring from National Founders LP. This is subject to the approval of the court.
Visit our GWG Holdings page to learn more about this alternative asset firm and the recent events leading to its bankruptcy proceedings. For more information about the high-yield bonds in question, visit our GWG L Bonds page.
Our securities lawyers represent investors in Financial Industry Regulatory Authority (FINRA) arbitration against the brokerage firms that unsuitably sold these junk bonds to them and misrepresented the high risks involved. Contact us today at Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com).
Suspension of L Bond Sales Spelled Trouble for Investors and GWG
GWG Holdings currently has about $2B in total liabilities and over $3.4B in assets from secondary-life insurance policies and interests in two unaffiliated entities. The alternative asset firm’s merger with Beneficent Co. Group, LP, a financial services firm that issues loans to those that own alternative, illiquid assets, only contributed to its problems.
In 2018, GWG stopped buying life insurance policies and began selling L Bonds backed by Beneficent ownership units. The latter used the proceeds from those sales to invest in alternative assets. Investors are saying that they were never fully apprised of these developments.
GWG Chief Financial Officer Tim Evans also stated in the Chapter 11 bankruptcy filing that the SEC began investigating the company in 2020. He said that it was because of this and the need to respond to inquiries that GWG Holdings suspended bond sales in early 2021. Liquidity issues ensued.
Skilled GWG Holdings L Bond Lawyers
If you purchased GWG L Bonds in recent years with Emerson Equity or another brokerage firm, please contact our GWG Holdings investment attorneys today for your free case consultation. Call SSEK Law Firm at (800) 259-9010 today.