Dimond Kaplan & Rothstein, P.A. Investigating Claims Against Brokerage Firms that Sold GWG Holdings L Bonds

Dimond Kaplan & Rothstein, P.A. Investigating Claims Against Brokerage Firms that Sold GWG Holdings L Bonds

Did You Lose Money in GWG Holding L Bonds?

Did you lose money investing in GWG Holdings Inc. L Bonds? Brokerage firms across the country sold more than $1 billion of GWG L Bonds. GWG has failed to make millions of dollars in scheduled interest payments on its GWG L Bonds and investors stand to lose their entire investment after GWG Holdings filed for Chapter 11 bankruptcy protection. The brokerage firms that sold GWG L Bonds include, Cabot Lodge Securities, Capital Investment Group, Centaurus Financial, Coastal Equities, Emerson Equity, Landolt Securities, Lion Street Financial (Stiba Wealth Management), and National Securities, Aegis Capital Corp., Newbridge Securities, N.I. Advisors, and Center Street Securities.

Brokerage firms recommended and sold GWG L Bonds to investors as secure, fixed-income investments. But contrary to the customary sales pitch, GWG L Bonds were high-risk, illiquid private placements that subjected investors to a significant risk of loss. Even if investors wished to sell their GWG L Bonds before the GWG’s bankruptcy filing, they would incur a 6% redemption fee if they sold their L Bonds.

What Was GWG Holdings?

According to its website, GWG Holdings Inc. (GWGH) funded its portfolio of life insurance assets via the sale of alternative financial products, including a series of high-yield bonds known as L Bonds backed by life settlements. GWG used investors’ money to buy life insurance policies on the secondary market. When the insured individuals under the insurance policies died, GWG would use the life insurance payments to pay returns to investors.

An L bond is an unrated life insurance bond used to fund the acquisition and premium payments of secondary-market life insurance contracts. GWG L Bond investors could not readily trade their L Bonds on the secondary market. As such, L Bonds were illiquid investments.

GWG L Bonds

The GWG L Bonds ranged in maturity from two to seven years and promised annual interest payments ranging from 5.50 percent to 8.50 percent. Many brokerage firms recommended GWG L Bonds to investors because the L Bonds purported to provide a guaranteed return of principal plus reasonable interest; nonetheless, they were illiquid private placements that were high risk and speculative.

What Happened?

GWG Holdings received a demand to provide records from the Chicago office of the SEC’s Division of Enforcement on October 6, 2020, alerting GWG of the SEC’s inquiry into GWG Holdings. GWG Holdings has received further SEC subpoenas seeking additional information. The SEC has broadly sought information on GWG Holdings’ investment products, particularly its L Bonds and several accounting problems.

In its Form 10K for the fiscal year ending December 31, 2020, GWG stated that “our current inability to raise capital, recurring losses from operations, negative cash flows from operations, delays in executing our business plans, and potential negative implications of the ongoing SEC non-public, fact-finding investigation raise substantial doubt about our ability to continue as a going concern.” The independent accounting firm’s report for the fiscal year ended December 31, 2020, has an explanatory paragraph that states, “These issues create serious doubt about our capacity to continue as a going concern.”

According to GWG’s 10K, GWG has a history of net losses, stating “we reported net losses from operations of $208.5 million and $151.5 million for the fiscal years ended December 31, 2020, and 2019.” According to GWG’s press statement dated December 8, 2021, net losses in the first three quarters of 2021 were $169.8 million.

GWG stated on August 1, 2021, that its board of directors had concluded that previous financial statements, including its annual report for the fiscal year ended 2019 and quarterly reports for the first three quarters of 2020, “should no longer be relied upon.” GWG said that its pronouncement was based on discussions with the SEC’s Office of the Chief Accountant (SEC OCA). 

GWG’s auditor quit in December 2021, indicating difficulty for a financial services corporation. The auditor, however, said in the SEC filing that its most recent audit did not include an adverse finding regarding the firm and that there was no dispute between the auditor and GWG Holdings Inc.

GWG Holdings Inc. has about $1 billion in assets but reportedly more than $1.5 billion in outstanding L Bonds. 

Is There a Way to Recover GWG L Bond Losses?

FINRA brokerage firms are required to perform due diligence on the investment products that it sells to make sure that the investments are appropriate or suitable for sale to at least some investors. A brokerage firm’s recommendation and sale of an investment, such as a GWG L Bond, is an implicit representation that the brokerage firm has performed adequate due diligence on the investment and has deemed it worthy of recommendation and sale to customers. Brokerage firms that recommend and sell a fraudulent investment or an unsuitable investment can be held liable and may be required to compensate investors for their losses and to pay additional damages where warranted.

FINRA Arbitration Claims Against Brokerage Firms that Sold GWG L Bonds

Investors who wish to bring a claim against a brokerage firm to recover GWG L Bond losses must do so by filing a FINRA arbitration claim, as opposed to filing a complaint in court. Dimond Kaplan & Rothstein has vast experience representing investors throughout the United States in FINRA arbitration claims for broker and brokerage firm misconduct. DKR is a nationally recognized investor advocate and investment fraud law firm and provides free consultations to evaluate a case. The firm typically handles such cases on a contingency-fee basis, whereby you only would pay the firm when and if the firm recovers money for you. 

Contact an investment fraud attorney at Dimond Kaplan & Rothstein, P.A. to schedule a FREE case evaluation. Our offices are located in MiamiLos AngelesWest Palm BeachNew York, and Naples and we represent clients nationwide. Translation services are available.