If you were an investor in GWG Holdings L Bond series, you know by now that the company has filed for Chapter 11 bankruptcy. The company failed to pay its dividend considering its recent financial issues.
If you’re in the class of people who have invested in a product you believed would pay handsome dividends, you may be wondering what to do next. As an investor, there are a few options are available to help recover your losses.
What Is An L Bond?
GWG L Bonds were sold from 2012 through 2021. They were a private placement and considered an “alternative investment” that was not publicly traded. The company pooled investor funds to finance the purchase of life insurance policies on the secondary market. This means that GWG was paying the policyholders more than the policy’s surrender value.
Why would anyone sell their life insurance policy? Individual policyholders may have a sudden need for cash, they can’t afford the premium payments anymore, or simply don’t need the coverage any longer.
Investors who buy life insurance policies from the original purchaser then becomes the beneficiary once the transaction is completed. The buyer then makes premiums payments to the company. When the original policyholder dies, the buyer receives a payout from the insurer, since they are now the beneficiary.
These bonds were extremely risky and illiquid, and there was no way for a bondholder to resell them except back to GWG Holdings for a 6% redemption fee. They were also highly speculative, and they allegedly sought to provide a high yield for the bondholder. The bonds were sold in denominations of $1,000 with a minimum investment of $25,000.
Investors who bought these at a high risk may not have understood that factor. There was a high risk that the insurance benefits would not be paid to the new beneficiary at the time of death. GWG Holdings ceased selling the L Bonds on April 16th, 2021.
These bonds were never suitable for most investors who bought them. They included retirees, elderly investors who may not be investment savvy, as well as investors who had a more conservative objective.
GWG Holdings did not sell these L bonds directly. The bonds were sold by several brokerage firms throughout the United States. Brokers recommended to their clients that they invest in GWG Holdings L bonds. Those firms included:
- Aegis Capital Corp.
- Arete Wealth Management
- Cabot Lodge Securities
- Centaurus Financial Inc.
- Center Street Securities
- Emerson Equity LLC
- International Assets Advisory
- M Stevens Securities
- Newbridge Securities Corp.
- NI Advisors
- Western International Securities
Emerson Equity LLC acted as the managing broker-dealer for hundreds of brokerage firms throughout the country.
FINRA’s rules indicate that the member firms are responsible for supervising their brokers’ activities while the broker is registered with the firm. This means that broker firms who handled and sold these GWG L bonds could be liable for the investments or other losses that their clients suffered from buying them.
What Can An Investor Do?
For investors who have lost a considerable part of their portfolio, there are a few options available.
As it does with all disputes, FINRA offers arbitration services to assist with financial recovery and settlement of claims. You can elect to file for a FINRA arbitration action against your broker and their firm for failing to properly advise you of the risks of the L bond investment.
Two investors have also initiated a class action lawsuit against the company, alleging that GWG Board Chairman Brad K. Heppner created the L Bonds simply to enrich himself, rather than offering a new investment. Instead, they claim, he led the company into insolvency and made the L Bonds worthless to investors. But because the company is insolvent, a class action suit may not be enough to help recover lost investor funds.
Although the company is in Chapter 11 bankruptcy, there is a remote possibility that investors could recover any of their funds through the bankruptcy courts. However, investors who bought these bonds still own them, and would still own them until the company repurchased or refunded monies.
If you are considering any of these actions, we recommend that you consult with an experienced securities law firm who can not only assist but help you decide on the best way to proceed. But because there is a bankruptcy involved, it’s highly recommended that you act quickly to preserve your right to file arbitration, as well as possibly receive funds in the bankruptcy.
Did You Invest With GWG Holdings?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.