Wall Street Journal Article Details GWG Holdings Transfer Of Money To Startups Of Its Former Leaders

A recent Wall Street Journal article details the process by which GWG Holdings’ founders and a board director used hundreds of millions of dollars paid by GWG L Bonds investors to fund their own startups and kept their startups away from investors.

Silver Law Group represents GWG L Bonds investors in FINRA arbitration claims to recover their investment losses. Contact us at 800-975-4345 for a no-cost, confidential consultation.

GWG Sells $1.3 Billion In L Bonds

GWG Holdings is a Dallas, TX-based financial services company that offered alternative investments and life insurance. The company was founded in 2006 by Jon and Steven Sabes.

The company created their L Bond in 2012. Borrowed money was used to buy life insurance policies from people who wanted cash, and L Bond investor money was used to pay premiums and buy new policies. GWG would collect the payout when the policyholder died and pay investors a portion of the profits, investors were told.

Investors, many of whom were elderly, were pitched L Bonds as a safe way to earn income and preserve their principal. The bonds were illiquid, meaning thy couldn’t easily be sold, but they paid higher than average returns.

GWG used Emerson Equity and other broker-dealers to sell almost $1.3 billion dollars of L Bonds to 27,000 retail investors.

The business experienced difficulties when people lived longer than expected and GWG had to pay more premiums and wait longer to get the insurance payout. The Sabes brothers reportedly wanted to cash out.

In 2019 GWG radically changed its business model, from buying life insurance policies and waiting for the policyholder to die, to being a “startup incubator”. This change went unnoticed by many investors.

According to The Wall Street Journal article, investors were not aware that “GWG’s founders and a board director would each use the money to fund and launch their own startup ventures, then move them out of the investors’ reach”.

GWG has now filed for bankruptcy protection, and L Bonds investors are likely to receive only a small percentage of their principal investment back. The bankruptcy or restructuring will probably take years before the issue is resolved for investors.

Where Did The Money Go?

According to The Wall Street Journal, of the $1.26 billion investors put into GWG L Bonds:

-GWG invested at least $230 million into former chairman Brad Heppner’s startup called Beneficient Group. Beneficient is an alternative-finance company that seeks to assist investors with illiquid assets convert them to cash.

-$28 million was invested into FOXO technologies, which is a company that tries to predict when people will die by testing DNA obtained from their saliva. FOXO is backed by GWG founder Jon Sabes.

-$813 million of L Bond money was spent making principal and interest to L Bond holders and to pay costs to bond issuance.

-$197 million was spent on operating expenses.

-$43 million went to payments and dividends paid to the Sabes brothers.

GWG doesn’t have control over startups FOXO and Beneficient because they became independent before GWG went into bankruptcy in April, 2022.

“The judge overseeing the court proceedings in Houston said he had never before seen a company give up control of everything it owns before seeking chapter 11 protection,” The Journal said.

GWG L Bonds investors had been aware of serious issues at the company and risks to their investment long before the company filed for bankruptcy protection. In January, 2022 GWG filed an 8-K with the SEC which said they would not make dividend payments on L Bonds and that the hiring of a restructuring had been approved.

The Securities and Exchange Commission (SEC) is also investigating the company. GWG denies wrongdoing and says business risks were disclosed to investors.

L Bonds Investors May Be Able To Recover Losses Through Claims Against Their Broker Or Financial Adviser

L Bond investors may have claims against their brokerage firms and financial advisers for the improper sale of L Bonds. Brokerage firms are obligated to conduct due diligence into the investments they recommend, to not overconcentrate an investor’s portfolio, and to only recommend investments that are suitable to the investor’s profile.

Silver Law Group Represents GWG L Bonds Investors On A Contingency Fee Basis

If you invested in L Bonds, contact Silver Law Group at (800) 975-4345 or by email at ssilver@silverlaw.com. Silver Law Group is a nationally-recognized law firm with experience representing investors in securities arbitration and investment fraud cases. Scott Silver, Silver Law Group’s managing partner, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice.

Our attorneys are admitted to practice in New York and Florida and represent investors nationwide. 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 for a no-cost consultation.