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GWG Holdings Inc. and Its Subsidiaries File for Bankruptcy in Fallout from L Bond Disaster
On April 4, 2022, InvestmentNews reported that GWG Holdings Inc. was on the verge of filing for bankruptcy. Citing confidential sources, the media outlet wrote that GWG, “which sold $1.6 billion in bonds backed by life settlements through a network of independent broker-dealers, is preparing to file for Chapter 11 bankruptcy protection, potentially as early as the middle of this week.”
Those confidential sources were correct. On April 20, 2022, GWG issued a press release announcing that the firm had “obtain[ed] debtor-in-possession financing to facilitate restructuring.” In other words, the firm had filed for Chapter 11 bankruptcy. According to the press release:
“[GWG] and certain of its subsidiaries have filed voluntary Chapter 11 petitions . . . in the U.S. Bankruptcy Court for the Southern District of Texas . . . as part of a restructuring process intended to enable the Company to enhance its liquidity and ability to meet its financial obligations, while maximizing the value of its assets. The subsidiaries that are debtors in the Chapter 11 Cases are GWG Life, LLC and GWG Life USA, LLC . . . .”
The press release also indicates that GWG Holdings has secured an additional $65 million in funding from National Founders LP to be used for “general corporate purposes.” According to GWG’s President and CEO, “These steps, including the receipt of additional financing, are expected to strengthen the Company’s financial position going forward and help preserve the value of the Company’s assets for the benefit of its investors.”
But, what does GWG’s Chapter 11 bankruptcy filing really mean for investors—particularly those who have suffered substantial losses with the firm’s low liquidity and high-risk L bonds?
GWG Sends Letter to Investors Regarding L Bond Payments
Unfortunately, despite GWG’s PR spin, it doesn’t appear that the firm plans on paying its L bond investors any time soon. In February, the firm sent a letter to L bond investors, stating that it doesn’t know when (or if) investors will ever receive payment. While noting that the firm was pursuing “restructuring alternatives” (forecasting the firm’s Chapter 11 bankruptcy filing in April), the letter states:
“While we continue this process, GWGH paused L Bond sales and will not make monthly interest and maturity payments on its L Bonds, or dividends on the Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock, while continuing to defer requests for redemptions. While you are not receiving payments, interest on the L Bonds will continue to accrue, and dividends on the Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock will continue to cumulate. We will inform you if and when we are able to restart these cash payments in the future.”
As a result, GWG’s Chapter 11 bankruptcy filing does not appear to have any impact on its predetermined approach to withholding funds from L bond investors. This is true even though the firm now has an additional $65 million credit facility to use for “general corporate purposes.”
Pursuing Legal Action Remains GWG L Bond Investors’ Best Course of Action
GWG’s request for L bond investors to take a wait-and-see approach is nothing more than a ploy to try to stave off legal action for as long as possible. Investors who have suffered losses with GWG L bonds have the right to take legal action—and they should do so promptly. Our investigations have revealed that GWG has an established pattern of violating federal securities laws, and it has admitted in public filings that its financial statements are unreliable.
For most GWG L bond investors, the most advantageous route will be to pursue a claim (or perhaps multiple claims) in FINRA arbitration. Along with GWG Holdings, the firm’s primary L bond brokers Emerson Equity LLC and Tony Barouti may also be liable for investors’ losses. FINRA arbitration offers a more efficient path to financial recovery than securities litigation in federal court. In this scenario, it is likely to be preferable to class action litigation for the substantial majority of defrauded GWG L bond investors.
Discuss Your L Bond Loss Claim with an Attorney at Zamansky LLC
If you have lost money investing in GWG L bonds, we strongly encourage you to speak with one of our attorneys about filing for FINRA arbitration. To schedule a free, no-obligation consultation at Zamansky LLC as soon as possible, call 212-742-1414 or tell us how we can reach you online today.