GWG bankruptcy settlement leaves investors with next to nothing

GWG Holdings Inc. filed for chapter 11 bankruptcy protection nearly three years ago, and now distressed investors who bought $1.6 billion in so-called GWG L bonds have been offered pennies on the dollar in a settlement proposal made Friday. 

Beneficient, an platform for illiquid alternative investments that was spun off from GWG months before it went bankrupt, has made an offer of $50.5 million to settle claims related to lawsuits filed in federal court in Texas, including GWG’s bankruptcy proceeding, which commenced in April 2022.

Michael Goldberg is the trustee of the GWG Litigation Trust. The proposed settlement requires approval from federal judges in Texas in bankruptcy court and district court, specifically for the settlement of the class action lawsuit’s claims.

For several years before its bankruptcy, about 40 broker-dealers sold customers close to $1.6 billion in GWG L bonds, so-called because they were backed by life settlements. The bonds were sold in $1,000 units.

According to the website for the law firm Iorio Altamirano, funds from the proposed settlement will be allocated to holders of allowed claims in GWG’s bankruptcy case, with an estimated $31.48 per $1,000 unit of L bonds, before deductions.

That translates into a little over three cents for every dollar invested.                                                                        

“Even if the GWG matter is settled at $50 million, bondholders will wind up with next to nothing,” said Kal Nekvasil, a plaintiff’s attorney.

“Broker-dealers essentially recommended these L bonds that are worthless,” he said, adding that he has 100 ongoing investor claims against broker-dealers that sold GWG bonds.

“Three cents on the dollar, it’s virtually nothing,” said Bruce Oakes, also a plaintiff’s attorney representing clients in arbitration claims against broker-dealers that sold GWG bonds. “This settlement does not affect my clients cases. We’ll continue to go after the broker-dealers.”

According to Bloomberg News, Goldberg, GWG’s litigation trustee, is seeking approval for the settlement with former executives that includes liability releases following a complaint filed last year accusing them of “corporate looting.”

Some senior Beneficient executives, including CEO Brad Heppner, had worked in senior positions at GWG prior to the companies separating.

“The proposed settlement, which is subject to court approval and other conditions, would resolve all claims asserted against the Beneficient parties without any admission, concession or finding of any fault, liability or wrongdoing by the company or any defendant,” according to a statement on Monday from Beneficient. “Under the terms of the proposed settlement, the plaintiffs will receive an agreed upon amount of cash that will be paid entirely from funds available under applicable insurance policies.”  

One of GWG bondholders’ key assets in the bankruptcy had been 125 million shares of the publicly traded Beneficient, with the ticker BENF, that listed on the Nasdaq in December 2021.

At the time, Beneficient shares opened trading at $15 but have since plummeted and on Tuesday afternoon were trading at 29 cents per share.