Broker-dealers that marketed and sold GWG L Bonds — so called because they were backed by life settlements — should brace for legal action, as a group representing close to 27,000 retail investors takes aim at various GWG Holdings Inc. executives and the firms that sold $1.6 billion of the bonds.
In a court filing made Dec. 15 in U.S. bankruptcy court in Houston, the GWG official committee of bondholders claimed that GWG Holdings was a “multiyear long fraud orchestrated by Brad Heppner to enrich himself and associated corporate entities by plundering the debtors."
Heppner is the CEO and chairman of The Beneficient Company Group, an asset manager which took control of GWG in 2019, according to the filing.
The court filing, a motion to enter a proposed lawsuit, also took aim at "key broker-dealers that marketed and sold the [GWG] L Bonds."
"Through no fault of their own, many of these L Bondholders face financial ruin because GWG Holdings Inc., through a group of select broker-dealers, aggressively and misleadingly marketed and sold L Bonds even after it became clear that its business was failing and the only way to repay those bondholders was to continue to sell yet more L Bonds to existing and additional retail investors," according to the filing, which stated that it intended to file complaints against Heppner, certain broker-dealers, and other various executives and entities. "Put simply, GWG was a classic Ponzi scheme."
The filing did not name specific firms that sold the L Bonds but claimed as many as 145 broker-dealers marketed the product.
“The committee’s motion is full of baseless accusations, egregious errors and various distortions pertaining to the Beneficient-GWG relationship,” a Beneficient spokesperson wrote in an email. “In particular, the committee’s malicious attacks on Mr. Heppner are unsupported by any actual evidence and facts.”
After weeks of speculation, GWG Holdings in April said it had voluntarily filed for Chapter 11 bankruptcy protection. In January, GWG failed to make $13.6 million in combined interest and principal payments for its L Bonds series, ultimately defaulting on those bonds.
Each GWG L Bond owner invested about on average less than $45,000, according to the filing. But the bonds were always illiquid and now have no determined value.
The official committee of bondholders claimed that Beneficient and Heppner "were able to siphon funds out of GWG through a series of deeply conflicted, related-party transactions," according to the filing.
"For most of its existence, GWG invested in life insurance policies purchased through the secondary market," according to the filing. "To fund its business, GWG raised debt in the form of debentures called L Bonds, which since 2012 were marketed to individual investors across the country through a nationwide network of broker-dealers."
"Several years and hundreds of millions of dollars in acquired policies later, GWG’s founders could no longer escape the fact that their business was unsustainable, unprofitable, and likely insolvent from the very outset," according to the filing. "By the end of 2018, GWG had become insolvent, and its insolvency would only deepen as its eventual relationship with [Beneficient] intensified between 2019 and 2021."
In the filing, the official committee of bondholders said its claims were based on interviews, depositions, and hundreds of thousands of pages of document discovery, and extensive financial analysis.
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