Judge OKs more than $90 million in settlement money for GWG investors

A federal judge in Houston last week approved $91.3 million in settlement cash to be paid by four groups of executives and professional firms in the bankruptcy case of GWG Holdings Inc.

U.S. Bankruptcy Judge Christopher Lopez on June 13 approved $30 million settlement with GWG’s law firm Mayer Brown, an $8.5 million settlement with Texas accounting firm Whitley Penn and a $2.3 million settlement with brothers Jon R. and Steven F. Sabes, the original founders of GWG, according to published reports.

The judge also approved a $50.5 million settlement with directors and officers of GWG, which had been announced in March.

Michael Goldberg is the trustee of the GWG Litigation Trust. GWG Holdings Inc. in 2022 filed for chapter 11 bankruptcy protection.

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.

The settlement money will go to the litigation trust charged with digging up money for GWG’s creditors. Goldberg had previously claimed in court documents that the law firm, auditor and certain directors had failed to act in the best interests of the company.

Mayer Brown, the law firm that served as GWG’s primary legal counsel before and after its 2022 bankruptcy filing, agreed to pay $30 million to resolve claims that it had conflicts of interest and failed to provide proper legal advice, according to the Wall Street Journal. The law firm agreed to the settlement without any admission of liability.

Mayer Brown advised GWG on a complex set of dealings with Beneficient, a financial services company focused on alternative assets, which GWG provided with a series of equity investments and loans starting in 2018, according to the Wall Street Journal’s report.

GWG and Beneficient became closely intertwined through repeated stock swaps, and GWG’s board was replaced by a slate of directors designated by Beneficient, while Beneficient’s founder and CEO Brad Heppner became chairman of both companies, according to the report. Much of the proceeds that Beneficient received from GWG were later paid to business entities associated with Heppner, according to securities filings.

The litigation trust also identified potential claims against Whitley Penn for audit malpractice based on alleged failures related to the identification of entities controlled by Heppner as related parties, valuation issues and the accounting that led to GWG’s consolidation of Beneficient, according to the report.

Whitley Penn made no admission of wrongdoing in its settlement.