Stoltmann Law Offices is representing investors whose brokers or financial advisors sold them GWG Holdings, Inc. L Bonds. Brokerage firms, including but not limited to Aegis Capital, recommended this speculative private placement to clients, collecting up to 5% of the Bond’s market price as their commission. The L Bonds are high-yield life insurance bonds used to finance the purchase of life insurance on the secondary market. Any type of investment in the secondary life insurance market is an extremely risky investment, and these bonds certainly were not suitable for many, if any, clients. Given recent events, default on the L Bonds seems to be imminent, and may leave investors with a total loss of their investments. These investment losses may be recoverable from the financial advisors who sold the L Bonds as a result of their due diligence failures, and for making unsuitable recommendations.
According to their filings with the Securities and Exchange Commission (“SEC”), GWG has halted the sale of the L Bonds and failed to issue $10.35 million of interest payments and $3.25 million of principal payments to L Bond investors by the January 15, 2022 due date. If these payments are not made by the end of the 30-day grace period on February 14, 2022, GWG will be in default. Pursuant to GWG’s Amended and Restated Indenture, when in default, noteholders or trustees holding at least 25% of the aggregate outstanding principal amount of the L Bonds may elect to accelerate liquidation of the Bonds.
By halting the sale of the L Bonds, GWG has also cut-off a main source of its liquidity. If the “interest” payments that GWG was making on the L Bonds was actually paid from incoming principal from new investors, rather than revenue, then GWG will not be able to make interest payments any time soon. GWG is underwater based on its balance sheets. While it has close to $1 billion in tangible assets, GWG has over $1.5 billion in outstanding L Bonds, plus $327.7 million in senior credit facilities. Based on these numbers, if liquidation of the L Bonds is accelerated, GWG will not have enough in assets to cover the liquidation.
Red-flags of accounting improprieties have been mounting since at least August 2021. On August 1, 2021, GWG admitted that its previous Annual and Quarterly reports for 2019 and 2020 were not reliable after consulting with the SEC’s Office of the Chief Accountant (SEC OCA). GWG is allegedly working on amended reports, but does not know when those will be completed, likely in part because, to date, GWG does not even have an independent auditor. GWG’s independent auditor, Grant Thornton LLP, just resigned on December 31, 2021, only a couple weeks before the missed interest payments. This is a red-flag that GWG’s missed payments is a much bigger issue then just a slight delay in payment.
Investors will also be left in the dark for quite some time, as GWG also announced that they would be late in completing and filing their Annual 10-K report with the SEC, which is due March 31, 2022. So, even if GWG is somehow able to resume the sale of the L Bonds, if they do not timely file their Annual Report, sales will be suspended again. When looking at all of these issues combined – missed interest payments combined with termination of sales, and auditors leaving – the forecast does not look bright for GWG L Bond investors.
If your broker or financial advisor sold you the GWG L Bonds, it is important for you to contact an attorney immediately. If the financial situation of the GWG L Bonds is as bad as it seems, there will be a tsunami of litigation against the brokerage firms and advisors that sold these speculative bonds to their clients, and you will want your case at the front of the line. The attorneys at Stoltmann Law Offices have over twenty years of experience representing clients who have lost money in investments and similar private placements at the hands of their investment professionals. If you invested in the GWG L Bonds, call Stoltmann Law Offices for a free consultation. We work on a contingency fee basis, so we don’t get paid until you do!