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Investors in securities sold by GWG Holdings (“GWGH”), including L Bonds, preferred stock, and common stock listed on Nasdaq under the ticker symbol GWGH, may have legal claims, including possible claims if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or  financial advisor.

Piggybank in a Cage
GWGH filed for federal Chapter 11 bankruptcy proceedings in Houston, Texas on April 20, 2022, blaming its financial dire straits on an inability to raise capital.  The bankruptcy petition is accessible here 22.4.20 bk petition.  In a bankruptcy court filing, GWG cited the Securities and Exchange Commission’s questioning of broker-dealers that sold more than $1.6 billion of its life-settlement backed bonds as a significant reason for the company’s collapse, which led to GWGH’s default on $13.6 million in payments due to in January.  As GWGH stated in a court filing: “The SEC’s investigation, particularly its focus on how the bonds were sold by selling group firms, has had the effect of significantly impacting the company’s ability to access the capital market… .”   “As a result, a number of broker firms indicated that they would not resume sale of the bonds until further notice due to concerns of getting involved further in the SEC’s investigation,” according to the GWGH declaration filed in bankruptcy court.

According to GWG’s website, Emerson Equity, a San Mateo, California-based broker-dealer that primarily sells private placements, is the managing broker-dealer for the GWG issuer.  GWGH L Bonds were reportedly sold through network of 145 “member firms and registered investment advisors” according to filings by GWGH in bankruptcy court.

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Investors in securities sold by GWG Holdings (“GWGH”), including L Bonds, preferred stock, and common stock (listed on Nasdaq under the ticker symbol GWGH), may have legal claims, including possible claims if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

Piggybank in a Cage
According to an article that appeared in The Wall Street Journal on April 4, 2022 GWGH is reportedly  preparing to file for Chapter 11 bankruptcy in the coming days.  A bankruptcy filing would likely cause delays in payments of interest and principal to holders of GWGH L Bonds, and might also imperil the repayment of principal in whole or in part.

GWGH reportedly has about $1.6 billion in principal value of L Bonds outstanding.  While no one knows for sure where L  Bond investors will land in the event of a bankruptcy, the publication Investment News has reported that one anonymous GWGH L bond investor estimates that the GWG L Bonds would be worth 20 to 30 cents on the dollar if GWGH files for bankruptcy.

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Investors in securities sold by GWG Holdings (“GWGH”), including L Bonds, preferred stock, and common stock listed on Nasdaq under the ticker symbol GWGH, may have legal claims, including possible claims if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

Piggybank in a Cage
30 days after missing interest and principal payments that were due to be paid to L Bond investors on January 15, 2022, GWGH’s grace period to make the interest and maturity payments before it was officially in an event of default expired as of February 14, 2022.

On February 14, 2022, GWG Holdings, Inc. confirmed in a letter to investors (accessible here GWG Letter) that it will not make monthly interest and maturity payments on its L Bonds, or dividend payments to preferred stockholders until further notice.  In addition, GWG holdings has confirmed that it will continue to defer requests for redemptions.

Published on:

Investors in securities sold by GWG Holdings (“GWGH”), including L Bonds, preferred stock, and common stock listed on Nasdaq under the ticker symbol GWGH, may have legal claims, including possible claims if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

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According to a January 18, 2022 Form 8-K filing with the Securities and Exchange Commission (SEC) the Board of Directors of GWG Holdings, Inc. (GWGH) has authorized GWGH’s management to retain the services of a restructuring advisor.  According to the same filing, GWGH expects t retain FTI Consulting, Inc. as its restructuring advisor, and Mayer Brown LLP as restructuring legal advisor “to assist the Company’s Board of Directors and management in evaluating alternatives with respect to its capital structure and liquidity.”

The putative restructuring comes amid continued financial struggles for GWGH.  GWGH had previously announced mounting losses, including $169.9 million in the first nine months of 2021 and a total of $168.5 million for fiscal year 2020.  GWGH has also disclosed a going concern and material weakness in internal controls in its recent financial filings. The going concern disclosure indicates there is substantial doubt about GWGH’s ability to meet its financial obligations as they come due over the next 12 months due to GWGH’s recent inability to raise capital, recurring losses from operations, and potential negative implications of the ongoing SEC non-public, fact-finding investigation. The internal controls disclosure indicated that management had determined that GWGH’s internal controls were not sufficient to ensure amounts recorded and disclosed were fairly stated in accordance with GAAP.  In summary, GWGH has disclosed its reported financial results’ accuracy cannot be relied upon, and that it may not be able to stay in business for any sustained period going forward.

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Investors in securities sold by GWG Holdings (“GWGH”), including L Bonds, preferred stock, and common stock listed on Nasdaq under the ticker symbol GWGH, may have legal claims, including possible claims if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

Money Whirlpool
GWGH  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.  Further, default on the L Bonds seems to be imminent. According to its 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 February 14, 2022, GWG will be in default.

While GWCH reportedly has close to $1 billion in tangible assets, the company also has over $1.5 billion in outstanding L Bonds, plus $327.7 million in senior credit facilities. On August 1, 2021, GWG disclosed 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. GWGH  also has announced that it would be late in completing and filing its Annual 10-K report with the SEC, which is due March 31, 2022.

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Investors in funds formerly managed by defunct Chicago options trading firm LJM Partners, including the LJM Preservation & Growth Fund,  may have litigation or arbitration claims against stockbrokers or investment advisers who sold them or placed their funds in the LJM funds.

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The Financial Industry Regulatory Authority (FINRA) recently took regulatory action against brokerage firm Triad Advisors LLC in connection with sales of the LJM Preservation & Growth Fund.  According to the Letter of Acceptance Waiver and Consent (AWC) Triad AWC, in December 2021 FINRA censured and fined Triad Advisors LLC $195,000 regarding the brokerage firm’s failure to supervise their brokers’ recommendations of LJM Preservation & Growth Fund. Triad Advisors LLC also agreed to pay $510,256.57 in restitution. Triad representatives sold $2,267,000 in LJM Preservation & Growth Fund to 58 customers.

According to the FINRA allegations, between September 12, 2016 to February 1, 2018, Triad failed to reasonably supervise representatives’ recommendations of the LJM Preservation & Growth Fund. FINRA also found that Triad Advisors LLC allowed the sale of LJM Preservation & Growth Fund without conducting reasonable due diligence and without a sufficient understanding of its risks and features.

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Investors in securities sold by GWG Holdings (“GWGH”), including L Bonds and common stock listed on Nasdaq under the ticker symbol GWGH, may have legal claims, including possible claims if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

Money Maze
GWGH recently failed to make a scheduled interest payment of over $10 million due on certain securities sold to investors known as “L Bonds”.  GWGH’s common stock price has also plummeted by over half in 2022, from an opening price of $9.80 a share on January 3, 2022 to a closing price of $4.11 a share on January 25, 2022.

GWGH is a Dallas-based financial services firm that offers a variety of ‘services including life insurance and alternative investments. GWGH sold millions of dollars’ worth of L Bonds over the past several years, including sales to public investors through brokerage firms.  L Bonds are a financial product that purportedly offers higher yields than typical publicly traded bonds. L Bonds are sold by life insurance companies that buy back the policies from policyholders. The bonds are supposed to help finance the purchase of the policies. According to a prospectus published by GWGH for the offering of $2 billion of L Bonds, the bonds were sold with varying maturity terms ranging from 2 years to 7 years, with interest rates ranging from 5.50% to 8.50%.

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Investors in Moody National REIT II (“Moody II”)  may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

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Moody II announced in August 2021 that its Board had made the decision to postpone the valuation of its shares. Considering that the non-traded REIT has not updated its net asset value (NAV) since December 2019, investors may have cause for concern that the shares’ value has dropped.   The last estimate of Moody II’s net asset value (NAV) per share- which now seems hopelessly unrealistic- was $23.50 a share as of late 2019.

Moody II is a non-traded real estate investment trust (non-traded REIT).  According to secondary market quotes, Moody II shares have decreased in value   Investors who were relying on Moody II’s most recent (but now nearly two-year-old) estimated NAV (net asset value) of $23.50 a share announced by its sponsor could be in for an unwelcome surprise, as shares have reportedly been sold on the limited secondary market for prices as low as between $5.50 and $6.00 a share during 2021.

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Investors in Hospitality Investors Trust (“HIT”), formerly known as American Realty Capital Hospitality Trust or ARC Hospitality, may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.Money_REIT-640x401-2-300x188 Money_REIT-640x401-3-300x188

HIT, a public, non-traded real estate investment trust (“REIT”) with a focus on hospitality properties in the United States, declared bankruptcy earlier this year.   Originally sold for $25/share, HIT seen a decline in share price over the last few years.  In March 2021, secondary market service Central Trade & Transfer (CTT) reported trades in HIT for prices as low as 46 cents a share. In May 2021, Hospitality Investors Trust Operating Partnership, LP filed for Chapter 11 bankruptcy protection.   HIT investors later learned that under the bankruptcy plan, their stocks will be canceled and they would be getting contingent cash payments of no more than $6/share.  In July 2021, a bankruptcy court in Delaware approved the Chapter 11 restructuring plan.

HIT had previously announced a decrease in its estimated net asset value (“NAV”) to $8.35 a share, down from $9.21 per share.  As a publicly registered non-traded REIT, HIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.  Original investors of HIT could purchase shares at $25.00 per share.

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Investors in First Capital Real Estate Trust (“First Capital”), a publicly registered, non-traded real estate investment trust (formerly known as United Realty Trust) may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

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First Capital has a checkered history, most recently having faced litigation brought by the Securities and Exchange Commission (“SEC”) alleging violations of the federal securities laws.  On July 13, 2021, the United States District Court for the Southern District of New York entered consent judgments against former First Capital officer Suneet Singal (“Singal”) and his entities, First Capital Real Estate Investments, LLC and First Capital Real Estate Advisors LP, as well as against First Capital Real Estate Trust Inc.  SEC also barred Singal from the securities industry.

The federal judgment provides for Singal and First Capital Real Estate Investments, LLC and Singal to be jointly liable to pay $3.2 million in disgorgement and $676,400 in interest.  Under the judgment, Singal is also solely liable to pay a monetary penalty of $3.2 million and agreed to be barred from serving as an officer or director of a publicly traded company for ten years.

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