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.

The possible bankruptcy is just the latest adverse event surrounding GWGH. Only last week, GWGH announced that it could not timely make its annual report filing with the Securities and Exchange Commission. GWGH has now failed to timely file annual reports with the SEC in three of the past four years. Further complicating matters, GWGH currently has no auditor. It last auditor, Grant Thornton, resigned in December 2021.

As previously discussed on this blog, on February 14, 2022 GWGH officially defaulted on its obligations to L Bond investors and confirmed in a letter to investors that it will not be making monthly interest or maturity payments on its GWGH L Bonds, or accepting redemption requests, while it continues to identify and evaluate restructuring alternatives with its advisors. Now it appears that this unspecified “restructuring alternative” will be a declaration of bankruptcy.

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. 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 owed in senior credit facilities.

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%.

Broker dealers are required to perform adequate due diligence on any investment they recommend. They must ensure that all recommendations are suitable for the investor. Recommendations should be in line with the investor’s age, risk tolerance, net worth, and investment experience. If brokerage firms fail to adequately disclose risks or make unsuitable investment recommendations can be held liable for investment losses.

Investors who wish to discuss a possible claim involving GWGH securities may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

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On December 29, 2017, Life Settlements Absolute Return I, LLC (“LSAR”) – a special purpose vehicle investing in life insurance policies – filed for Chapter 11 bankruptcy relief in the Bankruptcy Court for the District of Delaware (Lead Case No. 17-13030). The Debtors, LSAR I and its wholly owned subsidiary, estimate their assets to be worth between $10,000,001 and $50 million, and their liabilities to be between $100,000,001 and $500 million. According to the Debtors’ First Day Declaration, the Chapter 11 proceeding was necessitated because “[t]he Insureds have outlived their actuarial life expectancy, thereby prolonging LSAR’s receipt of cash from the death benefits of the Policies…” LSAR is wholly-owned by Attilanus, a Delaware limited partnership formed on January 29, 2004.

The primary risk associated with investing in life settlements (or viaticals) concerns the possibility that the insured (who has sold his or her life insurance policy to the investment sponsor) will outlive the money set aside by the sponsor to pay for continued life insurance premiums. In such a scenario, the investors in the life settlements may then be called upon to pay future premiums in order to ensure that the policy remains in force until maturity. When some investors refuse to pay, the remaining investors are left to cover higher premium payments, or else allow the policy to lapse.

Further, as appears to be the case with LSAR, when the sponsor can no longer afford to service the debt on its own credit facilities, then the sponsor may well be forced to seek bankruptcy protection. As outlined in LSAR’s Chapter 11 First Day Declaration, “Beginning in July 2009, in order to fund premium payments on the Policies… LSAR (as the borrower) and the Employees’ Retirement System of the Government of the Virgin Islands (“GERS”) and Attilanus (as lenders) extended a credit facility to LSAR, whereby Attilanus made an initial loan to LSAR in the principal amount of $500,000 and GERS made a loan to LSAR in the principal amount of $1,160,263.”

An additional risk associated with investing in LSAR has to do with the fact that it was offered as a private placement. Generally, investing in a private placement carries with it complexity and considerable risk — including the illiquid nature of the investment — and, therefore, is most typically only available to accredited and/or sophisticated investors. LSAR was offered as a private placement investment under SEC Regulation D (“Reg D”) beginning in 2008; the total offering amount was $64,000,000.

Financial advisors, and by extension their employer brokerage firms, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Reg D. Furthermore, financial advisors have a duty to disclose the risks associated with any investment, as well as conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with private placement offerings, including investments in oil and gas drilling funds, hedge funds, and other exempt offerings. Investors may contact a securities arbitration attorney at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investment fraud lawyers say churning is a common problem in the securities industry. According to the S.E.C., “Churning refers to the excessive buying and selling of securities in your account by your broker, for the purpose of generating commissions and without regard to your investment objectives.” In short, churning is a form of broker misconduct in which the broker performs excessive trading to generate personal profit. For more information on churning, see the previous blog post, “Investment Churning: A Slippery Slope of Broker Misconduct.”

A Financial Industry Regulatory Authority arbitration claim was recently filed on behalf of an 81-year-old Peoria, Illinois resident. The claimant, a retired widow, was sold various life insurance policies and annuities. These investments were allegedly held for only a short period of time before being liquidated. According to the claim, the investments’ proceeds were then rolled into other annuity contracts and policies. Allegedly, most of these transactions incurred surrender charges and fees that were charged to the claimant. As an example detailed by the Statement of Claim, the funds of a Lincoln Annuity, purchased on August 20, 2003 and surrendered two years later, were rolled into a 15-month Fidelity Annuity. The proceeds of this transaction were rolled, on the same day of the sale, into a Hancock Annuity. The Hancock Annuity was held for just over two years. When it was sold, its proceeds were rolled into a Jackson Annuity.

In February 2011, John Edward Watson, the claimant’s advisor, was discharged from Securities America. Stock fraud lawyers say he was discharged for “providing inaccurate information on client disclosure documents.”

If you believe you have been the victim of churning, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

This is a concern that is shared by investment attorneys as they are faced with client after client that have suffered significant losses as a result of insufficient disclosure or lack of understanding.

Top products on FINRA’s watch list for suitability problems include non-traded real estate investment trusts (REITs), residential and commercial mortgage-backed securities, municipal securities, variable annuities, structured products, exchange-traded funds using synthetic derivatives and significant leverage, life settlements and private placements.

Another concern stated in FINRA’s letter is that of fees. FINRA states, “We remain concerned about firms’ charging retail investors hidden, mislabeled or excessive fees.” In fact, FINRA brought several cases related to excessive fees against broker-dealers in 2011.

Other priorities listed by the agency are oversight of the creation and redemption of exchange-traded funds and high-frequency trading.

In the letter, FINRA also stated that it is targeting high-risk firms with its enforcement efforts and undertaking a “broader data collection effort.” Red flags for FINRA monitoring are inadequate cash flow in investment and lack of liquidity.

Investors who believe they have been the victim of stock broker fraud can seek the recovery of their losses through FINRA securities arbitration. If you believe you have a valid claim, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

The now infamous class action suit against Lehman Brothers has its roots in the claim that the risks associated with PPNs were not disclosed to investors. When Lehman Brothers filed for bankruptcy, the principal on the PPNs — for which Lehman was the borrower — became unprotected and investors were left with unexpected losses. According to claimants in the case, they were led to believe that as long as they held them to maturity, their PPNs were 100 percent principal protected. Claimants also say they were told that as long as their underlying indices maintained their worth, the PPNs were principal protected. Furthermore, the risks associated with PPNs were not disclosed and customers were not notified of the decline of Lehman Brothers which could affect the value of the investments.

The case against Lehman Brothers deals primarily with broker misconduct in misleading investors about the safety of their investments. However, if other allegations are true and firms truly pushed PPNs at the same time that they were reducing their own PPN holdings, it is a question outright broker fraud as opposed to failure to disclose.

If you’ve invested in PPNs and believe your losses were a result of broker misconduct, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.