Investor Lawyers Blog
If you have sustained losses in an investment in GWG Renewable Secured Debentures, an illiquid and high-risk alternative investment, you be able to recover losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”) if the investment was sold pursuant to a misleading sales presentation or the recommendation to purchase the securities lacked a reasonable basis. GWG Holdings, Inc. (“GWG”) began selling what it termed Renewable Secured Debentures (“Debentures”) in 2012. In certain instances, financial advisors and brokers recommending these Debentures reportedly solicited their clients to invest without first fully disclosing the Debentures’ many risks. In fact, in some instances, financial advisors reportedly made false and misleading oral and written statements concerning these investments offered by GWG, describing them as safe, low-risk, liquid and/or guaranteed. Further, some financial advisors may have recommended these Debentures without taking into account a customer’s specific investment objectives, risk tolerance, as well as other relevant factors which all touch upon the suitability of a specific investment.
In actuality, these Debentures were anything but safe, liquid investments. In structuring the Debentures, Minnesota firm GWG purchased life insurance policies in the secondary market at a discount to their face value and then packaged these policies into the Debentures, to be sold to investors. In structuring the overarching investments, GWG planned to continue paying on the insurance policy premiums, while paying investors interest, ultimately hoping to collect more upon maturity of the policies than GWG had initially paid to purchase, finance and service the policies. GWG required a minimum investment of $25,000 – with the optionality to make additional investments at $1000 increments. The Debentures had varying maturity terms and interest rates, ranging from six (6) months at an annual interest rate of 4.75% to seven (7) years at an interest rate of 9.5%.
Significantly, as stated in the GWG Prospectus, the life insurance policies underlying the investments do not serve as collateral for the Debentures, but rather acted as collateral for GWG on a line of credit to purchase the insurance policies, in the first instance. In addition to the risk of default without secure collateral in place, the GWG Debentures are extremely illiquid in nature. This means that investors do not have ready access to their initial capital commitment prior to maturity (unless such a request is due to death, bankruptcy, or disability). Further, there is no active trading market for GWG’s Debentures, making resale extremely difficult.
On May 4, 2015, the Commonwealth of Massachusetts Securities Division (“Division”) entered a Cease and Desist Order (“Order”) against certain Woodbridge Mortgage Investment Funds. With respect to the Order, these mortgage funds — which are offered by Woodbridge Wealth (“Woodbridge”) of Sherman Oaks, CA — include: Woodbridge Mortgage Investment Fund 1, LLC, Woodbridge Mortgage Investment Fund 2, LLC, and Woodbridge Mortgage Investment Fund 3, LLC (collectively, the “Woodbridge Funds”). These Woodbridge Funds, and other similar fund iterations, have been offered nationwide by Woodbridge through a network comprised primarily of independent broker-dealers and financial advisors.
As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, continues to face considerable regulatory scrutiny in connection with allegations of offering and selling unregistered securities. To date, Woodbridge has been the subject of investigations by state securities regulators in Arizona, Texas, Massachusetts, Pennsylvania, and Michigan. Several of these investigations have resulted in regulators issuing cease-and-desist orders, requiring Woodbridge to stop offering and/or selling unregistered securities, and further, to stop otherwise violating applicable securities laws.
The U.S. Securities and Exchange Commission (“SEC”) obtained an order on September 21, 2017 requiring the Woodbridge Group of Companies LLC (“Woodbridge”), of Sherman Oaks, California, to produce the documents of several company executives and employees, including the President and CEO. This order reportedly relates to an SEC investigation of Woodbridge.
The President of a California group of companies known as Woodbridge that has previously been accused of selling unregistered securities by state securities regulators, Robert Shapiro, has reportedly invoked his Fifth Amendment right against self-incrimination in a letter to the Securities and Exchange Commission (SEC). A March 27, 2017 letter to the SEC from Shapiro’s attorney Ryan O’Quinn, Esq., reportedly stated that “Upon consideration of the SEC’s investigative subpoenas and a review with counsel of the individual rights afforded by the United States Constitution, Mr. Shapiro will rely on his constitutional privilege to refuse to be a witness against himself.”
Recently, the Securities and Exchange Commission (SEC) requested documents form a group of companies known as Woodbridge that has previously been accused of selling unregistered securities by state securities regulators. The SEC reportedly has now asked a Miami federal judge to enforce subpoenas against nearly 250 companies affiliated with Woodbridge as part of the SEC’s investigation into whether “the company is perpetrating a fraud on its investors.”
On November 1, 2017, the Financial Industry Regulatory Authority (“FINRA”) disclosed that registered representative Masood “Mike” Husain Azad (“Mike Azad”) has been barred from the securities industry following a FINRA enforcement proceeding. Specifically, without admitting or denying FINRA’s findings, “[A]zad consented to the sanction and to the entry of findings that he failed to provide FINRA requested documents and information in connection with its investigation into allegations of misconduct by Azad while associated with his member firm… the allegations included that Azad participated in an unapproved private securities transaction by soliciting investments and/or directly investing in an electronic data security company and engaged in outside business activities involving the company….”
The Securities and Exchange Commission (SEC) recently sought documents form a group of companies known as Woodbridge that has previously been accused of selling unregistered securities by state securities regulators. Woodbridge, based in California, has reportedly raised over $1 billion from investors- allegedly by offering the sale of unregistered securities through unregistered brokers. Woodbridge and its agents have also been sanctioned by multiple state regulators for allegedly offering unregistered securities, including a 2015 cease-and-desist order by Massachusetts, a cease-and-desist order against Woodbridge Fund 3 and principal Robert Shapiro imposed by Texas in 2015, and a 2016 complaint filed by Arizona regulators.