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.