In April of this year, GWG Holdings filed for bankruptcy. It is expected that L Bonds investors will lose a considerable amount of their principal in the process.
Silver Law Group represents GWG L Bonds investors in FINRA arbitration claims to recover their investment losses. Contact us at 800-975-4345 for a no-cost, confidential consultation.
GWG Holdings L-Bonds: Speculative Investments
L-Bonds are the product of Dallas, TX-based GWG Holdings, a company that also specialized in life insurance. Despite what brokers and broker-dealers told their retail customers, L-Bonds were a risky and speculative private placement investment with no guarantees.
GWG purchased life insurance policies on the secondary market from policyholders who were interested in selling them. The company paid more than the surrender value but less than the policy’s full value. The money raised from the L-Bond’s issuance was used to make the policy payments to the seller. When the original policyholder died, GWG would collect the proceeds.
But the L-Bonds had several drawbacks:
- As an alternative investment, they were unrated, risky, and speculative due to the nature of the life insurance policies, as described in the prospectus
- They were illiquid, because there was no secondary market where a holder could sell or trade one. If the bond didn’t perform well, the holder had no choice but to keep it until it matured
- Investors who wanted to cash out only had the option to resell it to the company at a 6% fee
- They were subject to being called by the company at any time without penalties
L-Bonds were not tied to a market, so they were not affected by market fluctuations, but investors had no choices in redemption.
GWG Holdings sold the L-Bonds from 2012 until 2021. The company failed to file its annual report for the year that ended Dec. 31, 2020, then failed to file its Form 10-Q for the quarter that ended March 31, 2021. The company then suspended the sale of L-Bonds after filing its 2020 annual report on time.
In April of 2022, GWG filed a Chapter 11 bankruptcy petition to address more than $2 billion of liabilities after multiple accounting issues and the resignation of an auditor disordered the company’s operations.
But even as the company began to deteriorate, Centaurus Financial not only continued to sell them but raised the brokers’ maximum sales from $100,000 to $150,000 worth of L-Bonds. Incentivized by commissions as high as 8%, brokers enthusiastically recommended L-Bonds to their customers knowing they were unsuitable for multiple reasons.
A Question Of Due Diligence
Brokers and their broker-dealers are required to do due diligence on any security or investment they recommend to their customers prior to making the recommendation. Unfortunately, Centaurus and other broker-dealers that sold L-Bonds failed to thoroughly research these investments before recommending them to their customers.
For the investors who find themselves holding the worthless bonds, they can do one of two things:
- Wait and see what happens with the bankruptcy proceedings, which could take years and yield nothing
- File a FINRA arbitration action against the broker and broker-dealer from whom they bought L-Bonds and recover some or all of your investment
You should begin your FINRA arbitration as soon as possible to avoid losing the opportunity to recover.
Silver Law Group represents investors in FINRA arbitration claims against Centaurus Financial and other broker-dealers alleging that they did not perform reasonable due diligence into GWG’s L Bonds or note that the bonds were unsuitable for customers’ investment profiles.
Silver Law Group Represents Investors On A Contingency Fee Basis
If you invested in L-Bonds from GWG Holdings from Centaurus, contact Silver Law Group at (800) 975-4345 or by email at ssilver@silverlaw.com.
Silver Law Group is a nationally recognized law firm with experience representing investors in securities arbitration and investment fraud cases. Scott Silver, Silver Law Group’s managing partner, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice.
Our attorneys are admitted to practice in both New York and Florida and represent investors nationwide. Most cases are handled on a contingency fee basis, so nothing is owed unless we recover your money for you.