Securities Arbitration Lawyers BlogGWG Subsidiary Beneficient Failed Its Investors
In another piece of the puzzle that is GWG Holdings, the SEC is also investigating its subsidiary, the Dallas, Texas-based investment company Beneficient. Begun by founder Brad Heppner, the intent was to bring “mom-and-pop” investors the same types of opportunities normally afforded to larger investors.
Much like GWG, Beneficient also led to failures that cost investors billions, and included a possible Ponzi scheme that primarily benefited Heppner according to the Wall Street Journal.
GWG and its Business Partners
In April of 2019, Beneficient became affiliated with GWG Holdings, the company known for selling L-Bonds based on life insurance policies. The company received $230 million from GWG to assist both institutional and wealthy investors that were interested in getting out from under both illiquid and “alternative asset investments.”
Heppner was chairman of both Beneficient and GWG’s boards. Starting in June of 2019, Beneficient received an initial $50 million from GWG, allegedly to further develop and grow the company. Unfortunately, that’s not what happened.
What Happened To GWG’s Money
According to news reports, it wasn’t long before investor funds were misappropriated. The discovery by Beneficient’s chief financial officer, Tiffany Kice, that the company was using a defective accounting method that misstated revenue also detected something else. Millions of dollars were also used to make payments to Heppner’s ranch in East Texas as well as for travel on his private jet.
Kice realized that these revelations were not on par with the investors’ best interests and attempted to discuss her findings with Heppner, who reacted angrily. She then took her concerns to senior board member Sheldon “Shelly” Stein. After Heppner’s reaction left her unsettled, she left the relevant documents with Stein, indicating that she was afraid of Heppner. Other executives expressed their concerns to Stein as well. Kice resigned from the company a few days later.
After Kice’s departure, Stein followed, along with two other board members and several C-suite executives. Their concern was that Heppner would reap benefits while investors would suffer catastrophic losses on their investments. Despite the resignations, other board members continued to tout Beneficient. The company recruited former Dallas Cowboys quarterback Roger Staubach to give a keynote address in Las Vegas at a finance conference in October of 2019 and added him to the board.
A few days prior to the conference, at a meeting at the Dallas headquarters, Stein and two other board members questioned Heppner and two others about the aggressive projections they had for the company. Things did not go well, with one board member leaving on the spot, and Stein and the other resigning a few days later. Staubach and another board member left a few months later.
SEC 2020 Investigation of GWG
Although GWG continued to sell large numbers of its L-Bonds, the SEC notified the company in October of 2020 that it was under investigation. The SEC requested information on the company’s accounting and valuation practices along with transactions with other related parties, like Beneficient. The following July, the SEC found the same problem that Kice did: Beneficient was making loans to its own subsidiaries, then counting the interest as “revenue.” The companies stopped the sale of the bonds until all financial statements were corrected.
Finally, in November of 2021, the companies released their updated financial statements and disclosed the SEC’s investigation. Beneficient then separated from GWG Holdings. By then, the sale of L-Bonds had stopped, and the company attempted to re-start sales. However, the SEC notified broker-dealers that they would be investigated if they began selling the bonds again. Without any more L-Bond revenue, the company failed to make its interest payments that were due in January 2022 and filed for Chapter 11 Bankruptcy in April.
After their collaboration with Beneficient, GWG sold a total of $1.3 billion in bonds. A significant portion of those funds were used to settle the obligations owed to GWG’s prior investors. GWG also disbursed $230 million to Beneficient, with at least $174 million distributed to entities belonging to Heppner.
What About The Brokerage Firms that sold GWG to Investors?
Despite all the warnings, corrective actions and investigations, the individuals who invested heavily in GWG and Beneficient were never warned about any of these activities. Many of them were sold L-Bonds as a supplemental retirement income by their financial advisors and were either not told or didn’t fully understand the risks involved. They had no idea and are concerned that they will never see any of their investment funds returned.
In the GWG bankruptcy case, the court has just approved a reorganization plan that includes trusts. One is for the company “wind-down” that will liquidate assets and wind down the company’s business affairs, and the other for litigation. Both trusts are expected to last three years, and can be extended for up to two more.
All the company’s securities, including the L-Bonds were cancelled. If the company can liquidate its assets, there may be some compensation for investors, but no one is yet certain.
One option for investors is a FINRA arbitration action against the broker-dealers who sold them the L-Bonds and other interests in Beneficient.
Post-Mortem: Beneficient Joins A SPAC
After splitting from GWGC, Beneficient merged with a Special Purpose Acquisition Company, or SPAC, called Avalon, to help raise capital that initially totaled about $8 million. In June of this year the company issued an IPO.
Beneficient’s new website, called “Trust Ben,” offers to help investors who want to exit illiquid and alternative investments, including small-to-medium sized institutions and individuals. The company offers “customized liquidity solutions” for those seeking their services. The website invites investors to get a quote online.
Beneficient is still headed by Brad Heppner with an executive team and board of directors with experience in “alternative assets and financial services.” This includes Richard Fisher of Dallas and Dennis Lockhart of Atlanta, both with extensive experience in financial matters.
Following multiple stories in the Wall Street Journal and related blogs on the subject of Beneficient, Heppner has sued reporter Alexander Gladstone for defamation. However, the only thing we know for certain is that investors have lost money.
FINRA Arbitration Claims For GWG Losses
Our team of attorneys, analysts, accountants and support staff represent a large number of investors in claims against the brokerage firms that sold GWG to their customers. Generally speaking, the claims include allegations that the brokerage firms failed to do adequate due diligence, failed to disclose the material risks associated with GWG and frequently recommended that the clients overconcentrate their portfolio in GWG and other alternative investments. Led by Scott Silver, our attorneys have recovered millions of dollars for investors in FINRA arbitration claims and frequently host zoom calls to provide investors with frequent updates about what is happening with GWG and the recovery efforts.
Contact Silver Law Group If You Have Losses With GWG L Bonds
If you invested in Beneficient or GWG L Bonds, contact Silver Law Group for a no-cost, confidential consultation 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 represent investors nationwide. Most cases are handled on a contingency fee basis, so nothing is owed unless and until we recover your money for you.