GWG Holdings (GWGH) & The Beneficient Company (BEN) Strategic Partnership
The White Law Group continues to investigate GWG Holdings Inc. and the liability that brokerage firms may have for unsuitably recommending GWG to investors.
As we told you in April 2019, GWG Holdings, Inc. (Nasdaq: GWGH) and The Beneficient Company Group, L.P. (BEN) reportedly announced an agreement between BEN and Jon Sabes, Chairman and CEO of GWG, and Steven Sabes, a director of GWG, pursuant to which GWG and BEN will “significantly expand their strategic partnership.”
According to a press release, through a series of transactions, “the expanded partnership enhances and accelerates one of the most innovative service and liquidity providers in the rapidly growing alternative asset industry.”
GWG Holdings, Inc. also announced that there reportedly would be a delay in the filing of its annual report for 2018. The delay was reportedly due to accounting for certain assets and liabilities related to the reverse merger transaction with The Beneficient Group, L.P. and the completion of an evaluation of fair value on its life insurance policies.
BEN and GWG reportedly launched their strategic relationship through a transaction that was completed on December 28, 2018. As a result of the prior Transaction, GWG apparently holds approximately 86% of common partnership units of BEN and a $193 million commercial loan receivable from BEN. In addition, GWG issued approximately 27 million shares of its common stock and issued $367 million in L Bonds to certain trusts) that sold the BEN common partnership units to GWG. As a result of the prior transaction and the transaction announced In April, BEN reportedly will own approximately 7.6%, and the Seller Trusts will own approximately 79% and the voting control, of GWG’s outstanding common stock.
On December 31, 2019 the company filed an amendment related to the transaction in connection with the Debt Coverage Ratio in the Indenture.
“The Amendment is intended to provide the Company with greater flexibility to finance and to anticipate the potential impacts of its expanding relationship with Beneficient LP. Management expects that the Amendment will strengthen its compliance with the Debt Coverage Ratio, according to SEC filings.”
GWG’s Alternative Investment Products Update on February 11, 2020
GWG Holdings finances its portfolio of life insurance assets through the sale of alternative investment products, according to its website. Although these products are touted as offering potentially higher yields than other investment assets that are correlated with the traditional stock and bond markets, they may come at a much greater risk to investors.
GWG L Bonds
According to the GWG L Bond prospectus, “An investment in the L Bonds involves significant risks, including the risk of losing your entire investment, and may be considered speculative. Importantly, we maintain a senior borrowing arrangement that subordinates the right to payment on, and shared collateral securing, the L Bonds to our senior secured lender.”
An L bond is an alternative investment vehicle that attempts to provide a high yield for a lender in exchange for bearing the risk that an insurance policy premium or benefits may not be paid. An L bond is an unrated life insurance bond that is used to finance the purchase and premium payments of life insurance settlement contracts purchased in the secondary market, according to Investopedia.
GWG Renewable Secured Debentures
GWG Holdings has been offering up to $250,000,000 in Renewable Secured Debentures (the “debentures”) since 2012. This is reportedly a continuous offering with no minimum amount of debentures that must be sold before using any of the proceeds. The proceeds from the sale of the debentures are apparently paid directly to GWG following each sale and will not be placed in an escrow account and the minimum investment is $25,000.
It states clearly in the prospectus they reportedly do not intend to list the debentures on any securities exchange during the offering period, and do not expect a secondary market in the debentures to develop. As a result, you should not expect to be able to resell your debentures regardless of how they perform. Accordingly, an investment in GWG Holdings debentures is not suitable for investors that require liquidity in advance of their debenture’s maturity date.
The prospectus also states that investing in GWG Holdings debentures may be considered speculative and involves a high degree of risk, including the risk of losing your entire investment.
Broker’s that choose to sell high-risk debentures are required to perform adequate due diligence to determine if such investment is suitable for each individual client. Investment recommendations should be in line with the client’s age, investment experience, net worth, risk tolerance, investment objectives, and income.
When a broker overlooks suitability requirements or misleads a client, not only are they potentially liable for investment loss, the brokerage firm that employs such brokers may also be on the hook for losses.
Recovery of Investment Losses
If you invested in debentures or bonds issued by GWG Holdings Inc. and would like to discuss your litigation options with a securities attorneys, please call The White Law Group at 888-637-5510 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.