GWG L Bonds, Liquidity Bonds – Update on Investigation
The White Law Group continues to investigate potential securities claims involving broker dealers who may have improperly recommended GWG Holdings offerings to investors.
GWG Holdings Inc. (GWGH) 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.
GWGH has been selling L Bonds since January 2012 under the name “Renewable Secured Debentures”. These debt securities were re-named “L Bonds” in January 2015, according to a June 3, 2020 prospectus. In 2020, the company launched a new offering called the Liquidity Bond 2020, constituting secured debt of GWG Holdings, Inc.
What is an L Bond?
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.
L Bonds were publicly offered and sold on a continuous basis in 2014, 2017 and again in 2020 for a total of $4 billion in principal. The most recent offering will reportedly run on a continuous basis through June 2023, according to the prospectus.
The GWG L Bond prospectus notes, “An investment in the L Bonds involves significant risks, including the risk of losing your entire investment, and may be considered speculative.”
GWG L bonds are illiquid investments, and the shareholders cannot sell them on the secondary market. Shareholders must wait until the bonds mature to redeem the principal amount and they cannot redeem the bond before the maturity date or the death or disability of the original policyholder. According to its prospectus, if GWG agrees to redeem the bond for any other reason, the bondholder will be charged a penalty of 6%.
According to financial statements filed with the SEC in November 2020, the company warns “it may not be able to sell additional L Bonds on terms as favorable to the Company as past transactions or in quantities sufficient to fund all of the Company’s operating requirements.” Further, GWGH may not be able to obtain additional borrowing under existing debt facilities or new borrowings with other third-party lenders.
GWG issues new series of “Liquidity” Bonds
The company issued two new series of L bonds in December 2020 called (the “Liquidity Bonds”). The Liquidity Bonds are currently being offered and sold to accredited investors as Reg D private placement investments. The company says the Liquidity Bonds will be issued as part of the Company’s strategy to expand its exposure to a portfolio of loans collateralized by cash flows from illiquid alternative assets. Six months after the issuance date of a Liquidity Bond, the holder may elect to exchange the Liquidity Bond, (at the beginning of each month and upon 30 days’ prior written notice to the Company) for that number of shares of the Company’s common stock.
According to Market Watch, the company’s stock closed yesterday at $7.35, down -26.51% in the past 12 months.
Filing a Complaint against your Brokerage Firm
Unfortunately, many investors are not fully aware of the problems and risks associated with illiquid, high risk, private placement investments such as GWG L Bonds (Liquidity Bonds).
Alternative investments are complex and inherently risky products. Compared to traditional investments, such as stocks, bonds and mutual funds, these investments are significantly more complex and often better suited for sophisticated and institutional investors.
Another problem often associated with these recommendations is the high sales commissions brokers typically earn for selling them– as high as 15%. Brokers have an obligation to make investment recommendations that are consistent with their clients risk tolerance, net worth, investment objectives and experience in the market.
In many cases, the high sales commission may provide some brokers with enough incentive to make unsuitable investment recommendations.
Broker dealers are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor. Firms that fail to do so, may be held responsible for any losses in a FINRA arbitration claim.
If you are concerned about your investment in GWG L Bonds, the securities attorneys at The White Law Group may be able to help you. Please call the offices 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.
For more information on The White Law Group and its representation of investors in FINRA arbitration claims, visit https://www.whitesecuritieslaw.com.