GWG Holdings (GWGH) & The Beneficent 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 offerings to investors. If you are concerned about your investment with GWG Holdings, you may be able to file a complaint against your brokerage firm.
On August 25, 2021, GWG Holdings, Inc. (NASDAQ: GWGH) announced that it entered into a non-binding term sheet with its non-wholly owned subsidiaries The Beneficient Company Group, L.P. (Ben) and Beneficient Company Holdings, L.P. that include a series of transactions that would result in Beneficient Company Group no longer being a consolidated subsidiary of GWGH and GWGH no longer having the right to appoint directors on the board of directors of Beneficient Management, L.L.C., among other things. GWGH says that these changes are needed for Beneficient Company Group’s long-term business objective of providing liquidity and other services to holders of alternative assets. Beneficient Company Group reportedly received a conditional TEFFI charter on July 1, 2021.
On August 1, 2021, GWG announced that its board of directors determined that certain previously issued financial statements including its annual report for the year ended 2019, and the quarterly reports for the first three quarters of 2020 “should no longer be relied upon.” GWG reported that the Board’s determination was based upon the consultation process with the SEC’s Office of the Chief Accountant (SEC OCA). GWGH noted that following the consultation with the SEC OCA it will consolidate the trusts, that hold secondary alternative assets that GWG has provided loan financing to as part of its core strategy, into its financial statements.
Further, GWG has not filed its annual report for the year ending December 31, 2020, and has not filed its form 10-Q for the quarter ending March 31, 2021. GWG reported that it is working to complete restatements regarding the financial statements in its 2019 annual report and its quarterly reports for the first three quarters of 2020. GWG notes that it “is unable at this point to estimate when those restatements will be complete.”
GWG further noted that “these restatements do not arise from or cause any negative changes in the Company’s operations, the underlying economics attributable to the Company or its subsidiaries, the terms of the Company’s existing assets, or its expected prospects for future business.” GWG says that it continues to make all required payments under its L Bonds and preferred equity and is working on financing options to further supplement its cash position.
After failing to timely file its 2020 annual report, GWG suspended its offering of L Bonds. Further, several members of the Board of Directors reportedly resigned in the second quarter of 2021.
GWG Holdings, Inc. Reports Results for First Quarter 2020
According to a press release on May 15, 2020, the company noted that despite the uncertainty surrounding the novel coronavirus pandemic (COVID-19), the company continues to raise capital, pay and receive interest income and dividends, receive insurance policy benefits, and otherwise meet its ongoing operating obligations.
On May 15, 2020, Beneficient Company Group and its lender reportedly signed a term sheet to amend its senior credit and subordinated credit agreements, according to SEC filings. Among other changes, the amendment would extend the maturity date of both loans to April 10, 2021, and provides for them to be transferred to GWGH or a subsidiary upon issuance of Beneficient Company Group’s trust company charters by the Texas Department of Banking. The amendments set forth in the term sheet are subject to, among other things, the negotiation and execution of definitive agreements governing the amendments and the satisfaction of closing conditions.
On March 6, 2020, Beneficient Company Group reportedly submitted revised trust charter applications to the Texas Department of Banking which the Department is actively reviewing and considering. In the interim, the company has closed a limited number of transactions to date, but intends to significantly expand its operations if and when the trust charters are issued.
According to first quarter 2020 “Financial and Operating Highlights,” the company reported first quarter 2020 net loss of $49.4 million, compared to a net loss of $18.9 million in the first quarter of 2019.
“Strategic Partnership” Agreement
As we told you in April 2019, GWG Holdings, Inc. (Nasdaq: GWGH) and The Beneficent Company Group, L.P. reportedly announced an agreement between Beneficient Company Group and Jon Sabes, Chairman and CEO of GWG, and Steven Sabes, a director of GWG, pursuant to which GWG and Beneficient Company Group 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 Beneficent Group, L.P. and the completion of an evaluation of fair value on its life insurance policies.
Beneficient Company Group 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 Beneficient Company Group and a $193 million commercial loan receivable from Beneficient Company Group. 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 Beneficient Company Group 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
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 – GWG Liquidity Bonds
On March 30, 2020, the Company filed a registration statement to offer up to $2.0 billion in principal amount of L Bonds on a continuous basis until 2023, according to the first quarter results. These bonds contain terms and features that are substantially consistent with previous L Bond offerings.
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.
Filing a Complaint against your Brokerage Firm
If you invested in debentures or bonds issued by GWG Holdings Inc. and would like to discuss your litigation options with 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.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.