For several months, we’ve blogged about GWG Holdings, a Dallas-based company selling L-Bonds, which are not publicly traded and have considerable risk. The bonds are based on life insurance policies and were both risky and illiquid. In fact, in the fine print of GWG’s prospectus, it states, “Investing in our L Bonds may be considered speculative and involves a high degree of risk, including the risk of losing your entire investment.”
But abrupt changes with the company have left investors of those bonds wondering if they are ever going to see their investment funds again.
GWG Chapter 11 Bankruptcy
The company defaulted on interest and principal payments in February of this year. After the resignation of its accountants in 2021, and the news of an SEC investigation since 2020, GWG Holdings filed for Chapter 11 bankruptcy in April, 2022. This allows the company a chance at restructuring, and allows them time to work out ways to pay creditors and investors.
On April 26, 2022, GWG Holdings filed a Form 8-K stating that the Company had received notice from NASDAQ about the upcoming delisting of its stock, and trading was suspended on April 29th. NASDAQ may also terminate the company’s listing entirely.
Unfortunately, because the bonds are estimated to be worth 20 to 30 cents on the dollar, bankruptcy may be just stalling the inevitable.
Securities Arbitration, Not Lawsuits
Although there is a class-action lawsuit against GWG Holdings, it may not pay you for your losses.
Written into your customer agreement with your brokerage firm is a fine-print clause that states you must resolve any legal dispute through Financial Industry Regulatory Authority, or FINRA, arbitration proceeding. Less complex and costly than a court case, arbitration may take from 1 year to 18 months.
GWG used broker-dealers around the country to sell these L bonds, primarily Emerson Equity. Since broker-dealers are regulated by FINRA, the agency uses arbitration to settle disputes between investors, their registered representatives, and broker-dealers.
Is Recovery Possible?
Considering the company’s recent Chapter 11 bankruptcy, people who invested in these uninsured and unsecured bonds are wondering if they will see any of their money again. As with many legal cases, the answer is, “it depends.”
A recent disclosure indicates that GWG owes several lenders a considerable level of debt which is senior to the L Bonds. The bonds are “structurally junior” to the rest of the company’s creditors. It also states in the prospectus that GWG is allowed to borrow up to 90% of its assets. All the company’s assets were pledged to these “senior creditors.” There is a strong chance that investors will receive nothing from the bankruptcy, but it’s not yet definite.
The best chance for an investor to recover their investment is to file a FINRA arbitration against the registered representative who sold it to them, as well as the broker-dealer holding their securities license. Brokers have a requirement to offer suitable investments to their clients. This duty of care involves due diligence and ensuring that any investment is match to the client’s risk tolerance.
If you decide to engage in a FINRA arbitration against the broker and firm that marketed these L bonds to you, you will still own your bonds and could still receive funds from GWG’s bankruptcy—if there is any. But arbitration against a broker and broker-dealer doesn’t eliminate you from collecting as an investor from the company after their bankruptcy.
“Wait and see” is not a good strategy in this case. If you are considering arbitration or other legal action against the parties from whom you bought these bonds, it’s important to get started now to avoid prejudicing your ability to recover your monies later.
Did You Invest With GWG?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.