Few events are as unsettling as discovering that a well-established company like GWG Holdings has gone bankrupt. For investors, such a development can result in substantial financial losses as they try to understand what went wrong and how it might affect their own investments. Fortunately, there are steps that can be taken to safeguard against high-risk investment decisions like those made in the case of GWG Holdings investment loss in the future.
The GWG Holdings Investment Loss Investigation
In April 2022, alternative asset manager GWG Holdings filed for bankruptcy after missing more than $2 billion in liabilities related to its L Bond series. The L Bonds were backed by life settlement policies, which are payments from insurance companies to beneficiaries after policyholders die. GWG Holdings pooled money from investors to purchase these policies on the secondary market. They then used the payouts from these policies to repay investors.
Investors purchased the bonds through licensed financial advisors at investment broker-dealers. These financial advisors may have acted negligently in selling the risky investments, which were not suitable for many retirees who had invested their retirement savings in them. The brokerage firms that employed these financial advisors may also be liable for failure to conduct proper due diligence and accurately disclose the risks associated with investing in these types of risky, illiquid investments.
According to the Wall Street Journal, GWG’s collapse resembled a Ponzi scheme, as the firm was using money from new investors to pay interest payments to existing bond holders. However, the company eventually ran out of cash and ceased making interest payments to investors in the L Bonds. The company then filed for Chapter 11 bankruptcy protection in April 2022.
The GWG Holdings Investigation
Our firm has uncovered evidence that investors who invested in the L Bonds could have claims against several broker-dealers, including Centaurus Financial, a California-based registered investment broker-dealer. In 2019, Centaurus entered into a Soliciting Dealer Agreement SDA with GWG Holdings to use its best efforts to sell the securities. This SDA required Centaurus to perform “due diligence” on the securities before selling them to clients, which it did not do.
In the SDA, Centaurus agreed to sell $2 billion worth of GWG’s L bonds. These investments, which had no credit rating or insurance to protect buyers, were marketed as providing big returns in exchange for relatively low risks. Many of the people who invested in them were elderly, and they gambled their retirement savings on this risky investment.
Soon after Centaurus began selling the bonds, GWG Holdings began to face serious issues. The company missed filing deadlines with the SEC and disclosed that its 2019 and 2020 reports were unreliable. Its public accounting firm resigned, and it started falling behind on its interest payment obligations to investors in the L Bonds. These events set off a chain reaction that ultimately led to the company’s demise and collapse. GWG’s bankruptcy is likely to result in significant financial losses for many of its investors. Luckily, investors can enhance their chances of recovering compensation by seeking individual FINRA arbitration against the brokerage firm that sold them these investments.