“GWG Was a Classic Ponzi Scheme” – Official Committee of Bondholders of GWG Holdings, Inc.

**Update: February 1, 2023** On February 1, 2023, the United States Bankruptcy Court for the Southern District of Texas unsealed several significant court filings, including a draft legal complaint.  The complaint was filed by the Official Committee of Bondholders of GWG Holdings Inc. (“Bondholder Committee”) against certain current and/or former directors and officers of GWG Holdings, Inc., individuals, and corporate entities affiliated with or controlled by Brad Heppner, transferees of certain fraudulent transfers, and key broker-dealers who marketed and sold L Bonds.  The Bondholder Committee represents the interests of GWG L Bondholders in the Chapter 11 bankruptcy proceeding.

The unsealed complaint has revealed the following allegations, which were made after the bondholder committees reviewed documents and information that are currently not in the public domain:

  • Together with other insiders, Brad Heppner was the mastermind behind a Ponzi scheme whereby GWG, in conjunction with its broker-dealer network, sold hundreds of millions worth of L Bonds to retail investors even when it became clear that the only way to repay those investors was to sell yet more L Bonds to more retail investors.
  • The proceeds from those L Bond sales were then funneled by GWG to the Beneficient Company Group, LP (“Ben”) (or entities associated with Ben), the unrealized brainchild of Heppner. In large part, Ben used the funds it received from GWG to pay back debt accumulated by a Heppner-affiliated entity long before GWG entered the picture. This scheme was enabled by a complicit and interested board of directors of GWG Holdings (the “GWG Board”). As one former member of the GWG Board testified, Heppner “[c]ontrolled it all. He was the chairman of the board, he picked the board members, he picked the employees. There was no one else. It was him. It was Brad who was in control of all this.”
  • Over the course of three years from 2019 through 2021, the Company transferred at least $285 million in the L Bondholders’ investments as well as hundreds of millions of non-cash consideration to Ben, a nascent and perennially unproven company.
  • Since April of 2019, Ben—and thus Heppner—directed the appointment of the entire GWG Board. Heppner served as the chair of the GWG Board while also serving as the chair of Ben’s board of directors and CEO of Ben. The GWG Board was therefore a Ben-controlled board and often a conflicted and interested one, approving transactions not for the benefit of GWG but instead for the benefit of Ben and Heppner, at a time when GWG was insolvent.
  • GWG—led and controlled by Heppner and Ben—was the epitome of a Ponzi scheme. GWG was required to sell new L Bonds to make principal and interest payments due on older L Bonds because GWG itself was from the outset a failing business, never able to generate revenue even close to sufficient to satisfy its earlier-incurred L Bond obligations.
  • The engine for this massive Ponzi scheme was not only the large sales force employed by GWG but also a nationwide group of broker-dealers that marketed and sold L Bonds to unsuspecting investors. These broker-dealers worked closely with GWG, which paid the broker-dealers hefty commissions to ensure a constant flow of new L Bondholders investing cash into GWG despite GWG’s effective inability to repay them in full.
  • In the four years leading up to the bankruptcy filing, the 12 largest broker-dealer recipients of commission payments received at least $42 million from GWG, all while GWG was sliding deeper into insolvency, becoming more reliant on sales of new L Bonds to stay afloat and satisfy maturity and interest payments to existing L Bondholders, and transferring hundreds of millions of dollars in cash to Ben and Ben’s affiliates in exchange for speculative equity interests in these entities.
  • The constant sale of new L Bonds that GWG could never repay was not concerning to Ben or its insiders because Ben is not a named guarantor of the L Bonds. To Ben, GWG was merely a tool to funnel cash ostensibly to fund Ben’s nascent business, a business that to this day remains aspirational and unrealized. Ben’s rosy projections, none of which have even come close to fruition, were based on events that never occurred and have yet to occur. Importantly, little if any of the cash Ben received from GWG’s L Bond sales went to fund Ben’s nascent business; rather, it was largely used to pay Heppner and certain Heppner-associated entities on account of debt placed on Ben’s books in 2017 that does not appear to represent an actual cash infusion at that time. These actions were taken at the expense of GWG, which was at all relevant times insolvent.
  • The victims of this scheme (unlike Heppner, who is a reported billionaire) are the approximately 27,000 L Bondholders. These Bondholders are mainly small retail investors, including retired and elderly individuals, with the average individual L Bondholder owning just $45,000 worth of L Bonds. These stakeholders invested their savings with the expectation that the Debtors’ L Bonds were safe investments that would provide periodic interest payments and satisfaction of their principal at maturity—an expectation that was thwarted by Heppner’s scheme and the Defendants’ misconduct. Instead of providing a comfortable income stream for their retirement, the L Bondholders’ investments in GWG became the piggybank for Ben’s speculative business plans and the massive array of trusts and entities under Heppner’s control.
  • The harm resulting from the Challenged Insider Transactions has fallen solely on the shoulders of the L Bondholders, who find themselves in financial ruin through no fault of their own.

Original Post:

“GWG Was a Classic Ponzi Scheme” – Official Committee of Bondholders of GWG Holdings, Inc.

In a court filing made on December 15, 2022, in the Chapter 11 bankruptcy court, the Official Committee of Bondholders of GWG Holdings Inc. (“Bondholder Committee”) alleged that GWG Holdings was a “classic Ponzi scheme.” Specifically, the Bondholder Committee alleged that GWG Holdings was a “multiyear-long fraud orchestrated by Brad Heppner to enrich himself and associated corporate entities by plundering the debtors.” The allegations are significant in that they were made after the bondholder committees’ investigation, which included access to information that is not in the public domain. The following are several key excerpts from the court filing:

  • Through no fault of their own, many of these L Bondholders face financial ruin because GWG Holdings, Inc., through a group of select broker-dealers, aggressively and misleadingly marketed and sold L Bonds even after it became clear that its business was failing and the only way to repay those bondholders was to continue to sell yet more L Bonds to existing and additional retail investors. Put simply, GWG was a classic Ponzi scheme.
  • Heppner then caused GWG to funnel hundreds of millions to the Beneficient Company Group, LP (“Ben”)—Heppner’s fledgling and nascent company—and Ben’s affiliates, notwithstanding Ben’s persistent failure to develop a viable business plan or come even remotely close to meeting any of its fanciful projections. Ben and Heppner were able to siphon funds out of GWG through a series of deeply conflicted, related-party transactions in which Ben and Heppner stood on both sides via their controlling shareholder position at GWG.
  • Following the closing of the auction transaction, GWG’s equity immediately sat behind over $1 billion in debt and preferred equity owned mostly by Heppner, ensuring that no matter what occurred with Ben’s business, Heppner operated without risk.
  • GWG gained no meaningful consideration in exchange for the Challenged Insider Transactions, which generally consisted of receiving only equity in Ben that was subordinate to other substantial existing debt and preferred equity. Indeed, GWG did not receive cash repayments for virtually any loans made to Ben, which were eventually almost always converted into capital contributions.
  • Notwithstanding the fact that neither GWG nor Ben had a viable business plan, let alone positive cash flow, Heppner, and the associated broker-dealers, were all too happy to keep the scheme alive by continuing to sell L Bonds that had no prospect for repayment. And, in fact, this scheme would likely have continued but for the fact that the Securities and Exchange Commission (“SEC”) commenced an investigation, which ultimately became public. As a result, L Bond sales abruptly stopped. Once GWG could no longer sell new L Bonds to pay off its old L Bond liabilities, the house of cards collapsed and bankruptcy was the only option. GWG filed for chapter 11 protection on April 20, 2022.
  • Unsurprisingly, Ben escaped unscathed. Mere months before GWG was forced to file for bankruptcy, Ben “de-coupled” from GWG, becoming an independent company. GWG again received nothing but Ben equity interests that were indisputably exchanged for far less than reasonably equivalent value. The result of this spin-off, like all of Heppner’s actions, was to ensure that Heppner (a purported billionaire) came out ahead and maintained his fortune. Heppner’s gains come at the expense of approximately 27,000 L Bondholders—in many cases “mom and pop” retail investors lured by overconfident and misleading sales pitches by broker-dealers working at the ultimate direction of Heppner. Instead of providing a comfortable income stream for their retirement, the L Bondholders’ investments in GWG became the piggybank for Ben’s speculative business plans and the massive array of trusts and entities under Heppner’s control.

The latest allegations come after GWG Holdings, Inc.’s President and CEO, Mr. Murray Holland, and its CFO and Treasurer, Mr. Timothy Evans, resigned from the company on November 14, 2022. On December 1, 2022, Mr. Holland also resigned from the company’s board of directors. The resignations came after the Investigations Committee, appointed by the bankruptcy court, concluded and alleged that GWG, under the leadership of Mr. Holland and Mr. Evans, submitted a public filing to the Securities and Exchange Commission (SEC) in March 2021 that contained material and false information. Specifically, on March 11, 2021, GWG filed a Form 8-K to report the resignations of three directors. The Form 8-K incorrectly stated that the resignations were not due to any disagreement with the company. The three directors were part of a Special Committee of the Board formed by the board of directors in 2021 to review and approve or reject potential transactions with The Beneficient Company Group, L.P. (“Beneficient”). The three board members had disagreements with GWG management about the funding of Beneficient through preferred shares. The full board of directors dissolved the Special Committee and confirmed the Beneficient investment.

The judge in the bankruptcy proceeding has stated at a recent hearing that he finds the allegations to be colorable. He appears concerned that Brad Heppner, the current CEO and Chairman of the Board for The Beneficient Company Group, was a member of both GWG’s and Beneficient’s board of directors at the time that GWG made the alleged false statement to the SEC and investors. The alleged conduct was repeatedly referred to at the bankruptcy hearing as alleged “criminal or quasi-criminal” conduct.”

In light of the information that has come to light over the past couple of months, GWG L Bond investors have the right to be concerned that GWG’s proposed reorganization plan significantly relies on the success of Beneficient, which is run by Mr. Heppner. Mr. Heppner had a significant role at both GWG and Beneficient; he was a member of both companies’ boards of directors during GWG’s collapse, which led to GWG’s bankruptcy filing. GWG L Bond investors also have the right to be worried that GWG’s proposed reorganization plan contains broad releases and exculpations for many individuals and entities at the heart of alleged wrongdoing.

As GWG Holdings, Inc. continues to navigate the bankruptcy process, with many questions remaining for L bondholders, our law firm remains ready to help GWG L bond investors file meritorious arbitration claims to recover their losses against broker-dealers. We continue to help GWG L Bond investors recover their losses.

Iorio Altamirano LLP, a law firm that represents retail investors, is representing many GWG L Bond investors against brokerage firms across the country to recover investment losses and damages sustained by those firms’ recommendations to invest in GWG L Bonds. Based on the law firm’s investigation, there appears to have been widespread negligence and misconduct by many brokers and broker-dealers across the country.

Investors who purchased GWG L Bonds through a financial advisor are encouraged to contact Iorio Altamirano LLP (gwglawyer.com) for a free and confidential consultation and to review their legal rights. We can review and analyze potential claims and advise individuals of their legal rights without obligation or cost.

See Also:

Broker-Dealers Sold GWG L Bonds Using Aggressive and Misleading Marketing

GWG Bankruptcy Update: Questions Remain as to When, or If, GWG L Bond Investors Will Receive Future Distributions

GWG L Bond Investor Recovers Losses After Filing a FINRA Arbitration Claim

GWG Could Sell Its Portfolio of Life Insurance Policies for $610 Million, $1 Billion Less Than It Owes to GWG L Bond Investors

Western International Securities Denies Violating Regulation Best Interest in Recommending and Selling Risky and Illiquid GWG L Bonds to Retail Investors

Newbridge Securities Corporation’s Customers Who Purchased GWG L Bonds Are Worried About Their Invested Capital

Law Firm Investigating Dempsey Lord Smith, LLC for the Sale of GWG L Bonds and GPB Capital Funds

Law Firm Investigating National Securities Corporation for the Sale of GWG L Bonds and GPB Capital Funds

Certified Financial Planner Board Suspends Western International Securities Broker Patrick Egan After SEC Charges Related to Selling GWG L Bonds

Law Firm Investigating the Sale of GWG L Bonds to Retail Investors by Western International Securities, Inc.

New York Law Firm Investigating the Sale of GWG L Bonds to Retail Investors by Great Point Capital LLC

Law Firm Investigating the Sale of GWG L Bonds to Retail Investors by Aegis Capital Corp

GWG Holdings, Inc. to be Delisted from The Nasdaq Stock Market; Law Firm Investigates Legal Claims for GWG L Bond Investors   

GWG L Bond Investors Seek Recourse After GWG Holdings, Inc. Files for Chapter 11 Bankruptcy

About Iorio Altamirano LLP

Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.

We have nearly 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.

If you have invested in L Bonds offered by GWG Holdings, contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, call the firm toll-free at (855) 430-4010.

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