On April 21, 2023, United States Bankruptcy Judge Marvin Isgur approved GWG’s Disclosure Statement that will be sent to creditors to vote on GWG’s Chapter 11 Plan (the “Plan”). The approval of the Disclosure Statement comes one year and one day after GWG filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Texas.
The Plan will now be sent to creditors, including L Bondholders, to accept or reject the Plan. GWG’s Plan is essentially an “orderly” liquidation. If the Plan is accepted, GWG will be liquidated in accordance with the terms of the Plan. If the Plan is rejected, GWG will likely be liquidated in accordance with Chapter 7 of the United States Bankruptcy Code. Either way, GWG will be liquidated and will not continue as a business. Creditors will need to decide which path of liquidation will be more favorable to them.
We believe that it is highly unlikely that L Bondholders will obtain a quick and full recovery through either the Chapter 11 Plan or a Chapter 7 liquidation.
L bondholders with meritorious claims may also be able to obtain some relief and recovery by filing a claim against their brokerage firm. These claims are separate and in addition to GWG’s bankruptcy proceeding. Nothing prevents an investor from filing a claim against their brokerage firm for breaching their duties and also collecting through the bankruptcy proceeding.
Iorio Altamirano LLP represents GWG L Bondholders throughout the country in FINRA arbitration claims against the brokerage firms and financial advisors that recommended and sold the L Bonds to retail investors.
GWG sold the L bonds through Emerson Equity LLC and a network of regional broker-dealers, including Centaurus Financial, Inc., Great Point Capital LLC, National Securities Corporation, Western International Securities, Inc., Aegis Capital, LLC, Newbridge Securities Corporation, Dempsey Lord Smith LLC, Coastal Equities, Inc., International Assets Advisory, LLC, Arete Wealth Management, LLC, Westpark Capital, Incl, Ausdal Financial Partners, Inc., Moloney Securities, Center Street Securities, NI Advisors, Inc., Intervest International Equities Corporation, Cabot Lodge Securities, LLC, Portsmouth Financial Services, Capital Investment Group, Inc., Lifemark Securities, Corp., American Trust Investment Services, Inc., IFP Securities, LLC, Kingswood Capital Partners, LLC, SW Financial, Paulson Investment Company LLC, Ages Financial Services, Ltd., Independence Capital, Co., Inc., Landolt Securities, Inc., JRL Capital Corporation, TFS Securities, and American Equity Investment Corporation.
What’s in GWG Holding, Inc.’s Chapter 11 Reorganization Plan?
Under the Plan, GWG will be liquidated through an “orderly wind-down.”
Two liquidating trusts will be established: (i) a Wind-Down Trust and (ii) a Litigation Trust.
The Wind Down Trust will issue trust interests (the New WDT Interests) to creditors. L Bondholders will exchange their current L Bonds for New Series A1Trust interests.
A Wind-Down Trust will be established to take all necessary steps to wind down GWG’s business affairs and monetize GWG’s non-litigation assets. The term of the Wind-Down Trust will be three (3) years. The term may be extended by court approval for up to two (2) additional years.
GWG’s primary non-litigation assets are its (i) portfolio of life insurance policies (the “Policy Portfolio”); and (ii) passive non-controlling equity interest in The Beneficient Company Group, L.P. (“Ben LP” and, together with its subsidiaries, “Beneficient”) and FOXO Technologies, Inc. (“FOXO”).
The Litigation Trust will receive all of GWG’s litigation claims and all of GWG’s interests in the D&O Liability Insurance Policies. The Litigation Trustee will pursue legal claims or settlements for the benefit of the estate. The potential claims and causes of action arise under or relate to transactions, relationships, or conduct involving GWG and third parties, including, without limitation, Beneficient and current and former directors and officers of GWG that occurred prior to the filing of the Chapter 11 bankruptcy proceeding.
The Plan is a “waterfall” plan, which means that, in general, the L Bondholders are first in line to receive distributions from the Wind Down Trust (subject to certain limited exceptions), and the L Bondholders and general unsecured creditors, pro rata, are first in line to receive distributions on account of the success of monetizing the litigation assets.
The entire GWG Chapter 11 Plan can be read here: GWG’s Second Amended Joint Chapter 11 Plan.
The full Disclosure Statement can be read here: Disclosure Statement for GWG’s Second Amended Joint Chapter 11 Plan.
A short, plain-English summary of the treatment of L Bondholders can be read here: Summary of Treatment of Bondholders Under GWG’s Second Amended Joint Chapter 11 Plan.
How and when will L Bondholders be paid?
GWG currently does not have cash available to make L Bondholders whole or close to whole. The financial situation of GWG is bad, which is why it filed for Chapter 11 bankruptcy.
L Bondholders will receive senior-most interests in the Wind Down Trust (called “New Series A1 WDT Interest.” Those interests will entitle each L Bondholder to future cash distributions if GWG can monetize its assets.
L Bondholders will receive payments over time. The timing and amount of the cash distributions remain extremely uncertain and will likely take multiple years to be settled.
The uncertainty and long wait period are due to the type of assets held by GWG. GWG does not have significant tangible assets that it can sell to raise cash and return to creditors, including L Bondholders.
GWG’s assets consist of the following: (i) the portfolio of life insurance policies owned by GWG, (ii) GWG’s equity interest in Beneficient, (ii) GWG’s equity in interest in FOXO, and (iv) GWG’s potential legal actions against third parties.
The portfolio of life insurance policies owned by GWG that will be sold will not lead to a significant recovery of capital to L Bondholders. The net residual equity interest in the Polity Portfolio has a present value ranging from approximately $0 to $78 million. That means that L Bondholders will receive anywhere from $0 to $78 million from the sale of the life insurance policies. If GWG is able to distribute $78 million to L Bondholders, that would likely lead to a return of 4-6% to L Bondholders.
The equity interest in FOXO is nominal ($3.3 million) compared to GWG’s outstanding obligations owed to L Bondholders ($1.6 billion).
For L Bondholders to receive significant cash distributions, they depend on either Beneficient’s business success or GWG’s ability to monetize its legal claims against third parties, including Beneficient (a catch-22 with inherent conflicts of interest).
The ability of the Wind Down Trust and Litigation Trust to receive cash for these assets, and the amount of cash that may be received and distributed to Bondholders, is subject to the risks set forth below and others discussed in greater detail in the revised Disclosure Statement. The following is a summary of some of those risks:
|Asset||Risks Associated with the Asset|
|Life Policy Portfolio||· Although the Policy Portfolio has a face amount of approximately $1.6 billion as of December 31, 2022, (i) premium payments must be made to maintain the Policy Portfolio, (ii) the timing of maturities of the Policy Portfolio is uncertain, and (iii) the Policy Portfolio will be collateral for a loan that must be repaid before the Wind Down Trust can receive value for the Policy Portfolio.|
|GWG’s Interests in Foxo||· The Wind Down Trust’s ability to sell the Debtors’ interests in FOXO depends upon the market value of those interests and finding a buyer for those interests. The valuation of the Debtors’ interests in FOXO is based on market data as of April 14, 2023, but such value changes on a daily basis.|
|GWG’s Interests in Beneficient||· The Debtors cannot independently verify or determine the value of Beneficient because the Debtors do not have a business plan for Beneficient or other information needed to do so.
· Based upon all currently available information, the Bondholder Committee believes that no weight should be given to the high end of the value range of the Debtors’ interests in Beneficient.
· The stated value of the Debtors’ interests in Beneficient is based entirely upon the announced terms of the potential “SPAC merger” with a third party called Avalon (the “SPAC Transaction”). In order for the Debtors’ interests in Beneficient to be worth the high end of the value range of $1.4 billion after completion of the SPAC Transaction, the Beneficient share price must be $10 per share. The only current basis known to the Debtors at this time for valuing the Debtors’ interests in Beneficient using a price of $10 per share for Beneficient shares is the public disclosure that Avalon and Beneficient have negotiated that Avalon shareholders may elect to participate in the SPAC Transaction at that price.
· Avalon public shareholders, unlike GWG, will have the option either to receive shares in Beneficient at $10 per share or full repayment in cash of their investment. Based upon current information, it is reasonable to expect that at least a substantial portion of the Avalon shareholders will not invest in Beneficient and instead will elect to receive cash. However, the Debtors cannot control or predict whether any Avalon shareholder will exercise their right to acquire Beneficient shares at the $10 per share price.
· The sponsor investors in Avalon (the “Avalon Sponsors”) who negotiated the deal with Beneficient do not have the right to get their money back and will receive shares in Beneficient. However, as is common in SPAC transactions, the Avalon Sponsors purchased their Avalon shares at a significant discount. Based on the amount the Avalon Sponsors paid for their Avalon shares and warrants, the Avalon Sponsors will profit if the Beneficient shares are worth greater than $1.57 per share, as compared to the approximately $10 per share required for the other Avalon shareholders to profit. In addition, if the SPAC Transaction is not completed, the Avalon Sponsors will lose their full investment in Avalon (approximately $8 million).
· The Debtors are unaware of any third party that has agreed to make a material investment in Beneficient that would provide independent validation of the value of Beneficient.
· It is uncertain whether the SPAC Transaction will be completed.
· If the SPAC Transaction is completed, (i) the value of Beneficient may be significantly less than the value purportedly implied by the SPAC Transaction for the reasons noted above and others, and (ii) Beneficient may not be successful in executing on its business plan for a number of reasons. Moreover, if the SPAC Transaction closes, the equity interests will be subject to constant public market valuation and re-valuation after the consummation of the SPAC Transaction as a result of such equity interests being listed on a national stock exchange and could be worth significantly less than implied by the current valuation. It is important to note that market prices associated with equity interests issued in connection with the consummation of SPAC transactions have been particularly volatile over the last twelve months.
· If the SPAC Transaction is completed, it is proposed that Beneficient will be under the control of many of the same individuals that were in control of the Debtors when the Debtors engaged in the transactions with Beneficient that the Bondholder Committee believes harmed the Debtors’ estates.
· Regardless of the value of the Debtors’ interests in Beneficent, those interests will be subject to restrictions on transferability and it may be challenging to find a buyer for such interests. This could delay and/or impede the conversion of the interests into cash for distribution to Bondholders.
· The value of the Debtors’ interests in Beneficient could be negatively impacted by litigation against Beneficient.
|GWG’s Retained Causes of Action||· Defendants are likely to vigorously defend any claims brought against them and will assert defenses to the causes of action.
· Litigation may take at least several years.
· Litigation is risky. It may be unsuccessful, resulting in no recovery on certain claims.
· Any judgments achieved in litigation may not be collectible. The high end of the range noted above for litigation assumes that any judgments will be collectible. The Debtors and the Bondholders Committee have not determined the extent to which any judgments will be collectible.
· Any settlements will take time to negotiate and consummate.
· Legal counsel for the Litigation Trust will be paid a percentage of any recoveries on account of the Retained Causes of Action before those recoveries are distributed to Bondholders.
· In addition to attorney’s fees, there are other costs associated with litigation, including expert witness costs.
GWG estimates that the total amount that L Bondholders will recover will be between 3.9% and 100%. The very broad range is due to the nature of GWG’s assets and the uncertainty as to whether GWG will be able to monetize its equity interest in Beneficient or its litigation assets.
The truth is, no one knows the exact amount that L Bondholdres will receive through the liquidation process, and it’s going to take a long time for that to be settled.
As part of the Court’s order on April 21, 2023, the following confirmation deadline has been set:
- April 28, 2023: Solicitation Deadline. Deadline for GWG to distribute “Solicitation Packages” to creditors, including L Bondholders. The Solicitation Packages will include links to GWG’s Chapter 11 Plan and Disclosure Statement, which explain the Chapter 11 Plan in detail. L Bondholders will also receive a plain-English summary of the treatment of L Bondholder claims.
- May 31, 2023, at 4:00 p.m. CT: Voting Deadline. Deadline for Donlin, Recano, & Company, Inc. to actually receive probably executed and completed ballots from all eligible creditors, including L Bondholders.
- June 12, 2023: Deadline to file Voting Report. Deadline for GWG to file a report tabulating the voting of the Plan.
- June 15, 2023, at 1:30 p.m. CT: Confirmation Hearing. Date of the Confirmation Hearing at which the Court will consider Confirmation of the Plan.
All L Bondholders can vote on the Plan by submitting a ballot that they will receive along with the other solicitation materials. Each ballot will state the principal amount of the L Bonds that the bondholder owned as of February 24, 2023, based on GWG’s records.
The voting deadline is May 31, 2023, at 4:00 p.m. CT.
L Bondholders can vote for acceptance or rejection of the Plan. If the Plan is approved, the Court will have a hearing on June 15, 2023, at 1:30 p.m. CT to confirm the Plan. It will likely take an additional two to three months for GWG to exit bankruptcy.
If the Plan is not accepted, the most likely outcome is that GWG’s Chapter 11 bankruptcy proceeding (restructuring) will be converted to a Chapter 7 bankruptcy proceeding (liquidation), and GWG’s assets will be liquidated under Chapter 7 of the Bankruptcy Code.
GWG believes that less money would be available for distribution to L Bondholders under Chapter 7 liquidation, as opposed to the “orderly liquidation” proposed in the Plan.
Can L Bondholders do anything else?
Yes. Many L Bondholders have filed separate, independent arbitration claims against their broker-dealer, who received a large commission for selling the L Bonds to retail investors. These arbitration claims are in addition to the GWG bankruptcy proceeding.
When a broker makes an investment recommendation, the broker must make a recommendation that is suitable and in the customer’s best interest. When brokers make a recommendation, they must also be truthful and disclose all material information, which they must learn through reasonable due diligence. When a firm or advisor fails to meet these standards of conduct, they can be held liable for damages.
Based on the law firm’s investigation, there appears to have been widespread negligence and misconduct connected with the sale of GWG L Bonds to retail investors, specifically related to what was and was not disclosed to investors at the time the broker made the recommendation to purchase the L Bonds.
For more information about potential broker-dealer liability, you may wish to read these recent blog posts:
- Broker-Dealers Sold GWG L Bonds Using Aggressive and Misleading Marketing
- SEC Finds That Some Broker-Dealers Are Using Outdated, Incomplete, and Inaccurate Risk Disclosures
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.
How much does it cost to hire a securities arbitration attorney?
Nothing, there is no up-front cost. We represent individuals on a contingency fee basis. That is, our fee is contingent upon getting you a monetary recovery. If we do not obtain a recovery, we do not collect a fee.
Further, there is no out-of-pocket cost to clients to initiate an arbitration claim to recover GWG L Bond losses.
Helping investors recover investment losses is our primary focus. We have already helped GWG L Bond investors recover their losses and continue to do so. You can read more about how we helped a 75-year-old retiree recover her losses here: GWG L Bond Investor Recovers Losses After Filing a FINRA Arbitration Claim.
If you have already retained legal counsel or would prefer not to receive future correspondence from our law firm related to GWG L Bonds, please let us know, and we will be happy to comply with your request.
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 over 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 email@example.com or Jorge Altamirano at firstname.lastname@example.org. Alternatively, call the firm toll-free at (855) 430-4010.