• June 7, 2022
• Centaurus Financial

GWG Holdings (GWGH) formally defaulted on its obligation to L bondholders on February 14, 2022. Red flags were raised among investors after the company notified them that no interest or dividend payments would be made in January 2022, nor would maturity or redemption requests be honored, making the L bonds virtually worthless. On April 20, 2022, the Dallas company, which made a name for itself through life insurance bond sales, filed for bankruptcy protection after financing arrangements could not be made. This is a disastrous outcome for unsecured stock and bond holders as all income payments have ceased and the opportunity for principal recovery appears unlikely.

GWG HOLDINGS’ L BONDS–WHAT YOU NEED TO KNOW

Retail investors in these privately issued, high-interest L bonds purchased more than $1B worth of them through more than 100 broker-dealers. But these alternative securities were created as high-risk, speculative investments–not typically suitable for low-risk tolerance investors who count on the liquidity of their securities. GWG Holdings bought life insurance policies through secondary sales using money raised by L bond sales; when the life insurance policies paid out, those funds repaid investors.

CENTAURUS FINANCIAL INCREASED SALES CAPACITY OF GWG L BONDS

GWG Holdings paid handsome commissions to brokerage firms that agreed to sell its L Bonds to retail clients. This practice continued in 2019 and 2020 even though GWG Holdings publicly reported financial headwinds and was unable to timely file its annual financial statements.

Notwithstanding these financial challenges, in a recent report by Bruce Kelly published in https://www.investmentnews.com/broker-picked-wrong-time-to-boost-bet-on-gwg-bonds-221266, Centaurus Financial, Inc., a large independent brokerage firm based in California, took steps to increase its sales of GWG Holdings L bonds in 2019 and 2020.  Specifically, Centaurus Financial reportedly raised the “cap” of permissible sales from $100,000 per retail customer to $150,000.  This allegedly resulted in an effort by Centaurus brokers to continue selling GWG L Bonds in order to capture high commissions.

Indeed, the sales of GWG Holdings L Bonds grew from $265,000,000 in 2018 to $403,000,000 in 2019 and $440,000,000 in 2020. This meteoric rise in sales can be explained by the internal sales push at brokerages like Centaurus Financial, Emerson Equity and others.

In February 2022, GWG Holdings defaulted on $13.6 million in payments and interest that it owed to investors and has since filed for bankruptcy protection, leaving clients with large, unexpected losses.

WE HELP INVESTORS RECOVER INVESTMENT LOSSES

The Wolper Law Firm, P.A. represents investors nationwide in securities litigation and arbitration on a contingency fee basis.  Matt Wolper, the Managing Principal of the Wolper Law Firm, P.A., is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (855) 453-8611 or by email at mwolper@wolperlawfirm.com.