After Causing Investor Losses, Bankrupt GWG Holdings Blames SEC Investigation For GWGH Failures

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Shortly after filing for bankruptcy, GWG Holdings—which already failed to make $13.6 million in payments to investors back in January 2022, with many more millions left unpaid since then—decided to blame the Securities and Exchange Commission for GWGH's financial woes, defaults, bankruptcy filing, and damages to thousands of investors who purchased GWG L Bonds and GWGH stock on the NASDAQ exchange.

According to its Chapter 11 bankruptcy protection filings, GWG Holdings accused the SEC's investigation of its company for causing its downfall, even though GWG initially suspended its L Bond sales prior to SEC involvement. Emerson Equity of San Mateo, California, served as managing broker-dealer for the GWG issuer.

Other brokerage and investment firms that may have sold GWG Holdings L Bonds include Allied Beacon Partners, Arete Wealth Management, Barouti Financial, Centaurus Financial, Center Street Securities, Moloney Securities, Strategic Financial Partners, and Newbridge Securities.

FINRA has already disciplined brokers at Allied (Jeffrey Board), Moloney Securities (Candice Montie), and Strategic Financial (David Escarcega) for various instances of misconduct. For instance, Board was cited for unsuitable GWG sales to an elderly customer while FINRA disciplined Escarcega for making fraudulent misrepresentations to senior citizen clients.

GWG drew the SEC's ire after failing to timely file required financial statements, which it blamed on internal accounting issues. Nonetheless, GWG saw fit—even before the SEC investigation—to wind down certain parts of its life insurance purchasing business as it acknowledged problems within the firm.

GWG reported $2 billion of debt in its filing with the US Bankruptcy Court for the Southern District of Texas, of which $1.6 billion are comprised of outstanding bonds. Although GWG Holdings is set to take out a $65 million loan from National Founders LP to finance its business during bankruptcy proceedings, those tens of millions of dollars pale in comparison to the billions of dollars of debt GWG reported.

One anonymous investor speculated—even prior to GWG Holdings filing for bankruptcy protection—that its L Bonds were already worth only 20- to 30-cents on the dollar.

In trying to blame regulators for allegedly hampering its business, GWG Holdings described its business operation that "GWGH’s robust and fulsome securities filings expressly and specifically disclosed the intent that Bond proceeds would be used for all of the purposes complained of in the Securities Litigation, including to pay interest on and refinance the principal of existing Bonds and to pay related party debt at Ben [aka Beneficient Company Group]."

The SEC's Investor.gov website defines a Ponzi scheme as follows: "A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi schemes are named after Charles Ponzi. In the 1920s, Ponzi promised investors a 50% return within a few months for what he claimed was an investment in international mail coupons."

Although the SEC never alleged that GWG Holdings was a Ponzi scheme, its definition ends with the statement: "With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse."

GWG suspended its L Bond sales for about eight months in 2020 after it failed to file its annual report, reinstating sales of L Bonds in December 2021 before suspending payments and distributions to customers in January 2022 before formally announcing another suspension of L Bond sales in February.

If you invested with GWG Holdings or with any broker or financial adviser who unsuitably recommended this complex, risky, and illiquid product, resulting in losses when GWG began to fail or when GWG stopped making payments to L Bond holders, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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