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GWG to File for Chapter 11 Bankruptcy - GWG L Bond Investors May Be Entitled To Damages

Attorney Advising Disclaimer

Shares of GWG Holdings (NASDAQ: GWGH) crashed Monday as the firm prepared to file for Chapter 11 bankruptcy, two months after failing to make $13.6 million in payments to investors, including retail customers unsuitably sold GWG Holdings L Bonds and shares by broker-dealers such as Emerson Equity, based in San Mateo, California.

The Law Offices of Jonathan W Evans and Associates (800-699-1881) is representing clients against Emerson Equity and other broker-dealers as we continue our investigation of the ill-fated GWG L-Bonds product.

GWG L-Bonds fit the bill of securities that are "complex, costly, and risky"—a term coined by securities administrators analysing broker-dealer firms that place their financial interests ahead of their customers. The GWG L-Bonds are high-yield alternative debt instruments used to purchase life insurance policies on secondary markets that covered elderly customers, many of whom were older than 85.

Roughly, GWG L-Bonds used pooled investor money to purchase life insurance policies on the secondary market upfront, waited for policyholders to die, and then recovered the benefits to pay off the investors.

The L-Bonds' structure was thus incredibly risky from the start: if too many elderly policy-holders lived longer than expected, L Bonds would suffer and investors would lose money. In other words, an L-Bond was roughly a bet on senior citizens dying on time, if not early.

This "die on time" approach led Seeking Alpha in 2015 to declare, at GWG Holdings' IPO, that the business model was "a mess," unsuitable for investors, with a "bizarre borrowing from Peter to pay Paul business model."

GWG's impending bankruptcy follows several months of fiscal jeopardy that saw GWG pause its sale of L Bonds in January 2022. After GWG missed its January obligations, leaving $13.6 million owed but not paid out to investors, the SEC had cautioned the firm that failing to meet its February obligations—approximately doubling its original $13.6 million of missed payments—would place the company at risk of imminent default.

GWG's SEC-imposed deadline was February 15, and so on February 14, GWG Holdings put out a brief statement without further explanation: "The sale of L Bonds is paused," before going on to miss its February obligations and payments, as well.

Although GWG's own prospectus filing with the SEC cautioned that its L Bonds "are only suitable for persons with...no need for liquidity in this investment" and "L Bonds may be considered speculative and involves a high degree of risk, including the risk of losing your entire investment," many retail investors whose risk tolerance preferences were conservative, moderate, or otherwise significantly below the speculative client referred to in the L-Bonds prospectus were unsuitably sold GWG L Bonds.

GWG's prospectus also warned that if the company defaulted, L-Bond holders would actually be responsible ("share in payment or collateral") for the principal and interest owed on each debt instrument.

This means the already-risky, complex, and illiquid GWG Holdings L-Bonds product was even more risky and complex than may have appeared on first glance: there was always a very real chance of investors losing their entire investment, and then some, and all of this information was published in GWG's SEC-filed prospectus.

The fact that GWG Holdings disclosed these risks in SEC filings, in turn, means that financial professionals who recommended or sold GWG Holdings L Bond products to investors—brokers, financial advisors, and brokerage firms alike—either had knowledge or should have known about the great risks posed by this complex investment.

Another red flag for any advisors servicing elderly clients seeking interest and dividend payments that have now lost their entire investments in GWG is that GWG has a track record of failing to report financial statements timely: this is all information available via the SEC and should have tipped off brokers that GWG may not have been a suitable product for their retail investors.

Although Emerson Equity is the firm primarily associated with GWG Holdings L-Bond sales, brokers at other firms may have had access to or recommended and sold L Bonds. Emerson Equity personnel may have also recommended GWG L-Bonds in non-brokerage settings. For instance, Emerson adviser Tony Barouti is under investigation for allegedly promoting GWG Holdings on SoCal Persian Radio KIRN 670 AM, where Barouti is a financial adviser personality. Barouti's firm, Barouti Financial, is headquartered in Los Angeles, CA.

If a broker or representative recommended GWG Holdings L-Bonds to you, and such a sale was unsuitable because of your low risk tolerance level or other investment objectives that were not in accordance with such great risk and complexity, your broker and/or their firm may be liable for damages and losses you suffered as a result of the unsuitably recommended GWG's monumental collapse and impending bankruptcy.

If you have lost the value of your investment in GWG Holdings L-Bonds that were unsuitably recommended to you by a broker at Emerson Equity (a firm that recommended many GWG L-Bonds) or any other FINRA-member firm, 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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