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Investors Advised to "Avoid GWGH" as GWG Holdings Deemed Problematic in 2015

Attorney Advising Disclaimer

The complex, costly, risky, and unsuitable product known as GWG Holdings L Bonds that suspended payments to investors in January 2022, setting itself up for a February default, drew criticism from industry analysts as early as 2015.  This further implicates brokers who recommended the shaky GWGH and GWG-issued products to investors since then for unsuitable recommendations and inadequate due diligence, while their firms are now on the hook for failing to review the product and supervise these representatives.

In what was a seemingly eerie prediction seven years ago, one analyst wrote, "I'm having a hard time finding reasons other than pure gambling for speculators to own shares" of GWGH stock, which trades on NASDAQ and, predictably, has lost significant value since GWG's January troubles.

GWG Holdings' business operations were the subject of a 2015 IPO analysis by Seeking Alpha entitled, "GWG Holdings: A Bizarre Borrowing From Peter to Pay Paul Business Model."

The 2015 article, whose two-word summary was "Avoid GWGH," picked apart GWG Holdings, Inc., severely criticizing a business model that the author deemed "a mess."

Amongst the "serious concerns" cited within the article regarding GWG Holdings was the very real risk posed by an issuer that purchases universal life insurance policies in the secondary market when GWG is effectively betting on how long policyholders might live.

For instance, if policy holders were to live longer than expected, the effect on payouts (or what the article calls, "die on time" money) could be damaging to investors. The article reiterates GWG Holdings' high-risk business model which is the opposite of most life insurance writers, and which relies on alternative debt instruments that GWG calls "L Bonds."

Whereas traditional policies collect premiums over the course of a number of years and then pay out benefits upon death or maturity, GWG's product effectively turned the concept on its head by paying out first and hoping to cover the debt when the insured dies, reaping the profits of whatever was accrued in the span of time between the initial payouts/distributions and the insurance policy's upon-death disbursement, plus fees, which goes to GWG as opposed to the policyholder or the decedent's beneficiaries.

In other words, as life expectancy increased and policyholders started living longer, the probability of GWG going further into debt increased, so much so that GWG nearly a decade ago wrote: "We have in fact experienced fewer cash flows from policy benefits than projected in the early stages of ownership of our current life insurance policy portfolio using this method. We had expected to receive approximately $65.7 million in cumulative policy benefits as of December 31, 2013, and in fact received $28.6 million."

What this all means is that the high risk posed by GWG Holdings, GWGH, and GWG's L Bonds business was well known since shortly after GWG's inception: GWG's January 2022 payment suspension and February default comes as little surprise to some analysts who saw through GWG's high-risk business model.

Where brokers, financial advisers, and their investment firms become liable to customers who lost money investing in GWG is failing to adequately research and perform due diligence on, amongst other publicly available documents, analyst reports and research already out there in 2015 that described GWG as inherently risky and built on shaky ground that could result in massive losses.

Add GWG's own prospectus warnings about its risk of default and the L Bonds consideration as "speculative" and involving a "high degree of risk, including the risk of losing your entire investment," and the liability of brokers in making unsuitable recommendations of GWG only increases.

If you invested with a broker or investment adviser who unsuitably recommended you purchase GWG Holdings L Bonds or with a brokerage firm that failed to supervise its representatives' recommendation of GWG L Bonds, which turned out to be financially harmful due to the foreseen risks involved, 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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