GWG Holdings, a company that bought life insurance policies on the secondary market, filed for Chapter 11 bankruptcy on April 20, 2022. It has missed millions of dollars in combined interest and principal payments to investors owning its L bonds. These speculative, high yield, illiquid investments should not have been sold to novice retail investors with even moderate risk tolerances.
What is the L bond?
The firm’s financial problems go back to October 2020, when the Securities and Exchange Commission sent a subpoena to it alleging accounting issues. The SEC’s Office of the Chief Accountant then reviewed GWG’s previous reports, forcing the firm to admit they were unreliable. Then, in April 2021, the firm halted sales of its L bond investments to address the financial turmoil.
Investors who invested in the gwg l bonds have a remote possibility of recovering their funds, but that would be through the bankruptcy courts. The company’s assets are not enough to cover its $2 billion in liabilities.
L bonds are a form of private equity that allowed the firm to pool investor funds to purchase life insurance policies on the secondary market. These individual policy holders sell their policies for various reasons, including they need cash, can’t afford to make the premium payments anymore or simply don’t want the coverage any longer.
The company marketed the L bonds through an extensive network of broker-dealers. It paid the brokerage firms hefty commissions for bringing them customers. Many of the brokerage firms are now facing claims for negligence. There are also several class action lawsuits against the firm, its board chairman, Brad Heppner and others.