For nearly ten years, Dallas-based company GWG Holdings sold L-bonds to investors who did not exactly know what they were getting and likely should have never been buying these bonds in the first place.
Investors suffered large losses on these largely illiquid investments when GWG Holdings filed for bankruptcy in 2021. Since GWG Holdings declared bankruptcy, victims who lost money had to aggressively fight to recover money any way that they could, including from the broker who sold them the bonds. At Rikard & Protopapas, our lawyers for investment fraud assist clients in pursuing damages for junk bond cases like these.
What Are L-Bonds, and Why Did Investors Lose Money on Them?
L-bonds were offered to investors in a private placement. These bonds were not sold publicly. Instead, they were marketed to select investors. Here, “select investors” usually meant whoever would buy the bonds, as opposed to people whose portfolio would actually benefit from buying these bonds.
L-bonds were intended to finance investments in the viatical settlement space. Seniors, who have built up equity in their life insurance policies, often try to sell their policies so they can use the money while they are still alive. The buyer of the policy paid far less than the death benefit. The buyer would then pay the premiums for the rest of the original policyholder’s lifetime in the hope that they would be paid more than they paid out.
Essentially, buying these life insurance policies was a bet on:
- The death benefits being paid out
- The lifespan of the original policyholder (if they lived for a long time, the bondholders could take a loss because they paid more than they would get back)
L-bonds were sold indiscriminately to whoever would buy them. Brokers were receiving very high commissions when selling these bonds, so they had every incentive to persuade their customers to load up on these dubious securities.
Investors were required to buy a minimum of $25,000 of these bonds. Many seniors put their life savings in these bonds. The brokers who sold these bonds either did not do their due diligence or knew that they were selling an unsuitable investment and did it anyway because they were being paid handsomely.
GWG Holdings L-Bonds Were a Large Ponzi Scheme
In reality, GWG was operated like a Ponzi scheme. Many people and entities received large payments from the company. Investors were receiving interest payments on their bonds even though the investments were not making enough money to pay them.
Further, GWG spent large amounts of money to help institutional and other wealthy investors cash out of these bonds. Like any Ponzi scheme, it was the later purchasers who were left holding the bag.
Eventually, like many illegitimate companies, GWG stopped filing financial statements with the SEC and told investors that they can no longer rely on past financial statements. Investors were facing total losses of over $1 billion and a bankrupt company, which had already used or wasted much of the money.
Our lawyers help defrauded customers in their efforts to recover money from every possible source. One way to get the money back is by taking legal action against the brokers who sold the bonds.
A broker cannot just sell any product to anybody. They must do due diligence on what they are selling and only recommend products that are suitable for that particular customer. Many brokers failed to uphold their basic obligations when they were selling L-bonds. They were making too much money from the transactions.
GWG is far from the only company that has perpetrated abuses in the private placement bond market. The lesser regulation allows some issuers to commit fraud on unsuspecting investors. They are aided by brokers who do not follow their own rules by which they are bound.
We Can Help You Recover What You Lost
The attorneys at Rikard & Protopapas have a track record of helping investors recover money when they lose money in junk bond schemes such as the L-bond. We worked on behalf of numerous investors who lost money, and we got results.
Investors often lose money in unscrupulous schemes, such as the one perpetrated by GWG. When that happens, you need a lawyer to help you pick up the pieces. Since there may be a long line of people who are trying to get the limited assets of the issuer, your attorney will help you figure out other parties that you may be able to sue, including:
- A broker who recommended or sold you the securities without any due diligence or regard to whether the product was suitable for you.
- An accountant who prepared financial statements who did not perform their own due diligence to discover any improprieties.
- Third parties who improperly received large amounts of money from the issuer.
Holding Your Broker Liable for Junk Bond Sales
Your broker can and should be held accountable for what they did. FINRA rules impose three different suitability requirements when a broker sells a security:
- Reasonable basis suitability, which is due diligence to know that the particular security is at least suitable for some investors.
- Customer-specific suitability to know that the particular security suits the customer’s situation and objective.
- Quantitative suitability to know that the transaction is not excessive in light of the customer’s investment objectives and profile.
Brokers who allowed senior customers to put much of their life savings in these bonds may have violated their suitability obligations.
The type of legal action that you take depends on whom you are taking it against. If you are filing a claim against your broker, you would generally proceed through FINRA arbitration. You can sue a third party directly in court.
Call an Experienced GWG Holdings L-Bonds Litigation Attorney Today
If you have been defrauded through a bond sale, we can help you. Our lawyers are experienced in fighting for investors and working for you to get as full of a financial recovery as possible.
If you have lost money in speculative bond transactions like the GWG L-bonds, you may be entitled to recover money in arbitration or a possible lawsuit. Contact the experienced broker misconduct lawyers at Rikard & Protopapas by messaging us online or calling us today at (803)-805-7546.