What is the biggest risk to the company for fraud?

If you invested in GWG Holdings investment fraud, you may be able to recover damages from the brokerage firm that sold you these risky junk bonds. Brokerage firms have a legal obligation to conduct due diligence on investment products before selling them to customers. Unfortunately, many brokers did not conduct any due diligence on GWG L Bonds and instead pushed these investments to clients because they were paying them handsome commissions to do so.

The Dallas-based company marketed and sold these securities as safe, stable investments that would pay investors high interest payments. The reality, however, was that GWG was a massive Ponzi scheme that operated like a pyramid. The scheme used money from new investors to pay off existing investors. As a result, the company’s liabilities far exceeded its tangible, realizable assets.

In early 2022, the SEC launched an investigation into GWG’s accounting practices, and GWG was told it would be delisted from the NASDAQ if it did not suspend sales of its L bonds. That was the last straw for the company, and it filed for bankruptcy protection shortly thereafter.

Investors were left holding the bag, and many are now in dire straits. GWG’s bankruptcy case could take years to wind its way through the court system, and there is no guarantee that bondholders will receive more than a fraction of their investment back.

GWG’s assets include cash, accounts receivable and life insurance policy benefits. However, it also has large debts and alternative asset investments that exceed its tangible assets by a substantial margin. As a result, GWG has very few assets that can be liquidated for cash and there is little prospect of obtaining a favorable settlement in its bankruptcy case.

Moreover, it appears that GWG’s bankruptcy was predicated on a series of fraudulent activities by its top executives and board members. For instance, investors claim that GWG Board Chairman Brad Heppner used company funds to purchase life insurance policies from Beneficient Company Group in order to enrich himself. Investors also alleged that Heppner directed GWG Holdings’ L Bond marketing efforts to companies that he controlled.

In addition to its fraud, GWG also had a major internal control issue. According to the SEC, the company failed to establish a written audit plan and did not implement adequate internal controls. This made it difficult to detect fraud and misappropriation.

As a result of these problems, a class action lawsuit was brought against GWG in late 2022. The lawsuit alleges that the company committed securities and wire fraud in violation of federal securities laws. The class action seeks to compensate investors for their losses. At Rikard & Protopapas, our attorneys represent individuals and families who suffered substantial losses as a result of investing in GWG Holdings junk bonds. We understand the intricacies of these types of cases and how to best pursue compensation for our clients. To learn more about your potential recovery options, contact us today to schedule a free consultation.