There seems to be a growing concern about their value amongst investors of L Bonds, offered by Dallas-based financial services firm GWG Holdings (GWGH). An L Bond is unrated and seeks to provide a high yield in exchange for the risk of insurance premiums or premium penalties not being paid. An insured party in life policy contracts may then sell their policy in the secondary insurance market.
After the transfer, the investment in the insurance policy will become the beneficiary of the deal. The buyer is responsible for making the premium payment to the insurance company. When the original policyholder dies the buyer receives the monetary compensation of the insurer. The majority of people investing in this kind of asset are institutions. The revenue earned by issuing this bond L funds goes to making premium payments.
Unfortunately, these types of investments are very risky and many investors allege that they are unaware of the risks. Haselkorn & Thibaut, a national investor law firm has set up a toll-free number for L Bond investors to call at Call 1-800-856-3352 to discuss loss recovery.
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What is an L bond?
Purportedly issued for the purpose of enabling investors to finance the purchase of life insurance policies, L Bonds is a relatively new kid on the block of investment products. They are sold by life insurance companies and tend to offer yields higher than your typical publicly traded, fixed-income bonds.
When these were issued by GWGH, as per the prospectus published at the time, these bonds were sold for maturities ranging from 2 to 7 years, and interest rates between 5.5 and 8.5%.
What is Life Insurance?
Life insurance is a contract that typically pays a lump sum of money to an individual or company at the death of a specific person. It is a contract between you and an insurance company. In exchange for your premium payments to the insurance company, they will pay your beneficiaries a lump sum, known as a “death benefit”.
How L Bonds work
GWG’s two-year bond current yield is 5.5% while it’s three years. I have it. A yield of 6.25% and bonds of five years have maturities that ranged from two to five years. There was another issuance of preferred stock with another convertible option and dividend income of 7%. These bonds may also be called at any time by the issuer and their payouts reflect the proceeds of life insurance plans. A study conducted by GWG warns investors of the higher risk associated with life insurance investment as the secondary market is still undeveloped and is lacking an adequate level of liquidity.
What is the risk?
L Bonds are not publicly traded instruments and don’t offer any ready channel for investors to liquidate in case of need. There is also no way of establishing a fair market value as there is no market. A sale, if at all possible, will need to be done at a negotiated rate. There is no saying what the realizable price will turn out to be.
Besides, not being publicly traded instruments, they are not subject to the same level of regulatory scrutiny and approval process as similar publicly traded instruments.
While on the face of it they offer higher returns than publicly traded fixed income products, they should be seen as speculative and risky products. If you cannot realize it, a higher return offered by a product is only a chimera.
GWG Holdings files for the continuous offering of L bonds
In a registration statement, GWG Holdings issued a notice today of the continued sale of the company’s L bonds valued at a $1,000 annual principal figure per unit. It will require a minimum investment of 25 or $25,000. The firm is to employ the net proceeds of the sale of these securities to grow its alternative asset exposure and to provide liquidity and diversification support to its existing clients. The offer expires under the SEC rules three years after the effective date of the registration statement, but companies may hold similar offerings during or after this time.
In January 2015 GWG issued a billion new L bonds after acquiring another $250M of the bonds in August 2012. The first issue was submitted to subscribers in December 2014. The bonds are sold on commission and usually, there is a minimum $25k investment. A Congressional inquiry last week found that brokers who sell bond contracts will also be able to buy back bonds under the rule by the Treasury. The bonds may increase sales now because the DTC provides buyers with access to even larger markets.
Haselkorn & Thibaut, P.A., is investigating claims from investors of L Bonds, believe there may have been irregularities in the sale of this product and that investors are likely to incur losses. Although GWGH is required to manage all investments prudently and deliver on the representations made in the offering material, a key SEC filing deadline being missed by the company recently is not a positive sign and could portend serious financial trouble.
In April 2021, GWG had temporarily paused sales of L Bonds in April this year. The following month, they were informed of their non-compliance with listing rules by NASDAQ.
If you have invested in the L Bonds offered by CWCG, we recommend that you contact Haselkorn & Thibaut today for a confidential discussion and to explore possible options for the recovery of all or some part of your money by calling 1-800-856-3352.