GWG Holdings recent restructuring plan has caused investors to wonder: is GWG in trouble? The short answer is yes, GWG is in serious trouble. The new Board of Directors filed for bankruptcy protection on April 20, 2022 and implemented a new plan to restructure the company’s balance sheet, and is seeking rescue financing.
GWG Holdings
The SEC has begun an investigation into alternative asset firm GWG Holdings, Inc. (GWGH) after it filed late financial statements in 2021. The firm blamed the late filing on “accounting issues.” But the SEC’s investigation of GWG is ongoing. Meanwhile, GWG’s alternative asset firm has reported investment losses of $530 million. Regardless of the reason for the firm’s troubles, investors should be wary of its stock.
One of the most recent developments in the company’s financial health started early in 2019. The company missed its Form 10-K 2018 annual report deadline, and its accounting firm was forced to resign. It also missed quarterly reporting deadlines in August. The company’s failure to meet deadlines continued throughout 2019 and into 2020. A review of the company’s finances will reveal whether it can continue to meet these deadlines. If the investigation continues, investors should be aware of the potential ramifications.
The SEC’s investigation of GWG’s L bonds is the latest step in pursuing the firm’s securities violations. Although the SEC’s investigation may focus on a handful of companies, the SEC’s alleged violations have the potential to ruin entire industries. In addition, investors may not recover their losses for years. In other words, GWG Holdings is in trouble. Its investors have been cheated and may not recover their money for years.
The company is reportedly trying to save itself by seeking Chapter 11 bankruptcy protection and lining up a $65 million loan. However, that loan may not be enough to keep the company afloat. As of Wednesday, GWG Holdings Inc. listed more than $2 billion in liabilities and 27700 creditors. In fact, many of them are GWG L Bond investors. These funds were designed to buy life insurance policies on the secondary market and then use the payouts when those people died.
According to bankruptcy court filings, GWG Holdings Inc. filed for Chapter 11 bankruptcy on April 2022, citing accounting problems. The company missed several payments totaling millions of dollars. Its auditing firm has resigned. As such, investors should contact a securities attorney who can help them recover their losses. With the help of a securities attorney, they can get their principal investments back. They will work to protect investors’ interests and pursue bankruptcy through a reorganization plan.
One of the major shareholders of GWG Holdings is the Beneficient Company Group, which bought GWG’s units in November 2021 and paid off its Commercial Loan Agreement with the company. GWG held a majority stake in BEN until November 2021, when it started to run into liquidity problems. The company had to pledge its entire portfolio of life insurance policies as collateral for loans and owed more than $790 million on them.
Investor claims against Tony Barouti
According to recent court documents, Emerson Equity broker Tony Barouti, a well-known radio personality in Iran, failed to properly disclose risks associated with investing in a company’s L Bonds. GWG Holdings, Inc., the company Barouti runs, has filed for Chapter 11 bankruptcy protection. Investor claims against Tony Barouti at GWG allege that he failed to disclose these risks to customers, including a $100K claim filed by an Iranian-American investor.
According to the documents, GWG did not file financial statements for year-end 2020 and the first quarter of 2021. Instead, the firm told investors that it would be unable to file those financial statements until March 31, 2022. However, the SEC has not specified how long it will take to finish the audit. As of the time of filing these documents, GWG’s L Bonds should be avoided at all costs, according to the documents.
The lawsuits allege that Tony Barouti misrepresented the risks associated with GWG Holdings L bonds to retail investors. As a result, he encouraged clients to invest in the products despite their high risks. This is a clear sign that he abused the trust of investors and manipulated the process to make a profit. Even worse, he has continued to work for the firm.
According to BrokerCheck records, two investors have filed claims against Tony Barouti at GWG Holdings, Inc., a brokerage firm in San Mateo, California. GWG had issued bonds backed by life settlements for a total of $1.6 billion. Since January, the company had defaulted on $13.6 million of the bonds and had to file for bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas. Many of these securities brokerage firms allegedly sold the bonds on behalf of GWG, Inc.
In December 2021, Emerson Equity GWG Holdings was sanctioned by FINRA for deficient supervision of short-term mutual fund trading. The firm failed to provide investors with adequate disclosures of its annual financials. As a result, investors can pursue a FINRA adjudication claim against the firm. Further, the sanction could result in the wrongful conduct of the other firms.
According to the complaint, GWG Holdings has failed to make principal and interest payments on L Bonds. This is because the L Bonds were not suitable for moderate or conservative investors, particularly retirees. In addition, Mr. Barouti failed to warn investors of the risks associated with these bonds. After defaulting on the L Bonds, the company stopped issuing new ones. The company is now seeking rescue financing. In the interim, investors should avoid investing in GWG L Bonds.
Investors fear “run on the bank”
While runs on banks aren’t common, the concept of a run on a bank isn’t new. The concept began during the Great Depression when many people fled the bank to take their money out. Today, however, deposits are less risky. Bank runs can still occur, and are a major cause of the Great Depression. By understanding the nature of a run, an investor can avoid panic withdrawals.
The term “run on the bank” is defined as a sudden and widespread withdrawal of funds from a bank by panicked customers. This can lead to a full bank failure and major losses on asset sales. In the case of a bank, however, the situation is more likely to occur silently. Since the bank relies on fractional reserve banking, not all customer withdrawals are immediately available. Customers tend to withdraw smaller amounts of money than they need at any given time. This situation creates a true default situation in which the bank has to sell off assets to make up for the demand.
A bank run may start as one event or as a domino effect. It can spread quickly across a country, as in the case of the 1872 failure of the American Union Bank. A run on a bank is typically preceded by several, unrelated bank failures. For instance, a single bank failure in Nashville triggered a run on other banks in the region. And during the 2008-09 financial crisis, there were notable bank runs. One of these runs occurred when Washington Mutual, the sixth-largest bank in the United States, fell victim to a run on the bank. This particular bank ran out of short-term cash reserves and was forced to shut down.
The concept of a “run on the bank” has many roots. When a large number of depositors suddenly abandon their accounts, the bank may become short of liquidity and face failure. Ultimately, the bank will either be forced to liquidate its assets or face bankruptcy. The process of liquidating the assets of a bank can also result in further losses to the wider economy. And investors fear that “who is next” will fail.
The financial crisis of 2008 was a classic example of financial panic and has been a staple of economic history since the Dutch tulip collapse in 1637. The mania over dubious mortgages had investors panicking. Those panicked investors subsequently reduced their exposure to mortgage-backed securities, which resulted in fire sales and margin calls. In addition, it knocked confidence in the economy and made the financial markets even worse.
In order to avoid a run on the bank, banks may temporarily close to save themselves from the crowds. The failure of a single bank can affect aggregate demand and create a recession. However, a run on a bank can be prevented through a combination of deposit insurance and lender-of-last-resort policies. Banks also don’t keep most of their deposits on hand. Despite the risk of a bank run, the central bank’s actions are aimed at ensuring that banks’ assets are kept liquid.
