Broker-Dealers Sold GWG L Bonds Using Aggressive and Misleading Marketing

In a court filing made on December 15, 2022, in the Chapter 11 bankruptcy court, the Official Committee of Bondholders of GWG Holdings Inc. (“Bondholder Committee”) alleged that broker-dealers sold GWG L Bonds using aggressive and misleading marketing even after it became clear that GWG’s business was failing and that the only way to repay bondholders was to continue to sell more L Bonds to existing and additional retail investors. The Bondholder Committee, which represents the interests of GWG L Bondholders in the Chapter 11 bankruptcy proceeding, alleged that “GWG was a class Ponzi Scheme.”

However, much of the court filing, including specific allegations of wrongdoing, was filed under seal.

On February 1, 2023, the United States Bankruptcy Court for the Southern District of Texas unsealed several significant court filings, including a draft adversary legal complaint against certain current and/or former directors and officers of GWG Holdings, Inc., individuals, and corporate entities affiliated with or controlled by Brad Heppner, transferees of certain fraudulent transfers, and key broker-dealers who marketed and sold L Bonds.

The unsealed complaint includes claims against the following broker-dealers: Emerson Equity, LLC, Centaurus Financial, Inc, Center Street Securities, Inc., Western International Securities, Inc., NI Advisors, Inc., Moloney Securities Co., Inc., Interest International Equities Corporation, Arete Wealth Management, LLC, Westpark Capital, Inc. Ausdal Financial Partners, Cabot Lodge Securities, LLC, and Portsmouth Financial Services.

The unsealed complaint has revealed the following allegations, which were made after the bondholder committees’ investigation, which included access to information that is not in the public domain:

Together with other insiders, Brad Heppner was the mastermind behind a Ponzi scheme whereby GWG, in conjunction with its broker-dealer network, sold hundreds of millions worth of L Bonds to retail investors even when it became clear that the only way to repay those investors was to sell yet more L Bonds to more retail investors.
The engine for this massive Ponzi scheme was not only the large sales force employed by GWG but also a nationwide group of broker-dealers that marketed and sold L Bonds to unsuspecting investors.
These broker-dealers worked closely with GWG, which paid the broker-dealers hefty commissions to ensure a constant flow of new L Bondholders investing cash into GWG despite GWG’s effective inability to repay them in full.
Many L Bond holders automatically “renewed” their investment in L Bonds, in which case GWG did not repay the principal to the investor, although it did routinely pay additional commissions to broker-dealers on these renewals. Broker-dealers were incentivized to ensure that no investors ever actually “cashed out” of L Bonds, which allowed them to continue selling new L Bonds and keep new cash coming into GWG, thus perpetuating the Company’s Ponzi scheme.
In the four years leading up to the Petition Date, the 12 largest broker-dealer recipients of commission payments received at least $42 million from GWG, all while GWG was sliding deeper into insolvency, becoming more reliant on sales of new L Bonds to stay afloat and satisfy maturity and interest payments to existing L Bondholders, and transferring hundreds of millions of dollars in cash to Ben and Ben’s affiliates in exchange for speculative equity interests in these entities.
The following chart shows the commission received by the 12 largest recipients of commissions from GWG Holdings for brokerage services in the four years leading up to the bankruptcy filing.

Broker-Dealer	Commissions
Emerson Equity	$20.1 million
Centaurus Financial	$3.6 million
Center Street Securities	$3.3 million
Western International Securities	$3 million
NI Advisors	$2.3 million
Moloney Securities	$2.3 million
Intervest International Equities Corporation	$1.4 million
Arete Wealth Management, LLC	$1.3 million
WestPark Capital, Inc.	$1.3 million
Ausdal Financial Partners	$1.1 million
Cabot Lodge Securities	$1 million
Portsmouth Financial Services	$1 million

All of the Broker-Dealer Commissions were paid from proceeds of L Bond sales.
Brad Heppner needed to recruit a steady stream of new investors in order to service GWG’s increasingly large debt obligations. GWG was resigned to paying its debts through additional debt in the form of L Bonds. Unlike a loan, GWG did not need to prove its ability to pay back the L Bonds—it just needed a sales pitch. GWG provided such a pitch to investors and broker-dealers by highlighting GWG’s perfect record of never missing a principal or interest payment on L Bonds. Unbeknownst to investors, however, GWG could only achieve this “perfect” record by aggressively recruiting new investors to pay off the old. GWG had no positive cash flow with which to sustain the Life Portfolio—much less to pay the interest, commissions, and other operational expenses required to sell L Bonds.
The result was a business model with all the hallmarks of a classic Ponzi scheme. L Bonds purchased by later investors generated artificially high returns for older L Bondholders, whose return on investment was then marketed to encourage more L Bond purchases. The Company continuously sold new L Bonds to repay existing L Bondholders—knowing full well that it would have to sell yet more new L Bonds to repay its increasing debt, and without any reason to expect a turnaround in the Life Portfolio or the value of its investment in Ben to materialize.
GWG’s relationship with the Broker-Dealers worked as follows. GWG entered into a Dealer Management Agreement with the registered broker-dealer Emerson Equity. As GWG’s “dealer manager,” Emerson Equity agreed to offer and sell L Bonds on a “best-efforts” basis and entered into Soliciting Dealer Agreements with certain other Broker-Dealers that were members of FINRA (the “Selling Group Members”). The Selling Group Members were authorized to sell L Bonds pursuant to their agreements with Emerson Equity. Each Broker-Dealer Defendant was a Seller Group Member.
GWG Holdings paid the Broker-Dealer Defendants a selling commission ranging from 0.75% to 6% of the principal amount of L Bonds they sold (the exact commission depended on the L Bonds’ maturity date, which ranged from six months to seven years). Each Broker-Dealer Defendant received commission payments directly from GWG Holdings. The Seller Group Members were also entitled to “additional compensation” (also paid by GWG Holdings) of up to 3% of gross offering proceeds as reimbursement for accountable out-of-pocket expenses incurred in offering and selling L Bonds. Given these financial incentives, the Broker-Dealer Defendants were strongly encouraged to maximize L Bond sales and ensure that customers reinvested any proceeds from L Bond maturities into new L Bonds—a key requirement in order to keep the Ponzi scheme going.
After entering into their respective Soliciting Dealer Agreements with Emerson, Seller Group Members (including the Broker-Dealer Defendants) required regular communications and updates from GWG to stay apprised (and keep their customers, retail investors in L Bonds, apprised) of the Company’s business and its attendant impact on the prospects of L Bonds. This was the responsibility of GWG’s national product sales team (the “GWG Sales Team”), which provided marketing materials and other relevant information about L Bonds (which were prepared and reviewed by GWG) to Seller Group Members.
The GWG Sales Team comprised “internal wholesalers” and “external wholesalers.” The wholesalers were employees of Ben who assisted GWG and Emerson with the marketing and sale of L Bonds. The wholesalers provided services to GWG and received a base salary from Ben pursuant to the Shared Services Agreement between GWG and Ben. Although they were employees of Ben, the wholesalers registered their FINRA licenses with Emerson, and Emerson held the licenses for and oversaw the national selling activities of the GWG Sales Team. Emerson paid the GWG Sales Team commissions based on the Seller Group Members’ L Bond sales.
GWG used “internal” and “external” wholesalers for marketing L Bonds to the Seller Group Members. “Internal” wholesalers communicated with registered representatives of the Seller Group Members and booked appointments for “external” wholesalers to meet with these representatives. The external wholesalers then provided these representatives with information regarding L Bonds and established themselves as the representatives’ point of contact within GWG. The registered representatives then placed orders for L Bonds on behalf of their retail investor clients.
In marketing L Bonds, GWG’s external wholesalers provided marketing materials and made presentations to Seller Group Members and their registered representatives. Wholesalers also spent GWG’s funds entertaining registered representatives with conferences, dinners, and the like.
Merriah Harkins (“Harkins”), GWG’s Executive Vice President of Retail Capital Markets, oversaw these marketing efforts. Harkins is also a registered representative of Emerson Equity. Harkins and the GWG Sales Team held weekly meetings to discuss L Bond marketing and sales. These weekly meetings were usually attended by internal and external wholesalers, representatives of Emerson, and, on numerous occasions, Evans and Holland. Holland routinely reviewed marketing materials prepared for the Seller Group Members and their registered representatives to verify the propriety of any material disclosures.
The GWG Board kept close tabs on L Bond sales, including the activity of Broker-Dealers. In addition to overseeing the marketing of L Bonds to Seller Group Members, Harkins, and the GWG Sales Team prepared detailed internal reports regarding L Bond sales and the activity of Broker-Dealers (including but not limited to Seller Group Members). Among other things, these reports showed L Bond sales projections by month, actual sales performance, the number of L Bonds sold by specific Seller Group Members, and the number of L Bonds sold in specific geographic regions, among other things. The GWG Sales Team regularly provided such reports directly to the GWG Board. Harkins and other members of the GWG Sales Team personally appeared at numerous GWG Board meetings to present their reports.
At the October 29, 2020 meeting of the GWG Board, a “Sales & National Accounts Results” presentation reported 14% growth in L Bond sales year over year, including $42.9 million in sales in September 2020. The presentation also described GWG’s “plan to achieve 2020/2021 goals,” which included a “methodical, numbers-driven expansion plan” to reach a 12-month goal of $750 million in L Bond sales. This plan would involve “measur[ing] activity and sales performance against goals to promote a high level of compliant activity.” The plan also envisioned doubling the number of Broker-Dealer representatives and RIAs to 10,000 by June 30, 2021, and again to 20,000 by September 30, 2021. There is no indication that the GWG Board ever considered hitting the brakes on L Bond sales and Broker-Dealer/RIA activity, given GWG’s obvious insolvency.
There was significant interest by the GWG Board surrounding the sale of L Bonds. For example, on at least one occasion, in August 2019, the Second Special Committee of the GWG Board asked Harkins what impact the Company’s use of L Bond proceeds to fund transactions with Ben would have on demand for L Bonds.
In addition to receiving reports from the GWG Sales Team, the GWG Board received direct communications from Emerson Equity on at least one occasion, in February 2021, when Emerson Equity sent a memo regarding its “Analysis of Investors Purchasing GWG L Bonds.” The memo purported “to determine the financial profile of the L Bond investors” and highlighted that the “average investment size in our current series of the L Bond (Series 3) is $46,895.” The memo proceeded to discuss the general marketing and sales practices of Seller Group Members.
The victims of this scheme (unlike Heppner, who is a reported billionaire) are the approximately 27,000 L Bondholders. These Bondholders are mainly small retail investors, including retired and elderly individuals, with the average individual L Bondholder owning just $45,000 worth of L Bonds. These stakeholders invested their savings with the expectation that the Debtors’ L Bonds were safe investments that would provide periodic interest payments and satisfaction of their principal at maturity—an expectation that was thwarted by Heppner’s scheme and the Defendants’ misconduct. Instead of providing a comfortable income stream for their retirement, the L Bondholders’ investments in GWG became the piggybank for Ben’s speculative business plans and the massive array of trusts and entities under Heppner’s control.
The financial burden caused by the scheme has fallen solely on the shoulders of the L Bondholders, who find themselves in financial ruin through no fault of their own.

As GWG Holdings, Inc. continues to navigate the bankruptcy process, with many questions remaining for L bondholders, our law firm remains ready to help GWG L bond investors file meritorious arbitration claims to recover their losses against broker-dealers. We continue to help GWG L Bond investors recover their losses.

Iorio Altamirano LLP (gwglawyer.com), a law firm that represents retail investors, is representing many GWG L Bond investors against brokerage firms across the country to recover investment losses and damages sustained by those firms’ recommendations to invest in GWG L Bonds. Based on the law firm’s investigation, there appears to have been widespread negligence and misconduct by many brokers and broker-dealers across the country.

For the latest on Iorio Altamirano LLP’s investigation of GWG L Bonds, including a key event timeline, visit our firm’s investigation page: Iorio Altamirano LLP’s Investigation of GWG L Bonds.

GWG Bankruptcy Update: Questions Remain as to When, or If, GWG L Bond Investors Will Receive Future Distributions

GWG L Bond Investor Recovers Losses After Filing a FINRA Arbitration Claim

SEC Finds That Some Broker-Dealers Are Using Outdated, Incomplete, and Inaccurate Risk Disclosures

Brokerage Firm Liability

An L bond is a financial product created by GWG Holdings, Inc. (GWGH). The L Bonds are speculative, high-risk, illiquid, and unrated alternative investment offerings.

Initially, GWG Holdings pooled money from bond investors to purchase life insurance policies on the secondary market, paid the policy premiums, and then collected the death benefit when the insured individual passed away. However, beginning in 2018, GWG Holdings used the investor capital to invest in a new business model, exposing the company to riskier alternative assets. Many GWG L Bond investors were utterly unaware that GWG materially reoriented its business model, which, in our view, made it a much bigger credit risk. Additionally, many GWG L bond investors were not told by their financial advisors that GWG used investor capital to pay out the high distributions owed to other GWG L Bond investors in a Ponzi-like scheme.

GWG sold the L bonds through Emerson Equity LLC and a network of regional broker-dealers, who pitched the products to individual retail investors. The network of regional broker-dealers who sold L Bonds and shared in the selling commissions included the following firms, as well as other broker-dealers:

Centaurus Financial, Inc.
Great Point Capital LLC.
National Securities Corporation.
Western International Securities, Inc.
Aegis Capital, LLC.
Newbridge Securities Corporation.
Dempsey Lord Smith, LLC.
Coastal Equities, Inc.
International Assets Advisory, LLC.
Arete Wealth Management, LLC.
Capital Investment Group, Inc.
Lifemark Securities, Corp.
Westpark Capital, Inc.
Ausdal Financial Partners, Inc.
American Trust Investment Services, Inc.
Moloney Securities.
IFP Securities, LLC.
Center Street Securities.
Cabot Lodge Securities LLC.
Kingswood Capital Partners, LLC.
American Trust Investment Services, Inc.
SW Financial.
Paulson Investment Company LLC.
Ages Financial Services, LTD.
Independence Capital Co., Inc.
Landolt Securities, Inc.
Intervest International Equities Corporation.
Titan Securities.
NI Advisors.
JRL Capital Corporation.
The FIG Group, LLC.
M Stevens Securities, LLC.
TFS Securities, Inc.
Integrity Brokerage, LLC.
American Equity Investment Corporation.
Portsmouth Financial Services.

Brokerage firms are required to make investment recommendations that are suitable and in the best interest of their customers. Brokerage firms and financial advisors must also disclose all material facts and risks of a security when making a recommendation. When a firm or advisor fails to meet these standards of conduct, they can be held liable for damages.

Firms and brokers must also conduct reasonable due diligence on products they offer before recommending them to any clients. There are serious concerns that some broker-dealers recommended GWG’s L Bonds to customers without first conducting sufficient due diligence on the GWG L bonds or GWGH.

Investors who purchased GWG L Bonds through a financial advisor are encouraged to contact Iorio Altamirano LLP (gwglawyer.com) for a free and confidential consultation and to review their legal rights. We can review and analyze potential claims and advise individuals of their legal rights without obligation or cost.

About Iorio Altamirano LLP

Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.

We have over 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.

If you have invested in L Bonds offered by GWG Holdings, contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, call the firm toll-free at (855) 430-4010.