Centaurus Financial Went “All In” on GWG L-Bonds at the Wrong Time

The securities attorneys at Chicago-based Stoltmann Law Offices are representing investors in FINRA arbitration actions against multiple brokerage firms that recommended GWG-L-bonds to their clients. Our investigation into GWG, which includes monitoring and being involved in the Chapter 11 bankruptcy, is focused on two issues: First, GWG L-Bonds were speculative, high risk, unrated debt instruments. One of the biggest issues with this bond program is, the bondholders were subordinate to hundreds of millions of dollars other debt.  The debt owed by GWG in these bonds are not the first priority to be paid back by the company on the “capital stack”.  These were very high risk investments, so unless that was made clear to you by your financial advisor, you may have a claim to pursue for misrepresentations and commissions and for recommending an unsuitable investment.  Either of these are actionable.

The other main issue here from the brokerage firm perspective is the failure to perform reasonable due diligence. Although 160 brokerage firms sold GWG Financial, this is actually a super-minority, roughly 5%, of all brokerage firms nationwide. In reality, very few firms approved GWG for sale to their customers.  GWG was allowed to borrow up to 90% of its listed assets. Its assets are almost all illiquid and subject to “fair valuation” which is an extremely dangerous financial situation for investors.  Big firms like Merrill Lynch and Morgan Stanley don’t go anywhere near unrated speculative bonds like this. But a lot of firms do because GWG paid brokers massive 8% commissions to sell these bonds which were the financial life-blood of GWG.  Even through the US government began investigating GWG in October 2020, and brokerage firms still continued to sell them.  As early as march 2020, GWG was reporting publicly about “several material weaknesses” with respect to the company’s accounting processes.  By 2020, there were more Red Flags about GWG than a Soviet May-Day parade and yet brokerage firms continues to sell it, and one reportedly BOOSTED sales.

It was reported this week that Centaurus Financial, with 640 brokers nationwide, actually increased the amount individual investors could invest in GWG from $100,000, to $150,000. Brokers went on the sales push to recommend their clients increase their investment in the GWG L-Bonds in April 2020, after GWG reported material issues with accounting and after it entered into a highly questionable transaction with the Beneficient Company, alleged now to have been securities fraud.

If you were sold GWG L-bonds, you could have a viable claim to pursue in FINRA Arbitration.  These claims are filed against the brokerage firms responsible for holding your financial advisor’s license to sell securities, and responsible for performing adequate due diligence on GWG L-Bonds.  FINRA Arbitration usually takes about a year from start to finish and you can sue for your investment losses, the return of your investment principle, and your attorneys fees.  Most of these cases settle without a formal arbitration hearing.  These are individual or group arbitrations, not class actions.

Investors should not rest on their laurels and wait for the Chapter 11 to result in a liquidation of GWG’s assets.  That could take years. Investors do not want to be on the back-end of these claims as there will likely be several hundred FINRA claims filed nationwide against numerous firms that sold GWG L-Bonds.

Representing investors in FINRA Arbitration is a niche practice.  Stoltmann Law Offices has representing clients in FINRA arbitration actions since 2005 and we have recovered hundreds of millions of dollars for our clients.  We operate on a contingency fee which means we do not get paid unless you do.  If you would like to discuss your GWG L-Bond investments, please call our office at 312-332-4200 to speak to an attorney about your claims.