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Life insurance bond seller GWG files for Ch. 11 amid SEC probe

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(Reuters) – Financial services firm GWG Holdings Inc, which sells bonds backed by life insurance policies, filed for Chapter 11 bankruptcy protection on Wednesday amid an investigation by the Securities and Exchange Commission into the company’s accounting.

The Dallas-based firm filed in the US Bankruptcy Court for the Southern District of Texas with $2 billion in debt, including $1.6 billion in outstanding bonds. GWG has lined up a $65 million loan from National Founders LP to fund operations during the Chapter 11 process.

Murray Holland, the company’s chief executive officer, said in a statement on Wednesday that the bankruptcy is “expected to strengthen the company’s financial position going forward and help preserve the value of the company’s assets for the benefit of its investors.”

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The firm says the bankruptcy was caused by its inability to access financial markets as well as regulatory issues related to the SEC’s investigation, which began in 2020, into “certain accounting matters” and GWG’s issuance of bonds. The following year, GWG was late to file certain financial statements, which it also attributed to accounting issues. The delay in filing its financial statements prompted it to stop issuing bonds to investors for eight months. The firm’s liquidity began to dry up after it stopped selling the bonds.

The SEC investigation remains ongoing and, according to GWG, has not yet concluded that the firm has engaged in any wrongdoing.

In addition to its $1.7 billion insurance policy portfolio, GWG has certain interests in two non-bankrupt companies. The first, Ben LP, offers financial services to investors in private equity, venture capital and feeder funds and, according to GWG, is expected to grow. However, GWG’s role in Ben narrowed last year when Ben separated from GWG and became an independent company, eliminating GWG’s power to supplement the majority of Ben’s board of directors.

The second company, FOXO Technologies Inc, develops technology related to actuarial modeling for life insurance policies.

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In addition to its financial and regulatory issues, GWG faces litigation from investors. In February, accused shareholders the firm of misusing investor funds and failing to disclose the SEC investigation. GWG’s chief financial officer Timothy Evans said in court papers that GWG “vehemently denies” those allegations.

GWG’s lawyers will appear before US Bankruptcy Judge Marvin Isgur on Thursday to seek approval to access some of the bankruptcy loan.

The case is In re GWG Holdings Inc., US Bankruptcy Court for the Southern District of Texas, No. 22-90032.

For GWG: Charles Kelley, Thomas Kiriakos, Louis Chiappetta, Adam Paul and Lucy Kweskin of Mayer Brown; and Kristhy Peguero and Matthew Cavenaugh of Jackson Walker

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Our Standards: The Thomson Reuters Trust Principles.

Maria Chutchian

Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.

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