GWG ordered to mediate; committee wants to prosecute causes of action

By Sarah Lizee

Olympia, Wash., Dec. 16 – GWG Holdings, Inc. and a special committee of its board of directors received approval to mediate with key stakeholders regarding open issues relating to its Chapter 11 plan, according to an order filed with the U.S. Bankruptcy Court for the Southern District of Texas.

The debtors and special committee said the cases are “ripe for mediation” as a non-binding, cost-effective means of potentially resolving, or at least narrowing, open issues among themselves and key parties.

Before the court hearing on approval of the mediation, the official committee of bondholders expressed support for the motion.

The committee said there are several issues that need to be addressed, including whether any legitimate basis exists, based on the projected value of the debtors on the effective date, for providing recoveries to creditors other than bondholders, let alone equity holders, other than recoveries to which general unsecured creditors may be entitled on account of the pursuit of any unencumbered estate claims and causes of action.

The bondholders have also filed a motion for standing to prosecute causes of action on behalf of the debtors’ estates arising from a “multiyear long fraud orchestrated by Brad Heppner to enrich himself and associated corporate entities by plundering the debtors,” the group said.

“The resulting harm from this fraud has fallen almost entirely on the shoulders of the L bondholders – approximately 27,000 primarily retail investors who are collectively owed approximately $1.6 billion, with each individual L Bondholder owning on average less than $45,000 worth of L bonds,” the committee said.

The group said many of the bondholders face financial ruin because GWG, through a group of select broker-dealers, aggressively and misleadingly marketed and sold L bonds even after it because clear that its business was failing and the only way to repay those bondholders was to continue to sell more of them to existing and additional retail investors.

“Put simply, GWG was a classic Ponzi scheme,” the committee said.

GWG is a life insurance company based in Dallas. The company filed bankruptcy on April 20, 2022 under Chapter 11 case number 22-90032.

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