Despite the name of the Showtime TV show that once starred Gabrielle Union, the term l-bonds doesn’t refer to any kind of “love bond.” Rather, l-bonds are securities that finance the purchase of life insurance policies.
What are GWG bonds?
Minnesota-based GWG Holdings marketed a series of investments called “l-bonds.” As Investopedia explains, these securities were highly risky and illiquid. They were also not tradable on the secondary market. Investors could only sell their l-bonds back to GWG in exchange for the original policy’s surrender value or they could redeem them early — and early redemption would require paying a penalty.
As such, l-bonds were unsuitable for many retail investors, including retirees and those with low or moderate risk tolerances. Brokerage firms are required to perform a customer-specific suitability analysis before recommending any investment product. This includes reviewing a client’s age, investment time horizon, employment status, net worth, and risk tolerance. If a brokerage firm recommends an unsuitable investment, it may be liable for violations of FINRA rules and state securities laws.
In addition, there was no guarantee that the purchased life insurance policies would pay out. And even if the purchased policies did pay out, there was no guarantee that the L bonds would be redeemed by GWG Holdings at any time or that investors would receive any return on their investment. As a result, many investors lost substantial sums. GWG Holdings has reportedly missed significant interest, maturity, dividend, and redemption payments to investors.