A federal bankruptcy judge in Houston on Friday approved four settlements totaling about $91.3 million in the GWG Holdings case.
At the end of a roughly two-hour hearing, U.S. Bankruptcy Judge Christopher Lopez approved a $50.5 million settlement with directors and officers of GWG, a $30 million settlement with the law firm Mayer Brown, an $8.5 million settlement with Texas accounting firm Whitley Penn and a $2.3 million settlement with brothers Jon R. and Steven F. Sabes, the original founders of GWG.
A Dallas-based financial services firm that sells bonds backed by life insurance policies, GWG filed its Chapter 11 bankruptcy petition in April 2022.
“Here, we have the culmination of years of mediation,” Judge Lopez said prior to approving the four settlements. “I feel comfortable with where we’re at procedurally and that due process notice has been provided. … Based on the evidence before me, considering the law, I’m going to grant each of these settlements.”
Judge Lopez was slow and measured in his statements before stating his approval, taking time to explain he’d considered the views of all parties.
“Settlements, by nature, are not always what everyone wants,” he said. “There are some people who invested a significant amount of money … [and] by no fault of their own, the money is gone.”
The court-appointed trustee, Michael I. Goldberg, was questioned directly by Judge Lopez during the hearing. Judge Lopez asked Goldberg if he believed these proposed settlements represented the most money he could get for the bondholders, and Goldberg said yes.
“Tell me in your own words. Put a little meat on the bone for me,” Judge Lopez prodded.
Goldberg explained that his job as court-appointed litigation trustee is to maximize the recovery for the bondholders in this case.
“Without trying to sound arrogant,” Goldberg said, “I do more fraud cases than just about anyone.” He explained that he represented clients defrauded by Bernie Madoff and is currently representing individuals who were victims of $1 billion and $1.4 billion Ponzi schemes.
As for the settlement for the directors and officers, Goldberg told the court “the nonavailability of liquid assets was the deciding factor for me” in asking the court to approve the deal. The court also heard testimony from bondholders, who phoned in remotely to the hearing, including one who said he and his wife had invested more than $500,000 in GWG. He was “overwhelmingly in agreement with approving this settlement,” he told the court.
There have been estimates that the bondholders can expect to recoup about 2 to 3 percent of their investments.
In approving the settlements, Judge Lopez said he was comfortable with the answers to direct questions Goldberg had given, alleviating any concerns that this was a “layup settlement,” and was satisfied that the trustee had made a decision in the best interest of the bondholders and all creditors.
“There is no winner,” Judge Lopez said. “It’s a settlement. It’s a compromise.”
The settlement with the directors and officers must also be approved by U.S. District Judge Jane Boyle, who is currently presiding over parallel putative securities class action claims against those defendants.
According to the trustee’s motion seeking the court’s approval of the settlement, Goldberg told the court he will “continue pursuing claims against the reserved trust action defendants, which include various trusts and entities affiliated with Bradley K. Heppner.”
“The proposed settlement resulted from the parties’ ultimate acceptance of a mediators’ proposal by the Hon. Royal Furgeson (ret.) and David Murphy after nearly 18 months of hard-fought negotiations and multiple mediation sessions,” the 34-page motion filed in March explains.
William “Bill” T. Reid IV of Reid Collins & Tsai, who represents Goldberg, told Judge Lopez that since the last hearing on the proposed settlement — which took place in April, when Judge Isgur ripped the parties for not providing due process notice to the bondholders — “hundreds of thousands” more had been spent to make sure all bondholders received adequate notice of the proposal in writing and that it was also made available on a website.
Goldberg represented to the court that if he approved these four settlements today, he still intends to pursue funds from other sources, including from the law firm Holland & Knight. The trustee has filed a fraud lawsuit against the firm and is seeking to recover nearly $150 million for its alleged “knowing participation in a fraudulent looting scheme and associated criminal enterprise” that included Dallas-based financial services firm Beneficient and its founder and CEO, Heppner.
The law firm has moved to have the lawsuit against it dismissed.
Reid told the court the trustee has six other targets for fund recovery that have yet to be presented with draft lawsuits.
Judge Lopez heard from Goldberg and his counsel that there were concerns any delay in approving the D&O settlement, specifically, would result in those funds being completely exhausted within the next 18 to 24 months, resulting in no recovery for the bondholders.
Initially, the insurance policies covering officers and directors provided $155 million in coverage, but the funds quickly dwindled. By early December 2024, “the trustee was informed that only $77–$80 million in coverage remained, meaning that $20 million (or more) had been depleted from the D&O Policies in less than a year without either the adversary proceeding or the class action having moved past motions to dismiss,” the motion reads.
Judge Lopez was filling in Friday for Judge Marvin Isgur, who has been presiding over the case, and told those gathered for the hearing he had spent as many as 50 hours reading through the docket to get up to speed.
“I don’t want you to think for one minute I’m not as prepared as you want me to be,” he said. “This is a really serious matter. I’ve read everything. I’m ready to go.”
Judge Lopez said he had read the briefing submitted by all parties on the public policy issue, which Judge Isgur had raised at the April hearing as a possible hurdle that needed to be addressed as it related to the proposed settlement with the directors and officers.
At the April hearing, Judge Isgur seemed bothered that in all the briefing to the court “no one bothered to cite” what he called the most influential opinion in this area of law, a panel opinion authored by retired Seventh Circuit Judge Richard Posner in 2001 in Level 3 Communications v. Federal Insurance Company, and a subsequent 2010 ruling from the Fifth Circuit that cited that case.
In Level 3, the court determined an insurance policy could not be used to cover a settlement in a fraud suit. Judge Isgur said it would be against public policy to hold that someone could be insured for “willful fraudulent conduct” and requested the parties address the issue in future briefing.
Mike Gaddis of Winston & Strawn, who represents, as he explained to the court, three former independent board members of GWG (Roy Bailey, Daniel Fine and Jeffrey MacDowell) “who didn’t fall for” what the other officers and directors did, addressed the court on the public policy issue. He said while Judge Posner raised the public policy concern in Level 3, his ruling actually rested on contract interpretation — determining that the insurance policy at issue in that case could not cover restitutionary payments.
During the hearing but before approving the settlement, Judge Lopez said he agreed with that analysis.
“I appreciate the briefing because the public policy issues are incredibly important,” he said. “I don’t find any law, I don’t find any statute, I don’t find any Fifth Circuit [ruling] that says one cannot settle these types of matters.”
Judge Lopez said the testimony he had heard during the hearing was “credible and uncontroverted” and called the evidence “overwhelming that this is in the best interest of the estate.”
“I don’t make any decision lightly,” he said. “Especially this one, because it affects real people in real time.”