The court-appointed litigation trustee overseeing the GWG Holdings bankruptcy has asked a federal judge to approve a settlement with its subsidiary Beneficient that would clear the way for the parties to jointly go after Beneficient’s former director and chief executive officer, Brad Heppner.
A Dallas-based financial services firm that sells bonds backed by life insurance policies, GWG filed its Chapter 11 bankruptcy petition in April 2022. Dallas-based Beneficient is a financial services firm and a subsidiary of GWG Holdings. The proposed settlement with Beneficient comes in the wake of the company’s disclosures of “startling developments” the trustee said bolsters his own claims against Heppner.
According to the motion filed Friday, Beneficient disclosed in a Form 8-K in June that Heppner resigned his positions with the company after refusing to participate in an interview about “his knowledge of certain documents and information concerning Mr. Heppner’s relationship to a related entity provided to the Company’s auditors in 2019.” And in August, a second Form 8-K revealed that Beneficient had uncovered “credible evidence that Mr. Heppner participated in fabricating and delivering fake documents to the company regarding his and others relationships to HCLP.” HCLP Nominees is Beneficient’s “purported senior lender and a remaining defendant in the [directors and officers] adversary proceeding.”
In the filing, Beneficient also stated it was “considering all options,” including litigation against Heppner, HCLP and any direct or indirect controllers of HCLP. The trustee told the court those disclosures “directly align” with allegations he has already lodged, “including that Heppner and others concealed his relationship with HCLP so that Heppner could funnel over $140 million of GWG funds to trusts and entities affiliated with Heppner.”
“The agreement does not compromise any of the litigation trust’s substantive claims against the Heppner affiliated entities or any other defendants in the D&O adversary proceeding,” the motion reads. “Rather, it affirmatively strengthens the litigation trust’s position and enhances the probability of success in two critical respects.”
First, the motion argues that the agreement will save the litigation trustee both the time and the “substantial expense” of having to go through discovery to get access to Beneficient’s “investigative materials, information and cooperative witnesses,” and it allows Beneficient to share privileged information about its investigation with the trustee.
“Beneficient’s cooperation also will aid the litigation trustee in unraveling the complex structure of trusts and entities Heppner has employed to conceal his conduct and assets,” the motion reads. “While litigation outcomes are never certain, access to this information materially improves the trust’s ability to prosecute claims against the Heppner affiliated entities and other defendants.”
And secondly, the trustee told the court the agreement with Beneficient will “eliminate competition for the Heppner affiliated entities’ assets.”
“Beneficient has affirmatively agreed that any monetary recovery it obtains — whether through judgment, settlement, or otherwise — will insure solely to the litigation trust. This ensures that the litigation trust will not face a competing claimant in pursuing recoveries against the Heppner affiliated entities,” the motion reads. “Put simply, the agreement not only enhances the trust’s likelihood of prevailing on the merits but also increases the likelihood of collecting on any judgment obtained.”
The agreement also calls for and addresses potential concerns arising out of the request that the court approve Reid Collins’ dual representation of the litigation trustee and Beneficient “solely for the limited purpose of pursuing claims against Heppner and his affiliates,” the motion explains.
“Importantly, the agreement expressly affirms the litigation trustee’s independence and provides that, in the unlikely event the district court does not approve the D&O settlement, Reid Collins’ representation of Beneficient will automatically terminate,” the motion states. “These safeguards ensure that the Litigation Trustee’s representation is never compromised.”
The D&O settlement refers to a $50.5 million deal the litigation trustee, Michael I. Goldberg, struck with certain officers and directors of GWG and that was approved in June by U.S. Bankruptcy Judge Christopher Lopez, who was filling in for Bankruptcy Judge Marvin Isgur.
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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 D&O 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.
Goldberg has also sued the law firm Holland & Knight, filing a 156-page complaint in March accusing the firm of “knowing participation in a fraudulent looting scheme and associated criminal enterprise” that included Dallas-based financial services firm Beneficient and its founder and CEO Bradley Heppner.
Goldberg alleges the firm and its Dallas partner Bill Banowsky colluded with Heppner to “fraudulently induce” GWG to invest $148.4 million to help Beneficient “stave off collapse” by repaying a senior lender. But the senior lender, according to the complaint, was actually a “front for Heppner” and the money “flowed in-and-out of bank accounts of various Heppner-controlled intermediaries into an entity that had for two decades functioned as Heppner’s personal slush fund.”
In April 2024, Goldberg filed suit against Beneficient, Heppner and other executives, accusing them of fraud and conspiracy. And in September 2024, he targeted Foley & Lardner in another lawsuit, alleging the firm GWG hired to advise a special committee guiding the company’s partnership with Beneficient had committed legal malpractice and breach of fiduciary duty. Judge Isgur sent that case to arbitration in February.
Goldberg is represented by Nathaniel Palmer, William T. Reid IV and Michael J. Yoder of Reid Collins & Tsai.
Beneficient is represented by Richard “Thad” Behrens of A&O Shearman.
The case number is 22-90032.