Beneficient Co. Group LP told investors it was increasing revenue by making loans backed by alternative assets such as stakes in private-equity and venture-capital funds, WSJ Pro Bankruptcy reported. What those investors didn’t know at the time was that Beneficient was making those loans to its own subsidiaries, then counting the interest and fees it got back as revenue. The Securities and Exchange Commission determined last year that the firm’s accounting method was incorrect. The method made it appear that Beneficient was generating revenue growth as a lending business even while its underlying portfolio of alternative assets was actually incurring losses. Beneficient’s parent company at the time, another alternative asset company called GWG Holdings Inc., sold more than $500 million in bonds to investors after filing the incorrect financial statements. Even after GWG and Beneficient straightened out their books, the bond-selling network that GWG needed to stay afloat was effectively frozen, and the company filed for bankruptcy in April facing a federal securities investigation and owing $1.3 billion to thousands of individual investors. Those investors and GWG’s newly appointed managers have also been investigating what happened before the collapse, and how the company came to be used as a capital-raising vehicle for Beneficient, a financial-services firm led by Dallas-based entrepreneur Brad Heppner.
