Former Beneficient CEO Faces Fraud Charges

By Tim Carpenter, Kansas Reflector

TOPEKA — The former CEO and founder of the Beneficient investment firm that was granted a unique bank charter on orders of the Kansas Legislature was arrested and jailed Tuesday following indictment for an alleged scheme to loot more than $150 million from a company forced into bankruptcy.

Brad Heppner, who was taken into custody at his home by the Irving Police Department in Texas, was indicted in federal court in New York on counts of securities fraud, wire fraud, conspiracy to commit securities and wire fraud, making false statements to auditors, and falsification of records. Prosecutors say he misled investors and auditors, and they said he obstructed an investigation by the U.S. Securities and Exchange Commission.

He has for years been at the center of a flurry of civil lawsuits alleging financial misconduct. The criminal case was worked by the Federal Bureau of Investigation in cooperation with the SEC.

“Heppner abused his role as a public company executive to loot the company and to funnel money into his own pockets,” said Jay Clayton, U.S. attorney for the Southern District of New York. “When executives like Heppner lie and cheat to enrich themselves at the expense of everyday investors, they corrupt the integrity of our public markets.”

Interest in Heppner’s business activities has been relevant to Kansans because Beneficient, the company he founded, has held a Kansas banking license since 2021.

Heppner was accused in the indictment, unsealed Tuesday, of misappropriating at least $150 million from the publicly traded, now-bankrupt GWG Holdings through a series of self-serving transactions tied to Beneficient and Highland Consolidated Limited Partnership. He was simultaneously chairman of GWG and Beneficient, and secretly controlled HCLP, according to the indictment.

“Though Heppner repeatedly described HCLP as an independent entity, it was, in fact, a shell company controlled by Heppner and operated for his benefit,” the indictment said. “Once Heppner exhausted his ability to siphon GWG’s assets for himself, he separated himself from GWG. GWG filed for bankruptcy shortly thereafter, causing losses exceeding $1 billion to thousands of investors and bondholders.”

Financial damage resulting from the catastrophe at GWG primarily fell on retail investors, “many of them retirees,” the indictment says.

The indictment says Heppner used the money for personal expenses, including $40 million for renovation of a Dallas mansion and a ranch in Montalba, Texas. He allegedly spent $10 million on upkeep, expansion and IT services on those properties as well as $10 million to cover credit card debt and private aviation expenditures. He purportedly used $20 million to pay tax expenses and bought jewelry valued at more than $500,000.

The indictment seeks to force Heppner to surrender ill-gotten cash as well as the properties in Dallas and Montalba.

Heppner, 59, faces a maximum of 20 years in prison on the fraud, false statement and false record counts. The conspiracy count carries a maximum sentence of five years in prison.

In June, Heppner resigned from Dallas-headquartered Beneficient rather than cooperate with an audit committee looking into financial irregularities. In 2021, Heppner left GWG and structurally separated Beneficient from GWG. GWG filed for Chapter 11 bankruptcy in 2022.

Dan Callahan, a spokesperson representing Beneficient, issued a company statement in wake of the indictment: “Beneficient parted ways with Mr. Heppner earlier this year, immediately after learning facts related to his alleged fraud on the company and others. Beneficient will continue to pursue its own claims against Mr. Heppner on behalf of its shareholders. Beneficient has and continues to cooperate with the government’s investigation of Mr. Heppner.”

Heppner was the face of Beneficient before and after it landed a Kansas banking charter for a Beneficient subsidiary. Legislation that guaranteed Beneficient received the charter was championed by Kansas Senate President Ty Masterson, an Andover Republican now in the midst of a campaign for governor. Masterson made the motion in support of the charter during a 2021 interim legislative committee hearing. The legislation was signed into law by Democratic Gov. Laura Kelly.

While lobbying Kansas legislators in pursuit of a bank charter, Heppner allegedly continued with the covert effort to hide the funneling of $150 million from GWG to Beneficient and to HCLP.

Beneficient made financial contributions to the campaigns of Republicans and Democrats in Kansas. It’s unclear whether those donations were made with cash Heppner allegedly transferred from GWG.

David Herndon, the Kansas state banking commissioner, opposed the charter for Beneficient and repeatedly urged the Legislature to repeal the law allowing Beneficient to anchor its asset-swap business to Kansas.

The business linked to the state charter was designed to allow Beneficient to work with investors to cash out or trade for stock their illiquid assets, including venture capital and private equity. To entice Kansas to deliver the charter, Beneficient agreed to funnel money into a Kansas foundation that was to help revitalize Hesston and support economic development in other rural communities. Heppner grew up in Kansas.

Despite praise among legislators regarding Beneficient and its work on behalf of Kansans, there were persistent skeptics in the House and Senate to the financial arrangement between Kansas bank regulators and the Texas company.