(Updated to include comments from Beneficient U.S. attorney and lawmaker who chairs the House financial institutions committee; also corrects that he was not charged with a drug crime)
A federal grand jury in New York has indicted the former top executive of the parent company of a unique type of Kansas financial institution on charges he set up a shell company to enrich himself with more than $150 million and pump up his lavish lifestyle.
The five-count indictment against Brad Heppner was unsealed Tuesday by a magistrate judge in the Southern District of New York.
Heppner, the former chief executive of Dallas-based Beneficient, is charged with five criminal counts, including securities and wire fraud, falsifying records and making false statements to auditors.
Heppner, 59, faces a maximum of 20 years in prison plus another five years on a charge of conspiracy to commit securities fraud and wire fraud.
“As alleged, Heppner abused his role as a public company executive to loot the company and to funnel money into his own pockets,” said U.S. Attorney Jay Clayton.
“When executives like Heppner lie and cheat to enrich themselves at the expense of everyday investors, they corrupt the integrity of our public markets.”
The federal indictment centers on how he set up a shell company that would benefit from tens of millions of dollars that he falsely claimed was owed by Beneficient to a third company he controlled.
In the process, Heppner is accused of looting another publicly traded company – a company he chaired – by persuading it to invest in Beneficient to help pay the debt.
The company – GWG Holdings – later filed for bankruptcy, causing losses exceeding $1 billion for thousands of investors and bondholders, the indictment said.
Meanwhile, Heppner is accused of using the proceeds flowing into Beneficient and subsequently the third company for personal use, including more than $40 million for renovations and decorations in his mansion.
Other personal expenses included more than $10 million for upkeep and expansion at his ranch and mansion, more than $10 million for personal credit card and private air travel expenses and more than $500,000 on jewelry.
Heppner stepped down in June from Beneficient, the Dallas-based company that he founded where he was chair of the board of directors and served as chief executive officer.
Beneficient is the parent company of Beneficient Fiduciary Financial, which operates in Kansas as a Technology-Enabled Fiduciary Financial Institution under a state law the Legislature enacted in 2021.
Heppner was the face of Beneficient when lawmakers overwhelmingly approved legislation authorizing the institution in 2021. It passed with 39 votes in the Senate and 103 votes in the House with 20 opposed. The governor signed the bill into law.
The so-called TEFFI was created with the goal of giving sophisticated investors the ability to liquidate alternative assets such as venture capital and private equity that aren’t easily converted to cash.
Over the years, the state’s top banking regulator had expressed concerns about regulating Beneficient’s subsidiary as well as any other similar type of company that would enter the Kansas market.
State Bank Commissioner David Herndon started raising concerns within about a year after the law authorizing the financial institution was enacted.
Herndon’s alarm bells drew a sharp a reaction from the Legislature in 2023 when it temporarily zeroed out the $13 million budget for the Office of the State Banking Commissioner, which regulates state-chartered banks and trust companies in Kansas.
The money for the bank commissioner’s office was deleted as the bank commissioner was engaged in a fight with Beneficient Fiduciary Financial LLC over whether it could be considered a trust under state law.
A hearing on Beneficient’s subsidiary is set for Thursday at the Kansas Capitol.
“I’ve reviewed the indictment and am continuing to gather information,” said Republican state Rep. Nick Hoheisel, chair of the House banking committee.
“The allegations are troubling, and right now we have more questions than answers.
“I expect Thursday’s oversight committee hearing will provide additional clarity and help us better understand both the facts and what this means for the future of Beneficient and its operations in Kansas,” Hoheisel said.
A lawyer for Heppner declined to comment Tuesday afternoon. A Beneficient spokesperson issued a statement responding to the indictment.
“Beneficent parted ways with Mr. Heppner earlier this year, immediately after learning facts related to his alleged fraud on the company and others,” the spokesperson said.
“Beneficient will continue to pursue its own potential claims against Mr. Heppner on behalf of its shareholders,” the spokesperson said.
“Beneficient has and continues to cooperate with the government’s investigation of Mr. Heppner.”
The indictment accuses Heppner of creating a shell company called Highland Consolidated Limited Partnership, otherwise known as HCLP.
Heppner is accused of creating a $141 million debt owed to HCLP from his private company, Beneficient, according to the indictment.
Heppner described it as a loan from an independent third party that had provided the money to start Beneficient, according the indictment.
But the indictment said the debt was not a “conventional loan” from a third-party lender that helped get Beneficient up and running.
Instead, the debt originated when Heppner allegedly directed an employee to tally up old, informal payments he had made out of HCLP for personal expenses such as the purchase of a 1,500-acre ranch in East Texas.
Heppner directed the employee to classify the expenses as debt Beneficient owed to HCLP, the indictment said.
Heppner then made the debt appear like a formal loan by having an HCLP subsidiary enter into an agreement with Beneficient to provide a $141 million loan to refinance Beneficient’s debt, according to the indictment.
The creation of the debt owed to a purported third party reportedly gave Heppner the ability to “extract money” from Beneficient ahead of all other stakeholders.
Under Beneficient’s capital structure, HCLP’s debt held senior priority over all other obligations, and as a result Beneficient was purportedly required to pay HCLP before satisfying any other claims before other lenders, equity investors or any other party, the indictment said.
The indictment accuses Heppner of looting $150 million from GWG Holdings Inc., a publicly traded company for which Heppner served as chairman.
He “accomplished his scheme by extracting GWG’s funds through a series of misrepresentations about, and self-serving transactions” with HCLP.
As Heppner gained control and influence over GWG, the indictment said, he made false and misleading statements to a special committee of GWG’s board of directors to get them to invest in Beneficient so it could make payments on the debt purportedly owed to HCLP.
When the GWG’s special committee asked Heppner who owned HCLP, he told them that HCLP was “independent, disclaimed influence over it, and denied that he would personally receive the payments on the purported debt.
“Those representations were false and misleading,” the indictment said.
“HCLP was controlled by Heppner,” the indictment said.
“And when GWG authorized payments to satisfy what it believed were arm’s-length debts owed to a third-party lender, those funds flowed through multiple corporate entities and ultimately to Heppner’s personal accounts,” the indictment said.
“As a result of this scheme,” the indictment said, Heppner “received more than $150 million in GWG assets in the form of payments on the debt to HCLP, which he controlled.
“Once Heppner exhausted his ability to siphon GWG’s assets for himself, he separated himself from GWG,” the indictment said.
“GWG filed for bankruptcy shortly thereafter, causing losses exceeding $1 billion to thousands of investors and bondholders,” the indictment said.
Last summer, Beneficient reported it received a default notice from HCLP, which was accused in a 2024 lawsuit of being part of a self-enrichment scheme organized by Heppner.
Beneficient disputed the default claim, which stemmed from a loan dating as far back as 2017.
The company undertook an investigation over whether conduct by Heppner and others who purportedly controlled HCLP was fraudulent, records show.
“The company is investigating very serious allegations of fraud,” said Derek Fletcher, chief fiduciary officer and director for Beneficient.
Fletcher said he could not comment further at the time.
Beneficient investigated Heppner’s conduct and tried to determine whether there was any fraud and if it might bring legal action against him or other parties with control over HCLP, according to a filing with the Securities and Exchange Commission.
Heppner resigned from the parent company in June following a request from Beneficient’s legal counsel — acting at the direction of the board’s audit committee — to participate in a formal interview.
The interview was to focus on “his knowledge of certain documents and information concerning his relationship to a related entity provided to the company’s auditors in 2019.”
The company said in an SEC filing that it requested to interview Heppner after it “identified credible evidence” that he “participated in fabricating and delivering fake documents to the company regarding his and others’ relationships to HCLP….”
The company also reported that it investigated additional information it had learned about other conduct by Heppner and others “that purportedly controlled HCLP to determine the extent to which any of that conduct surrounding HCLP was fraudulent.”
“In light of these circumstances, the company is evaluating the validity of its obligations under the credit agreements and is considering all options that it may pursue related to this conduct, including litigation against Mr. Heppner, HCLP and any direct or indirect control parties of HCLP.”
