Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) in an acceptance, waiver, and consent action (AWC) and barring former Center Street Securities, Inc. (Center Street) broker Jason Lamb (Lamb) concerning allegations that between March 2012, to February 2013, Lamb was a registered principal and Chief Compliance Officer (CCO) at Center Street’s headquarters in Nashville, Tennessee. FINRA found that Lamb failed to adequately supervise certain sales of GWG Renewable Secured Debentures, an illiquid and high-risk alternative investment.
Center Street Securities is headquartered in Nashville, Tennessee, has been a FINRA member since 1991, has approximately 67 branch offices and approximately 84 registered representatives. This is not the first time that FINRA has brought regulatory action concerning the actions of Center Street representatives. See Center Street Securities Broker David Escarcega Investigated Over GWG Debenture Sales; FINRA Sanctions Michael Wurdinger and Anil Vazirani Over GWG Debenture Sales (FINRA sanctioned brokers associated with Center Street Securities, Inc.); FINRA Sanctions Center Street Securities Over Sales of GWG Renewable Secured Debentures Part I (Center Street fined by FINRA).
The notes at issue are part of offerings by GWG Holdings, Inc. (GWG) which purchases life insurance policies on the secondary market at a discount to their face value. GWG pays the policy premiums until the insured dies and GWG then collects the insurance benefit making a profit by collecting more on the payout at maturity than the payment of the premiums on the policy. The Debentures have varying maturity terms and interest rates ranging from six-month at an annual interest rate 4.75% to seven years at 9.50%. The prospectus for GWG stated that the investments were speculative and involve a high degree of risk, including the possibility of risk of loss of the entire investment. An investment in the GWG Debentures, as a private placement, is illiquid and investors will not have access to their principal prior to maturity.
According to FINRA, Center Street began selling the GWG Debentures to its customers in February 2012, and went on to sell it to 269 customers. As Center Street’s CCO, Lamb was allegedly responsible for the firm’s compliance functions. This included maintaining the firm’s written supervisory procedures, overseeing the firm’s advertising and sales practices requirements, providing training to the firm’s brokers, and supervision of two compliance department employees. In addition, FINRA alleged that Lamb would review and approve Debenture sales by Center Street’s registered representatives on occasion.
FINRA found that Lamb approved certain Debenture transactions containing red flags including:
- Approved certain GWG Debenture purchases by customers whose conservative investment objectives were inconsistent with the speculative nature of the Debentures;
- Approved certain GWG Debenture purchases that resulted in a high concentration of a customer’ s total investable assets in the Debentures. In some instances, the sales exceeded the firm’s unwritten internal guidelines regarding concentration of investments in alternative products; and,
- Approved one GWG Debenture sale where the application included a false and misleading rationale about the liquidity of the GWG Debentures. Despite the presence of this red flag, FINRA alleged that Lamb failed to take reasonable steps to ensure the GWG Debenture sales were either suitable or had been accurately represented to customers.
FINRA also alleged that in one sale Lamb approved a GWG Debenture transaction that another compliance employee had not approved because the customer was ineligible to purchase the GWG Debentures under state suitability rules. FINRA also found that the transaction was also unsuitable because the customer invested in the GWG Debentures in order to generate income to pay the mortgage on her home.
Investors who have suffered losses may be able recover their losses through arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases where brokerage firms fail to supervise their representatives sale of unsuitable investments in private placements. Our consultations are free of charge and the firm is only compensated if you recover.