Articles Tagged with Center Street Securities

shutterstock_160304408-300x199According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor Sean Kelly (Kelly), in October 2018, was accused by the Securities and Exchange Commission (SEC) of stealing more than $1 million from his clients.

According to the SEC, Sean Kelly used his companies, Lion’s Share Financial of East Cobb, Inc., Lion’s Share & Associates, Inc., and Lionsshare Tax Services, LLC, (Lion Share) to raise at least $1 million from 12 investors, including elderly retirees.  Kelley is accused of promising that he would invest investor funds in a variety of investment products including private placements and real estate funds.  However, the SEC determined that Kelly just spent the money on his own personal expenses including Super Bowl tickets, luxury vacations, and cash withdrawals. Apparently, even after he received an SEC subpoena Kelly continued to just steal money from investors.  Instead, the SEC alleged that Kelly continued to dodge the agency and did not show up for his scheduled testimony after informing the SEC’s staff that he would show up and “come clean.”  In a separate action, the U.S. Attorney’s Office for the Northern District of Georgia filed criminal charges against Kelly and arrested him.

The providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.

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shutterstock_182004416-300x200Broker John Oldham (Oldham) was recently sanctioned by The Financial Industry Regulatory Authority (FINRA) in an enforcement action.  According to the FINRA AWC (Letter of Acceptance, Waiver, and Consent 2015046203101) FINRA found that Oldham consented to sanctions that he shared commissions from the sales of alternative investments with an unregistered entity. According to FINRA, Oldham facilitated the sales of the alternative investments totaling more than $4.8 million to customers referred to him and shared commissions with the unregistered entity in the amount of $240,000 for these transactions.  FINRA found that while Oldham executed subscription agreements on behalf of the third-party, in some instances this representation on those forms were inaccurate because Oldham had not communicated with the customer who had executed the subscription agreement.

The securities lawyers of Gana Weinstein LLP are investigating the regulatory complaint against Oldham.  In addition to the regulatory action, there is one employment termination for cause listed for Oldham alleging possible violation of FINRA Rule 2040.

Our firm often handles cases involving direct participation products (DPPs) and private placements including oil and gas partnerships, non-traded real estate investment trusts (REITs), and other alternative investments.

shutterstock_53865739The 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.

shutterstock_146470052This article follows up on a recent article reported in Reuters concerning Atlas Energy LP’s private placement partnerships in oil and gas. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal allows investors to participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of oil into viable prospects. In addition, Atlas promises to invest up to $145 million of its own capital alongside investors.

In the last article we explored how the house seems more likely to win on these deals over investors. But beyond the inherent risks with speculating on oil and gas and unknown oil deposits most investors don’t realize the deals are often unfair to investors. In a normal speculative investment as the investment risk goes up the investor demands greater rewards to compensate for the additional risk. However, with oil and gas private placements the risks are sky high and the rewards simply don’t match up.

In order to counter this criticism, issuers say that the tax benefits of their deals where the investor can write off more than 90 percent of their initial outlay the year they make it helps defray the risk and increase the value proposition. First, the same tax advantage claims are often nominal compared to the principal risk of loss of the investment as seen by Puerto Rican investors in the UBS Bond Funds who have now seen their investments decline by 50% or more in some cases. Second, often times brokers sell oil and gas investments indiscriminately to the young and old who have lower incomes and cannot take advantage of the tax benefits.

shutterstock_103610648As recently reported in Reuters, Atlas Energy LP has marketed itself to investors as a way to get into the U.S. energy boom. By contributing at least $25,000 in a private placement partnership that will drill for oil and gas in states such as Texas, Ohio, Oklahoma and Pennsylvania and share in revenues generated from the wells. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal sounds good when pitched: participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of fossil fuels into potentially viable prospects and to boot Atlas will invest up to $145 million of its own capital alongside investors. Through this method and similar deals, oil and gas projects have issued nearly 4,000 private placements since 2008 seeking to raise as much as $122 billion.

But before you take the plunge a review of the Atlas’s offering memorandum reveals some red flags and given Atlas’ past failure rate investors should think twice. First, up to $45 million of the money raised will be paid to Atlas affiliate Anthem Securities that will then be turned over to as commissions to broker-dealers who pitch the deal to investors. Up to $39 million more will be used to buy drilling leases from another affiliate. Think investors will get a fair price on the leases when Atlas controls both sides of the deal? More conflicts ahead as Atlas affiliated suppliers may also get up to $53 million for buying drilling and transport equipment. Next, an additional $8 million of Atlas’s investment is a 15 percent markup on estimated equipment costs. Finally, Atlas will pay itself nearly $52 million in various other fees and markups.

In sum, at least 40% of Atlas’s $145 million investment alongside mom and pop goes right back to the company. In addition, Atlas’ profits don’t stop there, when the venture starts generating revenue Atlas is entitled to 33% before accounting for those payments and markups. In the end, not much of a risk at all for Atlas.

shutterstock_27597505This post continues our story on the allegations made by the Financial Industry Regulatory Authority (FINRA) against Center Street Securities, Inc. (Center Street). As previously reported, FINRA sanctioned the firm concerning a multitude of rule violations in the sales of GWG Renewable Secured Debentures, an illiquid and high-risk private placement investment.

FINRA found that in order to purchase the GWG Debentures, Center Street customers were required to complete an account application, GWG subscription forms, and a “Compliance Alternative Investment (Non-Reg D) Suitability.” FINRA found that the compliance form required brokers to obtain information about customers’ existing assets, the concentration of the alternative investment as percentage of net worth, the customer’s age, and the customer’s investment objectives. Once completed, FINRA alleged that these documents were submitted to Center Street’s compliance department for supervisory and suitability review.

FINRA found that these forms were the only items the firm relied upon in reviewing and assessing Debenture sales. FINRA determined that Center Street had three employees of in their compliance department who conducted supervisory and suitability review of all transactions recommended to customers. FINRA alleged that the primary employee responsible for conducting the review of GWG Debenture received no training from the firm regarding the unique characteristics and risks of the GWG Debentures. The employee was also unaware of the firm’s guidelines concerning concentration of alternative products as well as state specific suitability requirements.

shutterstock_27786601The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Center Street Securities, Inc. (Center Street) concerning allegations that: 1) between approximately March 2012, and August 2013 Center Street, through multiple brokers, made unsuitable recommendations to customers to purchase GWG Renewable Secured Debentures, an illiquid and high-risk private placement investment; 2) Center Street failed to maintain an adequate supervisory system and adequate written supervisory guidelines to reasonably supervise the sales of GWG debentures; 3) between approximately February 2012, and November 2012, Center Street also distributed an inaccurate GWG sales brochure to over 100 customers; and 4) certain Center Street customer account forms contained inaccurate information about customer net worth or other information, and thus the firm failed to maintain accurate books and records.

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.).

The notes are issued by GWG Holdings, Inc. (GWG) which purchases life insurance policies on the secondary market at a discount to the face value of the insurance policies. GWG pays the policy premiums until the insured dies and GWG then collects the insurance benefit making a profit, hopefully, by collecting more upon the maturity of the policies than the payment of the policy and servicing of the premiums. 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.

shutterstock_176351714The Financial Industry Regulatory Authority (FINRA) brought a complaint against broker David Escarcega (Escarcega) concerning allegations that Escarcega recommended unsuitable investments in Renewable Secured Debentures of GWG, Inc. (GWG Debentures). Escarcega is not the first Center Street Securities, Inc. (Center Street) broker that has been investigated by FINRA in connection with their GWG sales or the supervision of such sales. As we have reported FINRA recently sanctioned Michael Wurdinger (Wurdinger) concerning allegations that from approximately February 2012, to February 2013, Wurdinger failed to adequately supervise sales of GWG Debentures. In a related but separate action concerning Center Street’s supervision of the sale of the GWG debentures, Anil Vazirani (Vazirani) was found to not be appropriately registered with the firm but nonetheless solicited sales of the debentures through communications with prospective customers, discussed the details of the debentures features as an investment, recommended the purchase of the product, and assisted seven customers to complete documents in order to purchase the GWG Debentures.

As a background, GWG Holdings, Inc. purchases life insurance policies on the secondary market at a discount to the face value of the insurance policies. GWG then pays the policy premiums until the insured dies and GWG then collects the insurance benefit making a profit, hopefully, by collecting more upon the maturity of the policies than the payment of the policy and servicing of the premiums. According to FINRA, the company has a limited operating history and has yet to be profitable. 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.

In Escarcega’s case, FINRA alleged that Between March 2012, and January 2013, Escarcega violated the antifraud provisions of the federal securities laws as well as numerous FINRA and NASD rules while selling more than $1.8 million of GWG Debentures to his customers. According to FINRA, Escarcega made false and misleading oral and written statements to seven customers in connection with their purchases of the GWG Debentures. FINRA found that Escarcega falsely told the customers that the Debentures were safe, low-risk, liquid, or guaranteed. For example, on one form, FINRA found that Escarcega described the GWG Debentures as having “a guaranteed interest payment” and providing a “guaranteed rate of return.”

shutterstock_155045255The law offices of Gana Weinstein LLP are investigating claims concerning allegations made by the Financial Industry Regulatory Authority (FINRA) that Michael Wurdinger (Wurdinger), from approximately February 2012, to February 2013, Wurdinger failed to adequately supervise sales of GWG Renewable Secured Debentures (GWG), an illiquid and high-risk alternative investment in violation of NASD Rule 3010 and FINRA Rule 2010. As a result of FINRA’s investigation Wurdinger was suspended for six months.

Wurdinger was associated as a securities principal with Center Street Securities, Inc. (Center Street) from June 2009, until April 2013, when he resigned. Since November 4, 2013, Wurdinger has been associated as with Wells Fargo Advisors, LLC. Center Street has 84 registered representatives and 67 branches offices nationwide.

As a background, GWG Holdings, Inc. purchases life insurance policies on the secondary market at a discount to the face value of the policies. Once purchased, GWG pays the policy premiums until the insured dies. GWG then collects the face value of the insurance benefit and the company hopes to earn returns by collecting more upon the maturity of the policies than it has paid to purchase the policy and service the premiums. FINRA found that the company has a limited operating history and has yet to be profitable.

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Center Street Securities, Inc. (Center Street) concerning allegations that the firm failed to establish, maintain, and enforce adequate supervisory systems and written supervisory procedures to monitor the use of external email accounts to conduct firm-related business by the firm’s registered representatives.  The firm was fined $30,000.

Center Street has been a FlNRA member since February 7, 1991 and employs approximately 84 registered persons out of 74 branch offices.  Center Street’s principal office is in Nashville, Tennessee.  Center Street sells variable life insurance and annuities, mutual funds, private placements, options, corporate equities, debt securities, U.S. government securities and municipal securities.

The duty to supervise is a critical component of the securities regulatory scheme.  The duty to supervise is an affirmative responsibility of all brokerage firms.  The SEC has found that effective supervision by a broker-dealer must provide effective staffing, efficient resources and a system of follow-up and review to determine that any responsibility to supervise is being diligently exercised.  Evidence that there is a variance between the conduct called for by a firm’s procedures and the actions actually undertaken by a firm supports a finding of liability and failure to supervise.