Center Street Securities, a broker-dealer located in Nashville, Tenn., earlier this week filed a termination notice with the Financial Industry Regulatory Authority after clients alleged it sold them unsuitable investments.
Among the investors are those who bought bonds issued by bankrupt Dallas company GWG Holdings, and Center Street has also gotten in trouble in the past with regulators for investments in another troubled placement in GPB Capital.
Center Street, a firm with $336 million in assets under management, said in a Securities and Exchange Commission filing earlier this year that it faced a steep uphill battle against 34 outstanding claims against it.
“There are 34 outstanding arbitration claims filed by customers against the company with claims ranging from unspecified amounts up to approximately $1.5 million and an aggregate total of approximately $9.1 million,” the company said in its filing. “The customers allege either the investments were not suitable, or the investment decreased in value. [Center Street] has accrued $567,000 for these matters. The company is vigorously contesting these matters, but the ultimate outcome cannot be determined. Subsequent to year end [2022], three claims were settled for an aggregate of $159,000.”
According to a prospectus filed with the SEC, GWG invested in life insurance assets in the secondary marketplace, in what’s known as the life settlements market, in which it paid premiums on other people’s life insurance policies and then collected death benefits. The company issued what it called “L bonds” to fund its purchase of insurance assets. The bonds were sold by placement agent Emerson Equity, a broker-dealer, which was paid a selling commission of 0.75% to 6% of the L bonds’ principal amount sold, according to the maturity date. Plaintiff lawyers are now saying these bonds were exceptionally risky and illiquid, with little security, and they have gone after broker-dealers who sold the product.
Firms that sold the product have also come under fire for the SEC for Reg BI violations. One such company was Western International Securities.
GWG declared bankruptcy in April 2022.
The Financial Industry Regulatory Authority censured and fined Center Street in 2022 for failing to tell investors material information about investments in GPB Capital. Center Street sold investors 20 limited partnership interests worth $1.2 million and received $98,727 in commissions for the placements in two holdings, GPB Automotive Portfolio LP and GPB Holdings II LP.
“In connection with these 20 sales, however, Center Street representatives did not inform the customers that Automotive Portfolio and Holdings II had not timely filed their audited financial statements with the SEC or the reasons for the delay.”
Center Street did not return calls for comment.
