The Securities Arbitration Law Firm of KlaymanToskes announced today that it is investigation Center Street Securities in connection with the supervision of Jason Price Lamb (CRD No. 3248356) and the sale of GWG Renewable Secured Debentures. According to a recent Letter of Acceptance, Waiver and Consent entered into between FINRA and Lamb, “From approximately March 2012 to February 2013 (the “relevant period”), Lamb was a registered principal and Chief Compliance Officer (“CCO”) at Center Street’s headquarters located in Nashville, Tennessee. During the relevant period, Lamb failed to adequately supervise certain sales of GWG Renewable Secured Debentures, an illiquid and high-risk alternative investment, in violation of NASD Rule 3010 and FINRA Rule 2010.
“GWG Holdings, Inc. (“GWG”), which was formed in 2006, purchases life insurance policies on the secondary market at a discount to the face value of the policies. Once GWG purchases a policy, it pays the policy premiums until the insured dies. GWG then collects the face value of the insurance benefit. GWG hopes to earn returns by collecting more upon the maturity of the policies than it has paid to purchase, finance and service the policies. The company has a limited operating history and is not yet profitable. GWG has purchased almost all of the policies it owns with funds borrowed from financial institutions or investors.
“In 2012, GWG began selling what it called Renewable Secured Debentures. The minimum investmentin the Debentures is $25,000. Additional investments can be made in $1,000 increments. The Debentures have varying maturity terms and interest rates, from six-month Debentures offering an annual interest rate 4.75% to seven-year Debentures offering 9.50%.
“The prospectus for the Debentures states that the life insurance policies held by GWG are not collateral for obligations under the Debentures. Instead, those policies have been separately pledged as collateral for a line of credit used by GWG to purchase life insurance policies. As stated in the prospectus, the Debentures may be considered speculative investments and involve a high degree of risk, including the risk of loss of the entire investment. The prospectus states that the company’ s success is dependent upon, among other things, its continued ability to raise funds to pay its obligations, including interest payments under the Debentures.
“An investment in the Debentures is also illiquid. Investors do not have access to their principal prior to maturity unless the request is due to death, bankruptcy or total disability. If GWG decides to prepay the Debentures other than under those circumstances, a prepayment fee of 6% may be charged. There is also no trading market for the Debentures. For these reasons, as the prospectus states, an investment in the Debentures is not suitable for investors who need liquidity prior
to the Debenture’s maturity date.
“Debenture sales in various states are subject to specific suitability requirements. Such requirements are prominently displayed in the prospectus for the Debentures, as well as in certain versions of the application to purchase the Debentures.
Lamb Failed to Supervise Certain Sales of the Debentures by Center Street Representatives
“Center Street is an organization of approximately 84 independent registered representatives located in approximately 67 branch offices nationwide. From March 2012 to the present, Center Street and its registered representatives offered and sold the Debentures to customers.
“As Center Street’s CCO, Lamb was responsible for the firm’s compliance functions. This included, among other things, maintaining the firm’s written supervisory procedures, overseeing the firm’s compliance with advertising and sales practices requirements, providing training to the firm’s registered representatives and supervision of two compliance department employees. In addition to his general compliance responsibilities, during the relevant period Lamb would, on occasion, review and approve Debenture sales by Center Street’s registered representatives. This would occur when the compliance department employee with primary responsibility for reviewing those transactions was not available. During the relevant period, Lamb approved certain Debenture transactions containing red flags.
“For instance, Lamb:
● Approved certain Debenture purchases by customers, including elderly customers and retirees, whose conservative investment objectives were inconsistent with the speculative nature of the Debentures;
● Approved certain Debenture purchases that resulted in a high concentration of a customer’ s total investable assets or net worth in the Debentures. In some instances prior to April 2013 those Debenture sales exceeded the firm’s unwritten internal guidelines regarding concentration of investments in alternative products, or exceeded state specific suitability requirements; and,
● Approved one Debenture sale where the application included an investment rationale provided to the customer that contained a misrepresentation about the liquidity of the Debentures.
“Lamb understood the features and risks of the Debentures. However, despite the presence of red flags, Lamb failed to take reasonable steps to ensure the Debenture sales were suitable or had been accurately represented to customers. He approved the Debenture purchases without adequately considering whether those purchases were consistent with the customers’ investment objectives, risk tolerances, financial conditions, ages, or liquidity needs. Nor did he consider whether the misrepresentation referred to above regarding the Debentures was accurate.
Violations
“NASD Rule 3010 requires that member firms establish, maintain and enforce supervisory procedures that are reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules. Rule 3010 requires that a supervisor take reasonable steps to ensure that securities transactions are in compliance with the applicable securities laws and rules, and that he or she investigate red flags of potential misconduct and take appropriate action when
misconduct has occurred.
“During the relevant period, Lamb failed to address red flags indicating that Debenture transactions that he approved may have been unsuitable or may have involved a misrepresentation to a customer. As a result, Lamb failed to supervise Debenture sales totaling approximately $770,000 to nine customers in a manner reasonably designed to achieve compliance with the suitability requirements of FINRA and NASD rules. Therefore, Lamb violated NASD Rule 3010 and, as a result of that violation, violated FINRA Rule 2010.”
If you invested in GWG Holdings debentures, please contact our law firm, toll free, at 888-997-9956.