Center Street Securities Inc., a broker-dealer in Nashville that opened its doors more than 30 years ago, is shutting down.
The broker-dealer, which sold bonds backed by the bankrupt GWG Holdings Inc., informed the Financial Industry Regulatory Authority Inc. on Tuesday that it was filing its termination notice, called a form BDW in industry parlance, for "broker-dealer withdrawal," according to the firm's BrokerCheck report.
Center Street was a relatively small brokerage firm, with just $336 million in advisory assets, according to its latest Form ADV. It is at least the third firm this year that sold GWG bonds that has gone out of business, following Arque Capital Ltd. of Scottsdale, Arizona, over the summer, and JRL Capital Corp., a small broker-dealer based in Irvine, California, which also sold the defunct GWG bonds. JRL filed for Chapter 7 bankruptcy in May.
Donald Pollard, CEO of Center Street, declined to comment Thursday afternoon on the matter.
Center Street Securities is owned by Center Street Holdings Inc., a holding company owned by Arete Wealth Inc., another holding company. In turn, Arete Wealth Inc. also owns another broker-dealer, Arete Wealth Management, but the two firms had separate operations and were not merged.
A spokesperson for Arete also declined to comment.
About 40 broker-dealers over the past decade sold close to $1.6 billion of GWG L bonds, so-called because they were backed by life settlements, before the firm declared bankruptcy last year, leaving firms like Center Street and their clients in the lurch. It's not clear what value, if any, the GWG bonds have.
And it appears that Center Street was facing a costly legal battle due to a failure of a product, likely GWG bonds. In a filing this year with the Securities and Exchange Commission, the firm said it was facing arbitration claims from 34 clients seeking up to $9.1 million in damages. Clients claimed the unnamed investments were not suitable or had declined in value, according to the filing.
The securities industry has a long, sad history of firms going out of business after a product like GWG bonds fails, leaving investors with the potential of unpaid claims. Firms have insurance, but it's often far from enough to cover claims.
"According to court filings, Center Street Securities received more commissions for selling L Bonds in the four years prior to GWG’s bankruptcy filing than all but two firms in the country, Emerson Equity and Centaurus Financial," August Iorio, a plaintiff's attorney, wrote in an email. "The firm received approximately $3.3 million in commissions from GWG between April 2018 and April 2022.
"This is another hit to retail investors who will be left holding the bag," he wrote. "The SEC and Finra need to take action to protect investors from these mom-and-pop brokerage firms that are undercapitalized and insufficiently insured.
"The system where these firms can close their doors, creating barriers to justice and compensation for investors, while the brokers and control persons can move on to the next firm and continue their practices, is not just or fair," Iorio added.
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