Center Street Securities Inc. (CSSI), a Three Decade Old Broker-Dealer located in Nashville, TN Recently Announced It is Delisting from FINRA

CSSI, which sold bonds backed by the bankrupt GWG Holdings Inc. and promissory notes issued by the recently bankrupt Institutional Capital Network, Inc. (iCap), informed the Financial Industry Regulatory Authority Inc. (FINRA) that it was filing its termination notice or “broker-dealer withdrawal,” according to the firm’s BrokerCheck report (11/28). Center Street, a relatively small brokerage firm, with just $336 million in advisory assets, is owned by Center Street Holdings Inc., a holding company owned by Arete Wealth Inc., another holding company.

About 40 broker-dealers over the past decade sold close to $1.6 billion GWG L bonds, so-called because they were backed by life settlements, before the firm declared bankruptcy last year, leaving firms like CSSI and their clients in the lurch. It’s not clear what value, if any, the GWG bonds will ultimately have.

From reports, it appears that CSSI was facing a costly legal battle due to a failure of products, likely GWG bonds. In a filing this year with the Securities and Exchange Commission (SEC), the firm said it was facing arbitration claims from 34 clients seeking up to $9.1 million in damages. In pleadings and complaints, Clients claimed the unnamed investments were not suitable or had declined in value. The securities industry has a long, sad history of firms going out of business after a product like GWG bonds fails, leaving investors with unresolved claims. While some firms have insurance, it’s not required and when they do have coverage, it’s often insufficient to pay all the pending claims. As is often the case, this is just another hit to retail investors who will once again be left with no viable avenue of recovery for their losses.

The SEC and FINRA need to take action to protect investors from these mom-and-pop brokerage firms that are woefully undercapitalized and often insufficiently insured. Sadly, the current system essentially allows these smaller firms to close their doors, creating barriers to arbitration claims for client compensation, while the brokers and control persons move on to the next firm and continue their practices. Egregious.

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