Securities Lawyers Blog
The 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.
Beginning in 2012, GWG began selling its debentures with varying maturity terms from six months and interest rate of 4.75% to seven years with 9.5% interest. The prospectus for the offering states that the life insurance policies are not held as collateral for the obligations under the debentures. Instead, the policies are collateral for a line of credit used by GWG to purchase life insurance policies. The prospectus also 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 GWG is illiquid and investors do not have access to their principal prior to maturity under ordinary circumstances.
According to FINRA, Wurdinger reported to Center Street’s Chief Compliance Officer and was responsible for back office tasks in addition to supervising the review and approval of the GWG sales by their registered representatives. FINRA found that Wurdinger had no prior supervisory experience reviewing securities transactions for suitability nor did Wurdinger understand the unique features and risks of the product in order to conduct a suitability review. FINRA found that Wurdinger ignored red flags and indications of misrepresentations and unsuitable sales.
FINRA stated that Wurdinger approved sales for elderly customers whose investment objectives and risks tolerances were inconsistent with the speculative nature of the debentures, approved excessive concentrations of the GWG debentures that constituted a high amount of the client’s liquid assets and net worth exceeding state specific suitability requirements described in the prospectus, and approved of sales where the applications included obvious misrepresentations such as that the product was “guaranteed.”
As a result of Wurdinger alleged failure to review and supervise the GWG sales, the firm sold $4.3 million of the product to 39 customers in a manner not reasonably designed to achieve compliance with FINRA’s suitability requirements.
In a related but separate action concerning Center Street’s supervision of the sale of the GWG debtenturs, FINRA found that from May 2012 through December 2012, Anil Vazirani (Vazirani) solicited sales of the debentures through communications with prospective customers, discussing the details of the debentures features as an investment, recommending the purchase of the product, and assisting seven customers to complete necessary documents to purchase the debentures. Vazirani mailed some of these documents to “DZ”, a registered representative formerly associated with Center Street for purchase processing that did not identify Vazirani’s role in the sales.
FINRA found that under rule 4530 Vazirani was an associated person of Center Street by virtue of the activities selling the debentures. However, Vazirani did not pass the Series 62 exam and Vazirani voluntarily resigned from Center Street on November 1, 2012. FINRA concluded that Vazirani was not registered with Center Street in any capacity at the time he solicited the debenture sales in violation of industry rules.
The attorneys at Gana Weinstein LLP are experienced in representing investors concerning unfair practices by their financial advisors. Our consultations are free of charge and the firm is only compensated if you recover.