Department of Enforcement v. Wall Street Strategies, Inc.
Financial Industry Regulatory Authority Office of Hearing Officers
Disc. Proceeding No. 2012033508702 (2015)
- Written by Sharon Feldman, JD
Facts
Garry Savage (defendant) was the president, chief executive officer, and chief compliance officer of Wall Street Strategies, Inc. (WSSI) (defendant). Savage recommended to certain customers an investment in debentures issued by GWG Holdings, Inc. (GWG). Before recommending the debentures, Savage met with GWG representatives, reviewed GWG’s due-diligence package and a valuation of the life-insurance policies backing the debentures, determined that the policies’ liquidation value was sufficient to repay investors if GWG went out of business, and researched GWG’s lender. Savage understood that the investment was speculative and high-risk but thought it would meet some clients’ needs. The Financial Industry Regulatory Authority (FINRA) Department of Enforcement (Enforcement) (plaintiff) filed a complaint alleging that Savage and WSSI made unsuitable recommendations to nine customers. Enforcement alleged that Savage’s recommendation of GWG debentures to RB and PB was unsuitable because the couple were in their seventies and their account documents described their investment knowledge as limited, risk tolerance as moderate, and investment objectives as principal preservation and long-term growth. According to the account documents, the couple had a net worth of $7.3 million, $3.1 million in liquid assets, and annual income of $149,000. RB testified that when the account was opened, he told Savage that he had invested in stocks, bonds, mutual funds, and certificates of deposit (CDs) for 29 years; he had income of $275,000 that year; Savage reviewed the prospectus with him and explained the investment’s risks; the couple had profited from other investments and could determine their investment objectives case by case; and RB wanted an investment that paid interest similar to what CDs had paid. Savage testified that he met with RB every quarter; knew RB’s financial position; advised RB of GWG’s speculative nature and risks; and believed the couple’s investment was suitable based on the couple’s liquidity, assets, investment objectives, and financial condition.
Rule of Law
Issue
Holding and Reasoning ()
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