FINRA barred former Center Street Securities broker David Joseph Escarcega for making fraudulent misrepresentations, materially false and misleading statements and unsuitable recommendations to elderly and retired clients in selling debentures issued by GWG Holdings Inc., additionally fining him $52,270, which is the amount he earned in commissions through the GWG sales.
FINRA OHO Proceeding #2012034936005
GWG itself operates by purchasing life insurance policies with the goal of earning more in benefits payable when the policy holders die than they spent to purchase the policies; the prospectus outlined general suitability standards for the GWG debentures, noting minimum net worth and income levels necessary to qualify to invest, as well as a maximum concentration level of 10% of net worth.
The FINRA OHO panel found that the GWG-issued debt instruments were high-risk securities that were not suitable for Escarcega's investors—six of whom were from Arizona and eight from California and Washington—whose investment objectives were "balanced/conservative growth" and whose risk tolerances were therefore decidedly not "high-risk."
To illustrate, the panel wrote that the GWG debentures were suitable only for investors "who could afford to lose their entire investments. [Escarcega's] customers were not such investors."
FINRA also cited Escarcega for improper marketing practices, including written misrepresentations and fraudulent statements made in Arizona and California seminars and presentations to customers when soliciting new business, including the deceptive or fraudulent use of the phrase "guaranteed returns," which he allegedly employed to induce his customers to invest in the GWG debentures.
Escarcega claimed his use of "guarantee" was "taken out of context," even though the prospectus plainly stated that, "investors could lose their entire investment principal" and FINRA noted that Escarcega had full knowledge of this fact when he made such a statement. As such, FINRA accused Escarcega of acting with scienter and committing fraud or making fraudulent statements.
If you have invested with David Joseph Escarcega or with any broker or financial adviser who has solicited investments in debentures or other high-risk alternative investments not suitable or compatible with your investment objectives, or whose fraudulent or misleading statements and misrepresentations have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.