The National Adjudicatory Council held and affirmed a FINRA OHO Hearing Panel's 2016 decision finding that former Center Street Securities broker David Joseph Escarcega of Phoenix, Arizona willfully made fraudulent misrepresentations and unsuitable recommendations concerning debentures to elderly and retired customers, and caused his firm to suffer inaccurate books and records.
NAC Decision & Complaint #2012034936005
In March 2016, FINRA barred Escarcega (CRD #4367584) and fined him $52,270—representing commissions that he earned—for fraudulent misrepresentations, materially false/misleading statements, and unsuitable recommendations in selling debentures issued by GWG Holdings, Inc.
At the time, FINRA's Office of Hearing Officers found that GWG's debt instruments were high-risk securities not suitable for Escarcega's mostly-older investors from the Western United States—Arizona, California and Washington state—whose investment objectives of "balanced/conservative growth" were not compatible with the aggressive GWG-issued debenture products.
Escarcega drew additional citations for improper marketing practices, such as fraudulent misrepresentations made during seminars Escarcega gave in Arizona and California when he attempted to solicit new business using phrases like "guaranteed returns," even though prospectus documentation clearly stated that returns were not guaranteed, and investors could even suffer a complete loss of principal.
Escarcega, meanwhile, responded that the word "guaranteed" was "taken out of context," and appealed to the NAC, which found that Escarcega mischaracterized the debentures to his customers as being significantly safer investments that they were through the use of words and phrases that connote safety (like "guaranteed"), with NAC citing a previous SEC finding that brokers' use of "safe" terms such as "guaranteed" in misrepresenting a product was a marketing ploy "particularly attractive to individuals more vulnerable to investment fraud, including older and less sophisticated investors."
In its report, NAC not only affirmed the Hearing Panel's decision to permanently ban Escarcega, it also deconstructed the GWG-issued debentures prospectus to refute Escarcega's various claims.
For instance, NAC found that the GWG debentures had a limited operating history, "had never earned a profit" (on the contrary, it experienced multi-million net losses for several years prior to Escarcega's seminars), and its documentation warned that earnings may be volatile, "may be considered speculative," and cautioned that "an investment in the Debentures involves a high degree of risk, including the risk of losing your entire investment."
NAC also concluded that Escarcega acted with scienter or intent to deceive, manipulate, or defraud his older clients, whose average age was 72 years old, and who generally sought safe-to-moderate investments.
Center Street Securities discharged Escarcega on April 5, 2016 after the State of Arizona alleged that Escarcega made misrepresentations to customers in connection with renewable secured debenture transactions. Escarcega's BrokerCheck report also lists "Strategic Financial Partners LLC" as an outside business activity through which Escarcega sells non-registered insurance and fixed annuity products.
If you have invested with former Center Street Securities broker David Joseph Escarcega, or with any representative or financial adviser who has solicited investments based on misleading or fraudulent advertising or presentations, and such malicious misconduct has proven harmful to your investments and interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.