David Joseph Escarcega, of Phoenix, Arizona, a stockbroker formerly registered with Center Street Securities, Inc., was the subject of a Financial Industry Regulatory Authority (FINRA) National Adjudicatory Council Decision which contained findings that Escarcega, inter alia, made unsuitable investment recommendations to the customers, and fraudulently misrepresented debentures that were sold to them. In the Matter of Department of Enforcement v. David Joseph Escarcega, No. 2012034936005 (July 20, 2017).
The Decision came after Escarcega was found by FINRA’s Hearing Panel to have falsified statements about investing and misled customers in regards to an estimated $516,825.00 in debenture investments that customers made. The Hearing Panel additionally found that investment recommendations were made by Escarcega pertaining to $1,500,000.00 collectively invested by twelve customers in the debentures, despite the investments not having been suitable for them.
Apparently, Escarcega was cognizant that the debentures he recommended and ultimately sold to customers had contained elevated risk levels and were considered speculative. Yet, these products were reportedly misrepresented by Escarcega to customers to make it appear as though the investments were safe. Escarcega evidently expressed to customers that the products would produce guaranteed returns as well as offer liquidity. Escarcega reportedly intended within his misrepresentations to customers on downplaying the level of risk of the investments in order to induce customers’ transactions.
Moreover, he was found by FINRA to have disregarded his obligation to make sure that the products were suitable for customers. Twelve customers affected by Escarcega’s unsuitable investment recommendations were described in the Decision as elderly, limited in investment knowledge, and conservative pertaining to risk tolerance. Further, the Decision revealed that the customers never stated that they wanted to invest speculatively; customers had either conservative or moderate objectives for investing which had been communicated by Escarcega.
The Decision also stated that the standards for suitability were detailed in the debentures prospectus, wherein investments exceeding ten percent of the customer’s net worth were disallowed. Escarcega apparently disregarded the standards, placing between ten and nearly fifty percent customers’ net worth in the debentures.
The National Adjudicatory Council further cited Escarcega for falsifying documentation provided to his firm in reference to debentures that had been purchased by two of the firm’s customers. Specifically, he did not make his firm aware that these customers’ purchases were made pursuant to the switching of other existing investments. FINRA indicated that Escarcega meant to evade the firm’s scrutiny of the transactions by omitting these details, and exaggerated the customer’s net worth so that the transactions would appear suitable for customers.
In sum, the National Adjudicatory Council affirmed the February 29, 2016 Hearing Panel Decision, holding that Escarcega, inter alia, induced seven customers’ debenture transactions by making fraudulent misrepresentations; made unsuitable investment recommendations to twelve of the firm’s customers; and caused his firm to maintain inaccurate records and books. Escarcega’s conduct was found by FINRA to be violative of Securities Exchange Act of 1934 Section 10(b), Securities and Exchange Commission (SEC) Rule 10b-5, FINRA Rules 2010, 2111, and 2020, and 4511.
Escarcega has also been sanctioned by Arizona Corporation Commission Securities Division via a $100,000.00 fine and revocation of his securities salesman registration based upon consenting to findings that while associated with Center Street Securities, Inc., he engaged in unethical and dishonest securities practices, effected unsuitable corporate debt transactions in customer accounts, and made misrepresentations about the risk factors, liquidity and guarantees pertaining to investments. Docket No. S-20956A-16-0090 (Mar. 14, 2016).
Furthermore, on August 16, 2013, a customer filed an investment related written complaint involving Escarcega’s conduct, in which the customer requested $19,040.89 in damages based upon allegations that Escarcega misstated the terms and conditions of a corporate debt product by representing that a customer’s return on a new investment would negate the penalties of switching from the customer’s existing investment. Further, on November 2, 2014, a customer filed an investment related written complaint regarding Escarcega’s activities supported by allegations that Escarcega caused the customer to sustain undue tax liabilities in connection with fixed annuity liquidations.
On April 5, 2016, Escarcega was fired from Center Street Securities, Inc. based upon allegations of Escarcega’s fraudulent conduct as referenced in Arizona Corporation Securities Division’s regulatory action against him.
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