David Joseph Escarcega, of Phoenix, Arizona, a stockbroker with Center Street Securities, Inc., was barred from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity in connection with a FINRA Office of Hearing Officers Extended Hearing Panel Decision containing findings that Escarcega communicated misleading and materially false statements to customers, and also engaged in unsuitable recommendations. Department of Enforcement v. Escarcega, No. 2012034936005 (Feb. 29, 2016).
According to the Decision, in 2012, FINRA discovered that Escarcega distributed to customers a letter in which customers were positioned investments in GWG renewed secured debentures (debt instruments). The Decision indicated that GWG was in the business of providing Viatical settlements, where GWG would purchase insured persons’ life insurance policies at a discount from the face values of the policies. GWG would profit when the face value of a policy exceeded the premiums that GWG would continue to pay on the policy prior to it paying out. The Decision stated that Escarcega represented his firm in the course of selling GWG’s debentures to twenty-five percent of his customers, and earned substantial commissions in the process.
The Decision indicated that in the course of soliciting customers to invest in renewable secured debentures, Escarcega had communicated to seven of the firm’s customers in a matter which FINRA deemed to be misleading and consisting of materially false statements. Escarcega reportedly informed customers that their investment in renewable secured debentures was safe and guaranteed. The prospectus provided to customers by Escarcega reportedly omitted the fact that such investments were actually high risk. FINRA found that Escarcega willfully violated Securities Exchange Act of 1934 Section 10(b), Rule 10b-5, in addition to FINRA Rules 2010 and 2020.
With respect to twelve customers, Escarcega apparently made unsuitable recommendations for the investments in the renewable customer debentures. The Decision stated that Escarcega reportedly disregarded the customers’ investment objectives and risk tolerances. The Decision indicated that the debentures offered to such customers were not suitable for them, as such investors did not have sufficient financial resources to withstand the risk associated with losing their principal investments. FINRA found that Escarcega’s unsuitable recommendations constituted violations of FINRA Rules 2110, 2010 and NASD Rule 2310.
FINRA’s Extended Hearing Panel determined that Escarcega’s conduct rose to the level of being egregious, a determining factor in barring Escarcega. Escarcega was fined $52,270.00 to offset the commissions he received in the course of selling the debentures. FINRA additionally found that Escarcega prompted account forms to be generated in which his customers’ net worth was exaggerated and omitted other purchase details regarding how the debentures were purchased. FINRA found Escarcega to have violated FINRA Rule 4511 and 2010 for causing his firm’s records and books to be inaccurate.
Public disclosure records via FINRA’s BrokerCheck reveal that Escarcega has been subject to four disclosure incidents. On December 23, 2009, his former firm, Chase Investment Services Corp., permitted Escarcega to resign amid an investigation into allegations that Escarcega sold a customer an annuity outside the auspices of his firm. On August 16, 2013, Escarcega became subject to a customer dispute in which a client alleged that Escarcega misrepresented investments sold to the customer. Additionally, on November 2, 2014, Escarcega became subject to a customer dispute in which a customer alleged that Escarcega’s advice (for the customer to sell two fixed life insurance policies) caused the customer to incur $140,000.00 in federal and state taxes.
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