Finra this week threw a broker out of the financial industry for selling risky debt to elderly clients.
In a Feb. 29 disciplinary decision, the Financial Industry Regulatory Authority Inc. barred David Joseph Escarcega for making 12 unsuitable recommendations regarding debt instruments known as debentures linked to the secondary market for life insurance policies. He was found to have made misleading statements to seven customers.
The broker-dealer regulator also fined Mr. Escarcega $52,270, which was the amount he pocketed in commissions that were as high as 5% on the sales.
Mr. Escarcega sold the debentures issued by CWG Holdings Inc. between March 2012 and January 2013. CWG buys life insurance policies with the aim of earning more in the benefits payable when the policy holders dies than they spent to purchase them.
“The debentures were high-risk securities suitable only for investors with sufficient financial resources who could afford to lose their entire investment,” the Finra decision states. “The 12 customers were not such investors.”
All but one of the 12 were retired at the time they purchased the products from Mr. Escarcega and nine of them were older than 70. Ten of them said that their investment objective was “balanced/conservative growth,” and nine of them had an “average” understanding of alternative investments.
Many of the investments were put in individual retirement accounts.
The case illustrates an emphasis Finra, the industry-funded self-regulator, has put on cracking down on elder financial abuse.
Mr. Escarcega, who works for Center Street Securities Inc. in Phoenix, did not respond to a request for comment. His attorney, Paul J. Roshka Jr. of the firm Polsinelli, also did not return a phone call and email regarding the case.
There are two other customer disputes listed on Mr. Escarcega's BrokerCheck profile, each of which has been closed. He also left a previous firm following an allegation.