UPDATE! Continuing Investigation into GWG Renewable Secured Debentures
Continuing Investigation Into GWG Renewable Secured Debentures
Have you invested in GWG Renewable Secured Debentures? We have previously posted a number of blog entries regarding actions bought by the Financial Industry Regulatory Authority (FINRA) against financial advisors who recommended that their clients invest in GWG debentures.
FINRA recently brought at least its fifth disciplinary action in the last three months against a financial advisor for recommending GWG Debentures to his clients. David Escarcega was alleged by FINRA to have sold at least $1.8 million in GWG Renewable Secured Debentures to his clients. Escarcega was alleged to have represented the GWG Debentures as being low-risk, safe, and liquid, which FINRA maintains were false and misleading. FINRA also alleged that David Escarcega made unsuitable recommendations to his clients when he recommended that they invest in the GWG Debentures, and that Escarcega also overstated his clients’ net worth when investing in GWG Debentures (in an effort to hide that these clients may not have been eligible or “accredited” to invest in these debentures).
David Escarcega has been a registered representative and financial advisor with Center Street Securities from March 2010 to the present. FINRA alleged that Escarcega made these recommendations while Escarcega was affiliated with Center Street Securities. Escarcega is an advisor in Phoenix, Arizona.
GWG Holdings, Inc. purchases life insurance policies on the secondary market, at a discount from the policy owner. GWG then hopes to make a profit by collecting the face value of the policy when the insured passes away. However, in order to finance the purchases of these insurance policies, GWG borrows money from financial institutions or investors.
GWG began issuing Renewable Secured Debentures in 2012 to sell to investors. The GWG Renewable Secured Debentures have varying maturities, from six-months to seven-years, and are purported to pay annual intererest rates fom 4.75% to 9.50%. However, the GWG Renewable Secured Debentures are illiquid, and investors do not have access to their principal investment, with exceptions for death, bankruptcy, or total disability of the investor. There is no secondary market for the GWG Renewable Secured Debentures either. The prospectus for the GWG Debentures states that this investment is generally not suitable for an investor who needs their invested funds to be liquid.
FINRA previously suspended Michael Wurdinger of Center Street, who was responsible for supervising the financial advisors who recommended the GWG Renewable Secured Debentures to Center Street Securities clients. FINRA alleged that Wurdinger did not understand the features and risks of the GWG Debentures, and therefore he lacked the requisite understanding to adequately supervise and review the sales of these Debentures. FINRA also alleged that Wurdinger approved sales of the GWG Debentures to many elderly clients, some of whom had investment objectives and risk tolerances that were inconsistent with the GWG Debentures, which were speculative. FINRA further alleged that some Center Street Securities customers had high concentrations of these debentures, which exceeded suitability requirements described in the GWG Debenture disclosure documents.
FINRA also recently suspended another advisor at Center Street Securities for selling GWG Debentures. Additionally, FINRA has also suspended advisors from 79 Capital Securities and Freedom Investors Corp.
We are investigating whether clients may have potential claims against Center Street Securities, 79 Capital Securities, Freedom Investors Corp., or other broker-dealer firms for unsuitable sales and misrepresentations in connection with the sale of the GWG Renewable Secured Debentures. Financial advisors have an obligation to make investment recommendations that are suitable for their clients, considering the client’s investment objectives, risk tolerance, financial resources, age, and other circumstances. Securities broker-dealer firms have a responsibility to adequately supervise all representatives and financial advisors who are registered through their firm, including investments sold by their registered representatives. Broker-dealers also must take steps to ensure that their financial advisors follow all securities rules and regulations, as well as internal firm policies. When broker-dealers fail to adequately supervise their registered representatives, they may be liable for investment losses sustained by customers. If you have invested in GWG Renewable Secured Debentures and want to hear about ALL legal options, please visit https://www.israelsneuman.com/ or call us at 720-599-3505.
Click here to view Complaint against Escarsega: David Escarcega FINRA Comp