Enforcement: SEC Unmasks Fund Manager’s Criminal Past; RIA Ordered to Hire CCO

FINRA has barred broker David Joseph Escarcega and fined him $52,270, the total commissions involved in the transactions, after finding that he made materially false and misleading statements to seven customers in connection with securities purchases, and for making unsuitable recommendations to 12 customers, primarily retirees.

According to the agency, Escarcega, an independent contractor working out of a Phoenix, Arizona, office and registered with Center Street Securities, conducts his securities business through a company he formed early in 2010 called Strategic Financial Partners LLC.

Via investment seminars that he hosted in Arizona and California, Escarcega solicited clients to invest in registered debt instruments called renewable secured debentures that were issued by GWG Holdings, Inc., which describes itself as a licensed viatical settlement provider.

But Escarcega's client base is primarily retirees, and those debentures were unsuitable for such clients. In fact, according to FINRA, "The [d]ebentures were high-risk securities suitable only for investors with sufficient financial resources who could afford to lose their entire investment. The 12 customers were not such investors."

That didn't stop Escarcega, who not only orally misrepresented the investments to prospective investors, FINRA said, but also personally filled out parts of switch letters that he was required to file if customers sold an existing investment in order to buy the debentures. In doing so he again misrepresented the safety of the debentures, and had his customers sign the switch letters.

Of the 18 customers, none was younger than 61 and the two oldest were 81; all but one were retired. All had indicated that their investment objectives were conservative, while the debentures were high risk. And while there are limits on how much of a client's net worth could be placed in investments such as the debentures, Escarcega put as much as 33% of one client's net worth into the investment.

According to FINRA, "Escarcega did not accept responsibility for his misconduct and expressed no remorse for his actions. Escarcega's failure to appreciate his obligations as a registered representative and the gravity of his misconduct warrants a bar."

Tech Company Settles for $750,000 on Misleading Investors

Uni-Pixel Inc., a developer of technologies for touchscreen devices, has agreed to pay $750,000 to settle charges that it misled investors about the production status and sales agreements for a key product.

In addition, two former company executives face related charges in an SEC complaint filed in U.S. District Court for the Southern District of Texas. The SEC has entered into a deferred prosecution agreement with the company's former chairman of the board, who has agreed to cooperate and be barred from serving as an officer and director for five years.

According to the SEC, Uni-Pixel began publicly touting sales of a touchscreen sensor product supposedly in speedy high-volume commercial production when in fact only a few samples had been manually completed.

The news made the stock price more than double, and that allowed then-CEO Reed Killion and then-CFO Jeffrey Tomz to make more than $2 million in personal profits from selling their own shares of company stock. The pair were aware that the manufacturing process was still incapable of mass-producing sensors in commercial quantities.

In 2012 and 2013, the company announced "multimillion-dollar" sales agreements that focused on potential revenues and hid material conditions necessary for the revenue to come in.

In April of 2013, Uni-Pixel declared that its high-volume production line was "qualified and production ready" and its capacity "started at fifty moving to hundreds and then thousands over the next several months." In actuality, the company had produced no functional sensors via its high-speed process.

And in November of 2013, the company sent out a press release trumpeting a "purchase order" for its sensors that expected to ship an initial "commercial run" of sensors by year-end. The order, however, was for a pittance: $10 worth of sensors as samples for the customer. Of course this was not mentioned.

The firm has neither admitted nor denied the charges, but has consented to the sanctions—which are subject to court approval. The SEC's litigation continues against Killion and Tomz.

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