GWG Debentures

Arque Capital Sanctioned By FINRA Over GWG Renewable Secured Debentures Sales

January 1, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) in an acceptance, waiver, and consent action (AWC) sanctioned Arque Capital, Ltd. (Arque) concerning allegations that since 2011 Arque has acted as the managing broker-dealer for an alternative investment – GWG Renewable Secured Debentures (the Debentures) offered by GWG Holdings, Inc, In that capacity FINRA alleged that Arque was responsible for conducting due diligence into GWG and the Debentures, and reviewing all advertising pieces related to the Debentures. FINRA found that between March 2012, and November 2012, Arque distributed a GWG Debenture sales brochure that contained misleading statements.

Arque has been a registered broker-dealer since 2002, has its home office in Scottsdale, Arizona, and 23 branch offices located in various states. The firm has approximately 60 registered representatives. In recent months FINRA has brought numerous disciplinary actions against various firms, supervisors, and brokers concerning the improper sale of GWG Debentures including:

Center Street Securities Broker David Escarcega Investigated Over GWG Debenture Sales;

Center Street Securities Broker David Escarcega Investigated Over GWG Debenture Sales

October 13, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought a complaint against broker David Escarcega (Escarcega) concerning allegations that Escarcega recommended unsuitable investments in Renewable Secured Debentures of GWG, Inc. (GWG Debentures). Escarcega is not the first Center Street Securities, Inc. (Center Street) broker that has been investigated by FINRA in connection with their GWG sales or the supervision of such sales. As we have reported FINRA recently sanctioned Michael Wurdinger (Wurdinger) concerning allegations that from approximately February 2012, to February 2013, Wurdinger failed to adequately supervise sales of GWG Debentures. In a related but separate action concerning Center Street’s supervision of the sale of the GWG debentures, Anil Vazirani (Vazirani) was found to not be appropriately registered with the firm but nonetheless solicited sales of the debentures through communications with prospective customers, discussed the details of the debentures features as an investment, recommended the purchase of the product, and assisted seven customers to complete documents in order to purchase the GWG Debentures.

As a background, GWG Holdings, Inc. purchases life insurance policies on the secondary market at a discount to the face value of the insurance policies. GWG then pays the policy premiums until the insured dies and GWG then collects the insurance benefit making a profit, hopefully, by collecting more upon the maturity of the policies than the payment of the policy and servicing of the premiums. According to FINRA, the company has a limited operating history and has yet to be profitable. The prospectus for GWG stated that the investments were speculative and involve a high degree of risk, including the possibility of risk of loss of the entire investment. An investment in the GWG Debentures, as a private placement, is illiquid and investors will not have access to their principal prior to maturity.

In Escarcega’s case, FINRA alleged that Between March 2012, and January 2013, Escarcega violated the antifraud provisions of the federal securities laws as well as numerous FINRA and NASD rules while selling more than $1.8 million of GWG Debentures to his customers. According to FINRA, Escarcega made false and misleading oral and written statements to seven customers in connection with their purchases of the GWG Debentures. FINRA found that Escarcega falsely told the customers that the Debentures were safe, low-risk, liquid, or guaranteed. For example, on one form, FINRA found that Escarcega described the GWG Debentures as having “a guaranteed interest payment” and providing a “guaranteed rate of return.”

FINRA Sanctions 79 Capital Securities Over GWG Debenture Sales

September 10, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm 79 Capital Securities, LLC (79 Capital) and broker Michael Ward (Ward) concerning allegations around June and July 2012, 79 Capital and Ward posted on the website of a business networking organization sales material regarding GWG Renewable Secured Debentures (GWG Debentures), an illiquid and high-risk alternative private placement investment that omitted material information concerning the debentures. Additionally, FINRA alleged that the firm and Ward failed to record basic suitability information and create new account forms for customers involved in two transactions for the purchase of debentures. Finally, FINRA found that respondents also permitted an employee whose FINRA registration had not been approved, to sell the GWG Debentures and in doing so failed to enforce the firm’s written procedures requiring the creation of new account forms and prohibiting unregistered persons from effecting securities transactions.

According to our investigation, 79 Capital is the third brokerage firm or broker to be sanctioned by FINRA in the past year concerning the improper sale of GWG Debentures. See Broker Sanctioned Over Unsuitable Sales of Private Placement Securities (FINRA sanctioned Karen Geiger); FINRA Sanctions Michael Wurdinger and Anil Vazirani Over GWG Debenture Sales (FINRA sanctioned brokers associated with Center Street Securities, Inc.).

As a background, GWG Holdings, Inc. purchases life insurance policies on the secondary market at a discount to the face value of the policies. Once purchased, GWG pays the policy premiums until the insured dies and then GWG collects the face value of the insurance hoping to earn returns by collecting more upon the maturity of the policies than it has paid to purchase the policy and service the premiums. FINRA found that the company has a limited operating history and has yet to be profitable.