The Securities and Exchange Commission announced that an Arizona-based brokerage firm, its CEO and its former underwriter’s counsel have agreed to settle charges related to municipal bond offerings they were underwriting that turned out to be fraudulent.
The SEC’s order finds that Lawson Financial Corp. failed in its role as a gatekeeper to conduct reasonable due diligence when underwriting bond offerings to purchase and renovate nursing homes and senior living facilities.
The offerings were managed by Atlanta-based businessman Christopher F. Brogdon, who was later charged by the SEC with fraud and faces a court order to repay $85 million to investors. Lawson Financial failed to ensure Brogdon and his related borrowers were in compliance with their continuing disclosure undertakings as required by Rule 15c2-12, which generally prohibits underwriters from purchasing or selling municipal securities unless the issuer or obligated person has committed to providing continuing disclosure information, such as annual financial materials and operating data.
Lawson Financial’s founder and CEO Robert Lawson and then-underwriter’s counsel John T. Lynch Jr. are charged with failing to conduct reasonable due diligence, and Lynch also failed to disclose that he was not actually authorized to practice law at the time as represented to investors in the bond offering documents.
“Underwriters are critical gatekeepers relied upon by investors to ensure that accurate information is being provided in municipal bond offering documents,” Andrew M. Calamari, director of the SEC’s New York Regional Office, said in a statement. “Lawson Financial failed to confirm that continuing disclosure obligations were being met by the Brogdon-controlled borrowers, allowing Brogdon’s nursing home investment scheme to continue.”
Without admitting or denying the SEC’s findings, Lawson and his firm agreed to pay combined disgorgement of nearly $200,000 as well as penalties of nearly $200,000 for the firm and $80,000 for Lawson, who will be barred from the securities industry for three years.
Lawson Financial, which would have been eligible for more lenient remedies under the SEC’s Municipalities Continuing Disclosure Cooperation (MCDC) Initiative, paid a penalty that was approximately double what the firm would have paid under the initiative.
Lynch agreed to a bifurcated settlement without admitting or denying the SEC’s findings. He must pay nearly $45,000 and agreed to the entry of an order permanently suspending him from appearing and practicing before the SEC as an attorney.
The order prohibits Lynch from representing clients in SEC matters, including investigations, litigation or examinations, and from advising clients about SEC filing obligations or content.
As part of the settlement, Lynch agreed to a public hearing before an administrative law judge, who will prepare an initial decision stating whether a securities industry bar against Lynch is appropriate and in the public interest, and if so the length of time for such a bar.
Court Orders Salsa-Dancing Day Trader to Pay Over $590,000 in Insider Trading Action
The SEC obtained a final judgment against the day trader and analyst charged with insider trading in November 2015. The two had met at a salsa dancing class.
The judgement orders defendant Vlad B. Spivak, a Boston area resident, to pay more than $590,000 in monetary sanctions.
The SEC’s complaint, filed in federal court in Boston on Nov. 2, 2015, alleged that, in 2011, Spivak traded in the securities of American Dental Partners Inc. (ADPI) on the basis of tips of material nonpublic information that he received from his then-romantic partner, Shirmila O. Doddi, who was employed as a financial analyst at a commercial bank.
Doddi allegedly provided Spivak with material, nonpublic information she obtained through her position at the bank concerning ADPI’s impending acquisition by a private equity firm and, based on this alleged unlawful tip, Spivak traded in ADPI securities and obtained illegal profits of more than $222,000. Doddi did not trade in ADPI stock.
The judgment orders him to pay disgorgement of $222,000, representing his illegal profits, plus prejudgment interest, and a civil penalty in the amount of $333,000, or 150% of his profits.
Doddi previously settled the SEC’s charges against her.
SEC Charges Businesswoman With Operating a Fraudulent Promissory Note Scheme