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
The SEC announced fraud charges against a Niles, Illinois businesswoman accused of misappropriating investor funds.
The SEC’s complaint, filed in federal court in the Northern District of Illinois, alleges that Lucita A. Zamoras solicited investors for a promissory note program and subsequently misappropriated the investors’ funds.
From at least October 2009 through December 2013, Zamoras engaged in a fraudulent scheme in which she raised approximately $727,049 from at least six investors by encouraging them to transfer their retirement accounts to self-directed individual retirement accounts and purchase promissory notes issued by her.
Zamoras, originally from the Philippines, preyed on other Filipino investors by persuading the investors to purchase the notes, which offered them 3.5% to 5% annual interest. The SEC complaint alleges that Zamoras never invested her clients’ funds; instead she used the money to support her gambling habit and pay other personal expenses.
Court Fines Fraudster Who Found Victims on Dating Site
The U.S. District Court for the District of Connecticut entered a final judgment by consent against the alleged fraudster that used a dating site to find victims.
According to the SEC, Thomas Connerton and Safety Technologies LLC defrauded investors by misleading them to invest in a purported glove manufacturing company and then diverting their money for Connerton’s personal use. Connerton’s victims include several women he met through an online dating website and their friends and family, the SEC says.
The SEC’s complaint against Connerton and Safety Technologies, filed on June 8, 2016, alleged that Connerton told investors that his company was developing a material to make surgical gloves better resistant to cuts or punctures. However, the SEC alleged, no deals were ever anywhere close to materializing, and Connerton emptied the company’s bank account by writing a series of checks to himself and using investor funds for his own expenses.
The judgement requires Thomas Connerton and Safety Technologies LLC jointly and severally to disgorge ill-gotten gains of $1.58 million, plus prejudgment interest in the amount of nearly $147,000.
The court also imposes a conduct-based injunction that permanently restrains and enjoins Connerton and Safety Technologies from directly or indirectly participating in the issuance, purchase, offer or sale of any security. The judgment also requires Connerton to pay a civil penalty in the amount of $160,000.
Rhode Island-Based Issuer of Video Game Maker’s Bonds to Pay $50,000 to SEC
The SEC obtained a final judgment against defendant Rhode Island Commerce Corp. (RICC) in a previously filed enforcement action. The judgment orders the RICC to pay a $50,000 penalty.
In March 2016, the SEC charged the RICC with defrauding investors when it served as the issuer in a bond offering to finance startup video game company 38 Studios. The SEC’s complaint against the RICC and four other defendants – including the underwriter of the bonds, the lead banker for the underwriter, and two then-RICC executives – alleged that the RICC issued $75 million in bonds for the 38 Studios project as part of a state government program intended to spur economic development and increase employment opportunities by loaning bond proceeds to private companies.
The defendants failed to disclose that the project being financed by the bonds – the development of a video game – could not be completed with the financing the bonds would provide, the SEC says. The SEC also alleged that the defendants did not disclose that even with the proceeds of the loan financed by the 38 Studios Bonds, 38 Studios faced a known shortfall in funding.
The SEC’s litigation continues against the underwriter and the underwriter’s lead banker.
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