SEC Issues Charges Against Underwriter for Gatekeeper Failures

Investing

Published: April 7, 2017 9:05 am

Last Updated: January 12, 2020 1:12 pm

The U.S. Securities and Exchange Commission (SEC) recently 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. Although the firm is not entirely guilty of the fraud, it did not conduct its due diligence to protect investors.

According to the agency’s report, Lawson Financial 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.

These 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 that Brogdon and his related borrowers were in compliance with their continuing disclosure undertakings.

This failure falls under 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.

Andrew M. Calamari, director of the SEC’s New York Regional Office, commented:

Underwriters are critical gatekeepers relied upon by investors to ensure that accurate information is being provided in municipal bond offering documents. 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 the 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.

Lynch also 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 Average American Has No Idea How Much Money You Can Make Today ^(Sponsor)

The last few years made people forget how much banks and CD’s can pay. Meanwhile, interest rates have spiked and many can afford to pay you much more, but most are keeping yields low and hoping you won’t notice.

But there is good news. To win qualified customers, some accounts are paying almost 10x the national average! That’s an incredible way to keep your money safe and earn more at the same time. Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 3.80% with a Checking & Savings Account today Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.

Click here to see how much more you could be earning on your savings today. It takes just a few minutes to open an account to make your money work for you.

Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 4.00% with a Checking & Savings Account from Sofi. Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.

¹https://www.fdic.gov/national-rates-and-rate-caps