On April 5, 2017, the Securities and Exchange Commission (“SEC”) issued an Order (the “Order”) instituting Public Administrative and Cease-and-Desist Proceedings against Lawson Financial Corporation (“Lawson”) for failing to perform reasonable due diligence on bond underwritings for the renovation and development of senior living facilities. These bond offerings were made in connection with Atlanta-based business man Christopher F. Brogden (“Brogden”), who has been separately charged by the SEC and faces a court order to repay $85 million to investors. The SEC alleges that Lawson failed to protect investors from Brogden’s scheme by neglecting to ensure Brogden was in compliance with necessary disclosures, that under Sections 17(a)(2) and (3) of the Securities Act and Section 15(c)(2) of the Exchange Act and Rule 15c2-12 which require underwriters to receive annual financial and operating disclosures from any debt structured deal.
According to the SEC between 2010 and 2014, Lawson served as the underwriter for 13 separate Brogden bond offerings, through which approximately $87 million was raised. These funds were raised for the purpose of constructing, purchasing and renovating a variety of nursing homes, assisted living homes and senior development communities. While engaging in the underwriting of the bonds, Lawson failed to expose the persistent and continual material breaches, misrepresentations, and flouting of disclosure rules made by other Brogden-controlled companies. In addition to failing to uncover problems related to Brogden’s previous debt offerings, Lawson failed to perform its duties in obtaining annual financial disclosures from the projects underpinning Brogden’s bond offerings.
The SEC notes in its Order that by failing to continually obtain necessary financial disclosures while underwriting bonds for Brogden’s senior living development scheme, Lawson allowed the fraud to continue, thereby harming more investors. Andrew M. Calamari, Director of SEC’s Regional New York Office, stated: “Underwriters are critical gatekeepers relied upon by investors to ensure that accurate information is being provided in municipal bond offering documents.”