Phoenix-based Lawson Financial Corporation, has been expelled from the Financial Industry Regulatory Authority’s membership, and has barred the company’s CEO and President Robert Lawson from the securities industry for committing securities fraud when they sold millions of dollars of municipal revenue bonds to Lawson Financial Corporation’s (LFC) customers.
According to the Financial Industry Regulatory Authority (FINRA) the bonds at issue were underwritten by LFC and related to the charter school, Hillcrest Academy in Mesa, which was being opened as a campus of an unaffiliated company, the Leman Academy of Excellence, and two assisted living facilities in Alabama (which were the borrowers on the bonds).
The charter-school bonds were sold in a $10.5 million offering that Lawson Financial underwrote in October 2014. According to FINRA, the bonds were sold to Lawson Financial’s customers.
In October 2014, the Pima County Board of Supervisors approved a resolution by the Pima County Industrial Development Authority for the Hillcrest Academy Project (RESOLUTION NO. 2014 – 104). The Board of Supervisors of Pima County approved “the proceedings of the Industrial Development Authority of the County of Pima regarding the issuance of its education facility revenue bonds (Hillcrest Academy Project), Series 2014 in an aggregate principal amount not to exceed $12,000,000.00 and declaring an emergency.”
Parents were surprised in September 2016 to find that Hillcrest Academy in Mesa was closed due to financial difficulties. The closure forced more than 120 students to find a new school, according to the Arizona Republic.
Lawson Financial also sold muni bonds to raise financing for two assisted-living facilities in Alabama, the complaint said.
The Disciplinary Complaint reads in part:
The Hillcrest Offering and the Hillcrest Bonds.
In October 2014, LFC underwrote a municipal revenue bond offering to benefit the Hillcrest Academy School (earlier named the Destiny School). LFC served as the sole underwriter for the offering of the Industrial Development Authority of the County of Pima Education Facility Revenue Bonds (Hillcrest Academy Project) Series 2014 Bonds (the “Hillcrest Offering” and the “Hillcrest Bonds”). The proceeds of the Hillcrest Offering were loaned to the conduit borrower Hillcrest Academy, Inc. (“Hillcrest”), an Arizona nonprofit corporation doing business as Hillcrest Academy, to be used to finance or refinance the costs of acquiring, constructing, improving, renovating and operating the new school property and facilities, and pay capitalized interest and certain issuance expenses.
In October 2014, LFC and Robert Lawson raised approximately $10.5 million from approximately 392 LFC customers in connection with the Hillcrest Offering. LFC’s underwriter’s compensation related to the purchase and sale of the Hillcrest Bonds was at least $210,000. Since the initial offering, LFC and Robert Lawson also sold Hillcrest Bonds to at least nine LFC customers in the secondary market. With respect to the Hillcrest Bonds, the securities fraud claims in this matter concern both (i)the $10.5 million in primary market sales of the Hillcrest Bonds in the initial offering to LFC customers in the fourth quarter of 2014 and (ii) the subsequent secondary market sales of the Hillcrest Bonds to LFC customers.
The Destiny Offering and the Destiny Bonds.
LFC served as the sole underwriter for the offering of the June 22, 2010 Industrial Development Authority of the County of Pima Education Facility Revenue Bonds (Destiny Community School Project) Series 7 2010 Bonds (the “Destiny Offering” and the “Destiny Bonds”). The Destiny Offering in 2010, like the later Hillcrest Offering in 2014, concerned the same charter school in Arizona, as first named the Destiny School (and later renamed, in 2013, the Hillcrest Academy). The aggregate principal amount of the Destiny Offering was $4 million. The proceeds of the Destiny Offering were loaned to the conduit borrower DCS Partners, Inc. (“DCS”), an Arizona nonprofit corporation doing business as an Arizona charter school named Destiny Community School (“Destiny School”), and were to be used for the acquisition, construction and operation of charter school facilities in Mesa, Arizona. In June 2010, LFC and Robert Lawson raised approximately $4 million from approximately 197 LFC customers in connection with the Destiny Offering. The Destiny Bonds were purchased by LFC pursuant to a purchase contract at prices which would result in compensation to LFC of approximately $100,000. In addition, DCS also agreed to pay an underwriting and marketing fee to LFC. With respect to the Destiny Bonds, the securities fraud claims in this matter concern the secondary market sales of the Destiny Bonds to LFC customers from May 2015 to September 2015.
FINRA found that Robert Lawson and LFC were aware that each borrower faced financial difficulties, and Lawson transferred millions of dollars to the borrowers and associated parties from a deceased customer’s trust account, in order to hide the borrowers’ financial condition and to hide the risks associated with the bonds.
FINRA determined that when LFC customers purchased the bonds, LFC and Lawson hid the material fact that Lawson was improperly transferring millions of dollars from the trust account to various parties when the borrowers were not able to pay their operating expenses or required interest payments on the bonds.
FINRA found that Lawson and his wife, Pamela Lawson (LFC’s Chief Operating Officer), who were co-trustees of the trust account, violated FINRA rules by breaching their fiduciary duties as trustees and engaging in self-dealing with the trust account. FINRA also determined that Robert Lawson misused customer funds. In addition to expelling LFC and barring Robert Lawson, FINRA suspended Pamela Lawson from associating with any FINRA member firm for two years and fined her $30,000 to be paid prior to her return to the securities industry. This disciplinary action settles a May 2016 complaint filed against LFC, Robert Lawson, and Pamela Lawson.
In settling this matter, LFC, Robert Lawson and Pamela Lawson neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck. FINRA makes BrokerCheck available at no charge. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA’s Disciplinary Actions Online database. Investors can also call FINRA’s Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.lehman 66761