WASHINGTON – Phoenix-based Lawson Financial Corp.'s Financial Industry Regulatory Authority membership was revoked and its CEO was barred from the industry after FINRA found they fraudulently sold millions of dollars of municipal revenue bonds.
Robert Lawson, the firm's president as well as CEO, and his wife Pamela Lawson, the firm's chief operating officer, were also found to have violated rules against self-dealing by abusing their positions as co-trustees of a deceased client's trust.
FINRA suspended Pamela Lawson from associating with any FINRA firm for two years and fined her $30,000 to be paid prior to any return to the securities industry.
FINRA additionally found that Robert Lawson misused funds from the deceased customer's trust account by transferring them to borrowers of the revenue bonds and their associated parties to hide the borrowers' financial conditions. Lawson hid the improper transfers from the firm's customers, according to FINRA.
Neither LFC nor the Lawsons could be reached for comment. The parties accepted the settlement without admitting or denying the charges, but consented to FINRA's findings.
In previous comments made after FINRA filed the complaint against the firm, Robert, and Pamela Lawson in May, Robert Lawson noted that the firm has been in business for 32 years and that they "have a proud heritage for what" they do. He added that they had always acted in their clients' best interests.
FINRA's findings stem from four bond offerings where LFC served as the sole underwriter. Two offerings, which FINRA calls the Destiny Bonds and Hillcrest Bonds, financed the acquisition and renovation of a Mesa, Ariz. charter school while the other two, named the Cullman Bonds and Decatur Bonds, financed the acquisitions and improvements of assisted living facilities in Cullman and Decatur, Ala.
Robert Lawson and LFC were aware of the financial difficulties that their conduit borrowers faced and fraudulently hid this from customers who purchased the bonds, FINRA said. The charter school and two assisted living facilities were unable to meet their required operating expenses, FINRA found. The two assisted living facilities were also unable to meet their required debt service payments on their bonds without using funds Lawson directed from the trust account under his control.
The fraud charges connected to the Hillcrest Bonds relate to both $10.5 million in primary market sales of the Hillcrest Bonds in an initial offering to LFC customers in the fourth quarter of 2014 and subsequent secondary market sales of the bonds to LFC customers. The charges connected to the Destiny Bonds relate to secondary market sales of the bonds to LFC customers from May 2015 to September 2015.
The charges tied to the Cullman Bonds and Decatur Bonds relate to secondary market sales of the bonds to LFC customers from January 2013 through July 2015.
FINRA found that the trust funds Robert Lawson was directing to the charter school and assisted living facilities to help pay their operating expenses totaled about $14 million. It also found that Pamela Lawson was aware of the transfers.
One of the firm's clients designated by FINRA as "WP" established the trust account with LFC in 1999 and used it to fund his activities until he died in February 2008. After his death, the trust account had three trustees, including Lawson and one other individual, who was receiving payments from the account. By February 2012, the two original trustees, aside from Lawson, had died. Lawson and his wife Pamela were the only trustees.
The Lawsons repeatedly treated the WP Trust assets as if they were their own personal assets, FINRA said. They used the money to pay for WP's former residence where one of their sons lived. The trust paid for all the utilities in the residence in addition to a lawn service, a pool service, and a security service.
FINRA found that Robert Lawson and LFC willfully violated federal securities laws prohibiting fraud as well as Municipal Securities Rulemaking Board Rule G-17 on fair dealing. The settlement also found Lawson and LFC violated MSRB Rule G-19 on suitability of recommendations and transactions by recommending the customers purchase the municipal revenue bonds backed by struggling entities.
Additionally, Lawson and his wife violated FINRA Rule 2010, which dictates trustees' fiduciary obligations to trusts. Lawson also violated other FINRA rules by misusing LFC customer funds, FINRA said.
