On January 31st, 2017, the Financial Industry Regulatory Authority (FINRA) Office of Hearing Officers brought sanctions against the Lawson Financial Corporation, its principal agent Robert Warren Lawson, and its Chief Operating Officer (COO) Pamela Denise Lawson. Pamela and Robert Lawson are husband and wife.
As a result of the findings, the investment firm and Mr. Lawson were permanently barred from operating in the securities industry. For her role in the misconduct, Mrs. Lawson received a two-year suspension. Complete details regarding the case can be accessed using FINRA’s free Disciplinary Actions search tool (Case reference #2014043854401).
Securities Fraud in the Sale of Tax Free Investments
Lawson Financial Corp. provided a wide variety of different services to investors. The company did everything from selling securities to overseeing brokerage accounts and trusts. Beginning in 2013, Lawson Financial began to sell large quantities of municipal revenue bonds to some of its customers.
These type of bonds are desirable to many investors as the interest earned on them is exempt from federal taxes. Of interest in this case are four particular municipal bond offerings that the firm conducted, those being:
- Hillcrest Bonds;
- Decatur Bonds;
- Cullman Bonds; and
- Destiny Bonds.
Two of the bonds in question (Destiny and Hillcrest) were used to fund a public charter school that was located in Mesa, Arizona. The other two municipal bonds (Cullman and Decatur) were used to fund the construction and operation of assisted living facilities in the Alabama towns of Cullman and Decatur, respectively.
In all, Lawson Financial sold more than $10.4 million worth of bonds in relation to the Mesa, AZ Charter School and $8 million in relation to the assisted living centers. Very quickly, all three projects ran into severe financial trouble. Lawson Financial became fully aware of these problems and sought to find ways to keep the projects going.
The decision was made to dip into funds held by Lawson, including some funds held in trust for clients, to help the projects meet their operating expenses. This action is a direct breach of the fiduciary duty that the investment firm had to its clients. The firm did not have the authorization to make client money available to keep these projects afloat.
Additionally, despite the fact that Lawson Financial was well aware of these financial issues, the brokerage firm hid that information from the customers that actually purchase the municipal bonds. At no point was any knowledge regarding the weak financial state of the projects ever disclosed.
This type fraudulent misrepresentation is a direct violation of industry regulations. Specifically, the firm and the Lawsons were charged with breaching FINRA Rule 2150(a), governing the use of customer funds; and FINRA Rule 2010, which requires that all industry members observe high standards of commercial honor and just and equitable principles of trade.
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