United States: SEC Brings Post-MCDC Enforcement Actions Against Underwriter And Officials

On April 5, 2017 the SEC released two orders instituting cease-and-desist proceedings (consent decrees) which are the first post-MCDC cases finding securities law violations based on misstatements in official statements regarding compliance with previous continuing disclosure undertakings ("CDUs"). One case was against an underwriter, Lawson Financial Corporation ("LFC") and its CEO, Robert Lawson; the other case was brought against an LFC investment banker and purported underwriter's counsel, John Lynch.

LFC did not participate in MCDC. As the SEC promised at the start of MCDC, entities which violated securities laws and did not participate in the voluntary reporting program would be subject to more onerous sanctions.

These cases were linked to fraudulent bond sales on behalf of a developer of health care facilities named Christopher Brogdon (who has separately settled securities fraud charges by the SEC). However, these charges were largely based on false statements made in a series of 13 bond issues for Brogdon projects which each stated that the Brogdon-related entities had complied with prior CDUs, when in fact the required annual reports were often missing or late.

In the first order, LFC and Lawson were found to have violated the anti-fraud provisions of Section 17(a)(2) and (3) of the Securities Act of 1933 for failing to use adequate diligence in investigating Brogdon's CDU compliance, despite many warning signs. In addition, in one case, LFC was found to have violated Rule 15c2-12 and Lawson to have aided and abetted such violation because no CDU was ever signed.

The sanctions entered into were as follows:

  1. LFC and Lawson agreed to cease and desist from future violations of Section 17(a)(2) and (3) and Rule 15c2-12.
  2. LFC was censured.
  3. Lawson was subjected to a "bar," meaning he cannot associate with or act as an officer or director of a broker, dealer or other financial entity for 3 years.
  4. LFC and Lawson were jointly and severally required to pay disgorgement and interest totaling almost $200,000.
  5. LFC and Lawson were required to pay civil penalties of just under $200,000 and $80,000, respectively.

Except for item (1) above, all of these sanctions went beyond the "standard" settlement terms the SEC had made available to underwriters who voluntarily reported under the MCDC program, and, of course, the MCDC program did not apply to individuals at all. This is in line with a consistent practice in recent SEC enforcement actions to include culpable individuals along with organizations found to have violated securities laws.

LFC and Lawson consented to entry of these orders without admitting or denying the findings in the order (save for the SEC's jurisdiction), but in a new wrinkle, Lawson was required to admit to the findings for purposes of Bankruptcy Code Section 523, so that Lawson could not have the money penalties discharged if he filed for personal bankruptcy. This feature may be related to the fact that the SEC allowed Lawson to pay his penalties in installments over a period of one year.

The second order dealt only with Lynch, who was an investment banker at LFC and purportedly served as the underwriter's counsel in the Brogdon offerings. Lynch was found, like Lawson, to have violated the antifraud rules by failing to perform adequate diligence into Brogdon entities' compliance with prior CDUs, thus causing LFC to fail to comply with its diligence obligations. In addition, Lynch violated antifraud rules by permitting the Brogdon official statements to refer to him as underwriter's counsel for LFC, when in fact Lynch was not licensed to practice law in Arizona (where LFC was located) and had let his Pennsylvania law license lapse since 1983. As a result of these actions, Lynch was found to have violated the anti-fraud provisions of both Sections 17(a)(2) and (3) of the 1933 Act and Section 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934. Further, similar to Lawson, Lynch was sanctioned in connection with the offering in which no CDU was signed.

The sanctions levied against Lynch were as follows:

  1. He agreed to cease and desist from future violations or Sections 17(a)(2) and (3) and Rule 10b-5.
  2. He was denied the privilege to appear or practice before the SEC as an attorney.
  3. He was required to pay disgorgement and interest of $22,338.00 and pay a civil penalty in the same amount.
  4. Lynch did not at this time agree to a "bar" but a hearing was to be scheduled before an Administrative Law Judge on that question. For purposes of such proceeding Lynch may not argue that he did not violate federal securities laws.

As with Lawson, Lynch neither admitted nor denied the findings of the Order but was required to admit to the findings for purposes of Bankruptcy Code Section 523.

It can be noted that LFC and Lawson were only sanctioned based on a negligence standard under Section 17(a)(2) and (3) of the 1933 Act, while Lynch was also sanctioned under Section 10(b) and Rule 10b-5 under the 1934 Act, which involves a finding of recklessness or willful intent to defraud. The difference may be related to the fact that Lynch could be presumed to have known that he was not licensed to practice law, while still allowing such an implication to be included in the various official statements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.