Securities Cases: NY/NJ Port Authority Accused of Not Disclosing Municipal Bond Risks, FINRA Expels Lawson Financial for Fraud, and SEC Brings More FCPA Violation Charges

Port Authority Admits Wrongdoing Related to Failure to Disclose Bond Risks to Investors
The Port Authority of New Jersey and New York will pay a $400K to resolve Securities and Exchange Commission charges accusing the municipal issuer of knowing about the risks involved a number of NJ roadway projects yet failing to tell investors who bought the bonds that would pay for these projects about the risks. The Port Authority admitted wrongdoing.

According to the SEC’s order, the Port Authority sold $2.3B of bonds even though there were questions as to whether certain projects exceeded their mandate and might not be legal to execute. Despite these concerns, the Port Authority did not mention the risks in offering documents.

SEC Cases Seeks to Hold Companies Accountable for FCPA Violations
Already this year, the SEC has brought and/or settled a number of civil cases involving alleged violations of the Foreign Corrupt Practices Act. Early last month, Biomet, a medical device manufacturer, agreed to pay over $30M to settle parallel Justice department and SEC probes over purported repeat FCPA violations.

Biomet, now named Zimmer Biomet after its acquisition by Zimmer Holdings, agreed to pay over $8.2M in disgorgement plus interest and a $6.5M penalty in the SEC’s case. In its deferred prosecution deal with the DOJ, the medical device maker agreed to pay an over $17.46M fine. It was just in 2012 that Biomet agreed to pay over $22M to resolve FCPA charges.

In another SEC case, Sociedad Quimica y Minera de Chile S.A. (SQM) consented to pay over $30M to resolve parallel criminal and civil probes finding it violated the FCPA.

According to the regulator, the chemical and mining company, based in Chile, made almost $15M in improper payments to political figures in Chile, or to those with connections to them. Most of the payments involved fake documents and entities submitted by parties pretending to be legitimate vendors.

Also facing FCPA violation charges in another SEC case are two ex-Och Ziff Capital Management Group executives. Michael Cohen and Vanja Baros are accused of a bribery scam that involved payments made to high-level African government officials. Among the results of their purported misconduct was that the Libyan Investment Authority, which is Libya’s sovereign wealth fund, invested in funds managed by Och Ziff.

The firm has already settled the civil charges brought against it over this matter.

FINRA Expels Lawson Financial for Securities Fraud
The Financial Industry Regulatory Authority has expelled Lawson Financial Corporation, Inc. (LFC) from the regulator’s membership over allegations of securities fraud involving the sale of millions of dollars of municipal revenue bonds to customers. FINRA barred the firm’s president and CEO, Robert Lawson, from the securities industry over the alleged municipal bond fraud.

Lawson Financial underwrote the bonds connected to bond borrowers, including two Alabama assisted living facilities and an Arizona charter school. According to the regulator, Lawson Financial and Lawson knew that the borrowers were having financial problems. To hide these problems and conceal the risks, Lawson purportedly moved millions of dollars from the trust account of a dead customer to the borrowers and associated parties.

According to FINRA, when Lawson Financial customers bought the bonds, the firm and Lawson hid from them that he was improperly moving around millions of dollars when borrowers couldn’t pay operating costs or were required to bond interest payments.

FINRA Expels Lawson Financial and Bars CEO Robert Lawson for Fraudulent Municipal Bond Sales, FINRA, February 2, 2017

The SEC Complaint in the Och Ziff Case (PDF)

The SEC Order in the Sociedad Quimica y Minera de Chile S.A. Case (PDF)

Foreign Corrupt Practices Act

The SEC Order in the Biomet Case (PDF)

Port Authority to Pay SEC Fine, Wall Street Journal, January 10, 2017