Initiated By
FINRA
Allegations
Larson was named a respondent in a FINRA complaint alleging that he made numerous misstatements or omissions of material facts concerning the present values and safety of church bonds - bonds issued by religious organizations to construct or develop real property, and which are secured by first mortgages on the real property to be constructed or developed. The complaint alleges that Larson made these misstatements or omissions in order to mislead customers about the true value of their church-bond holdings, which were securities, to avoid confrontation with customers, and to prevent customers from liquidating their holdings or closing their accounts. By May 2013, most of the church bonds that Larson's customers held in their accounts had already gone into default, bankruptcy, forbearance, or restructuring. Due to a decline in real-estate values, many of the church-bond issuers were underwater on their mortgages. Nonetheless, Larson represented to customers that their defaulted church bonds retained all or most of their original value and even, in many instances, significantly more than their original value. Larson knew or was reckless in not knowing that his statements and omissions in a church bond update about the church bonds and church-bond issuers were false and misleading and that pricing reports provided to customers repeatedly and significantly inflated the values of his customers' church-bond holdings. The complaint also alleges that when recommending the purchase side of each cross trade, Larson knowingly, willfully, or recklessly misrepresented or omitted material facts regarding the prices at which he recommended those purchases. In particular, Larson knew or was reckless in not knowing that the bonds involved in those cross trades should have been bought or sold only at significant discounts from par value, that the prices at which he recommended his customers buy the bonds were not reasonably related to the prevailing market prices or fair market values for the bonds, and that he recommended each purchase without exercising reasonable diligence to discover whether the purchasers could have obtained the bonds at more favorable prices. As a result, Larson violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint further alleges that Larson knowingly and willfully withheld documents and information from FINRA in connection with its investigation into the outside business activities of a former registered representative of Larson's member firm, and the former registered representative's termination from the firm. Further, Larson signed and backdated several documents, which he then supplied and represented as genuine to the president of his firm, as well as to FINRA. Larson did this in order to create the false appearance that he had completed certain supervisory functions more than a year beforehand. Larson also knowingly misrepresented to FINRA, on the broker-dealer's behalf, that the documents were valid.
Resolution
Decision
Bar
Bar (Permanent)
Registration Capacities Affected
All Capacities
Duration
Indefinite
Start Date
9/21/2020
Sanctions
Monetary Penalty other than Fines
Amount
$16,895.68
Regulator Statement
Extended Hearing Panel Decision rendered June 14, 2018: The sanctions were based on findings that Larson submitted materially misleading Continuing Membership Applications (CMAs) to FINRA. The findings stated that shortly after Larson joined the member firm, he and two business colleagues began negotiations to buy it. To accomplish this, Larson had to file documentation with FINRA, including a CMA that provided details regarding the change in ownership. Larson omitted material information from the CMAs about financial transactions relating to the firm involving Larson and his two colleagues. One of the colleagues loaned funds to Larson and the other colleague and bought an option to buy stock in the firm. A portion of her funds was used to provide working capital for the firm. None of this, however, was disclosed in the CMAs, thereby rendering them misleading. The findings also stated that Larson gave incomplete and untimely responses to FINRA document and information requests. FINRA requested documents and information from the firm in connection with an investigation into its termination of an associated person. The termination stemmed from the person's outside business activity and the firm's unsuccessful attempts to meet with him about it. Larson, who responded on behalf of the firm, failed to provide all requested documents when they were due. Only after FINRA issued four requests over the span of a year did Larson fully respond. The findings also included that Larson falsified firm records by backdating certain supervisory review documents related to an associated person that he then supplied and represented as genuine to the president of the firm and to FINRA. Larson altered the documents to create the false appearance that he had completed certain supervisory reviews more than a year earlier. The alleged wrongdoing came to light as a result of a FINRA examination of the firm. By backdating firm documents, Larson caused the firm's records to be inaccurate, and he acted in bad faith and engaged in unethical conduct when he falsified firm records and produced some of them to FINRA. FINRA found that it failed to prove by a preponderance of the evidence that Larson made fraudulent misrepresentations and omissions to customers about their church bond holdings and in connection with church bond cross trades he arranged. Larson did not act recklessly in making the alleged misstatements and omissions. Therefore, Larson did not act with scienter. Accordingly, the fraud (and related FINRA Rule 2010) charges are dismissed. On July 6, 2018, FINRA filed a notice of appeal of the Hearing Panel decision dated June 14, 2018. FINRA has appealed the decision with respect to dismissed charges for violation of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5, or FINRA Rules 2020 and 2010 and the sanctions for Larson's violations of FINRA Rule 8210. On July 24, 2018, Larson filed with the Office of Hearing Officers a notice of cross-appeal of the Extended Hearing Panel decision dated June 14, 2018. NAC decision rendered September 21, 2020 wherein the findings made, and the sanctions imposed by the Hearing Panel are affirmed in part. The NAC finds that the Hearing Officer did not commit clear error when he denied Larson's motion to dismiss Enforcement's claims; the Hearing Panel majority erred in finding that Larson lacked the scienter required to commit fraud; and the Hearing Panel properly found that Larson violated FINRA rules by failing to provide promptly full responses to FINRA requests for information. The NAC imposed a single bar for Larson's acts of fraud. The NAC affirms, but does not imposed in light of the bar, the suspension and fine. The decision is final on October 26, 2020.
