Battle Brewing Over Defaulted Florida Bonds

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PHOENIX - Some investors holding millions of dollars of bonds in default in the Florida panhandle are upset by what they see as inaction by trustee Bank of Oklahoma Financial and a fired employee with links to accused fraudster Christopher Brogdon.

At issue are seven apartment projects financed in the mid-1990s by several different Florida housing corporations, including the Bayshore Housing Corp., Perdido Housing Corp., and Cordova Community Facilities Corp. The projects were built and are occupied.

The unrated bonds, totaling more than $50 million, carried interest rates exceeding 8% in some cases and have been in default for years. A common thread among them is that the trustee on the bonds is Tulsa, Okla.–based Bank of Oklahoma Financial. Marrien Neilson, a former BOKF executive who was fired last year was account executive for those bonds, BOKF confirmed.

Neilson previously admitted to her involvement in many deals with Georgia financier Chris Brogdon prior to her termination. Brogdon was subsequently charged with fraud by the SEC. Neilson has denied wrongdoing and argued that her termination was unfair. The trustee bank was not charged with anything and has sued Brogdon to recover its losses.

Some of the bonds have been in default for more than a decade, and financial disclosures posted on EMMA show the projects running considerably in the red. An investor who did not want to be identified said that BOKF has been extremely slow to act on these properties despite repeated questions from bondholders about what it was doing to recover their money, and that the bank has not been very communicative on that score either.

"We believe there could be a lot of accounting irregularities in these properties," the investor said. "We want our money back, at the end of the day. Every day that passes by is detrimental to our collateral."

Joseph Crivelli, a senior vice president and director of investor relations at BOKF, said the bank is moving to take action in its role as trustee and has been in contact with bondholders during the process.

"There has been substantial bondholder communication, including annual bondholder meetings, regarding the status of these bonds," Crivelli said. "Pursuant to prior directions and notices, BOKF NA is proceeding to foreclose on each of the seven facilities. A further notice to the bondholders will be made when the foreclosure actions are actually filed."

But Mike Kent, founder and president of Florida-based Progressive Management of America which manages the properties, said that Bank of Oklahoma has recently changed its tune to the detriment of many investors.

"We can look back in retrospect and say they were overleveraged," Kent said of the properties, adding that the debt service just became too much to pay once the economy went south several years ago. Bank of Oklahoma was long willing to tolerate the situation to maximize whatever returns bondholders could get, Kent said.

"They worked with us because it was in the best interests of the bondholders to not foreclose," he said.

But recently, he said, BOKF informed him that it will be moving forward any day to foreclose and institute a receivership on the properties. Kent said the change in tune is the result of "collusion" between the bank and what he termed a "rogue" securities firm, Alpharetta, Ga.-based First Southern Securities which has said owns just over a quarter of the bonds in question.

Kent said the move will allow First Southern to cash in on bonds it bought at deep discounts after the projects began to struggle while hanging out to dry a number of other investors who still hold bonds they bought at par.

"They're making Progressive out to be the bad guy," Kent said.

Kent has said that while nothing concrete has happened yet, his legal team is huddling and will likely put up a fight.

"There will be some counterclaim litigation," he said.

Vasileios Sfyris, a managing partner at First Southern, said his firm is simply looking to get back what it can.

"These series of bonds have been in default for over fifteen years and no one has taken any action against these delinquent borrowers until recently," Sfyris said. "At the end of the day our goal is to maximize bondholder value."

Crivelli declined to lay out a timeline for further action, but indicated that additional bondholder notices were imminent.

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