Six Bondholders File Brogdon-Related Claim Against BOKF With FINRA

WASHINGTON – Six individuals who hold municipal revenue bonds underwritten by Christopher Brogdon are trying to recover as much as $1 million in lost capital as well as other expenses from BOK Financial Securities, the trustee and dissemination agent they are accusing of mismanagement.

The investors, who inherited the bonds from a deceased uncle, brought their case against BOKF in a statement of claim filed with the Financial Industry Regulatory Authority this month. The individuals include two siblings, Robert Estes and Karen Niles, as well as two step-siblings, Jerry Carpenter and James Carpenter. The other two respondents in the case, Shirley Carver and Becky Lynn Carpenter, are related by marriage to the step-siblings.

The six are asking for an expedited FINRA arbitration hearing that will determine the exact damages they can collect, according to the filing. The relief the six are seeking include: return of their lost capital, which is estimated to be between $500,000 and $1 million; compensatory damages; punitive damages; prejudgment and post-judgment interest at the highest legal rate; as well as attorneys and consulting fees.

The Securities and Exchange Commission filed a case against Atlanta-based businessman Christopher Brogdon in November 2015. The commission charged that Brogdon committed fraud through at least 43 nursing home and other entities he owned or controlled by falsely claiming in offering documents that investors would receive interest from the revenues generated by the projects in which they thought they were investing. Instead, he commingled investor funds and used the money for personal expenses and business ventures.

A New Jersey federal court judge, in a January 2016 order, required Brogdon to create a plan to pay $85 million to the harmed investors.

BOKF, which served as an indenture trustee and dissemination agent for the bonds tied to Brogdon's fraud, settled with the SEC in September 2016 over charges that it helped to conceal numerous problems and red flags from the bondholders. A related SEC complaint against Marrien Neilson, a former BOKF employee who the SEC is alleging was chiefly responsible for the failures at BOKF, is currently pending in the same New Jersey federal court.

The six bondholders who filed the FINRA claim cite many of the same facts that were detailed in the SEC settlement with BOKF, which they say refused to notify bondholders of problems with the bonds despite its legal obligation to disclose the facts. BOKF could not be reached for comment.

"Innocent investors were lulled into believing everything was fine with their investments and … BOK's conduct actively deceived the claimants and other Brogdon bond investors," the individuals wrote in their statement of claim.

The individuals split their uncle's trust into separate brokerage accounts in early 2014 and saw their portfolio's perform well, according to the filing. However, in late 2015 and throughout 2016, the portfolios declined in value.

BOKF served as the indenture trustee for 39 of Brogdon's offerings since 2000, according to the bondholders and the SEC. The Brogdon offerings typically mandated the creation of a debt service reserve fund (DSRF) that could only be used to pay principal and interest on the bonds if no other funds were available to make the required payment. If the DSRF was drawn down, the trust indentures usually required that the Brogdon-controlled borrower replenish the amount drawn down within 12 months.

If the borrower failed to replenish the DSRF, that was considered an "event of default" and BOKF was required to act in the best interest of the bondholders and notify them. The bondholders, if polled by BOKF, also had the right to request BOKF exercise its legal right under the indenture and, if certain terms were met, could require BOKF to accelerate the maturity date for payment to declare all principal due immediately.

BOKF served as dissemination agent for at least 33 Brogdon offerings. The continuing disclosure agreements (CDAs) for the offerings required BOKF to file certain documents on the Municipal Securities Rulemaking Board's EMMA system if the borrower did not do so itself. Additionally, if the borrower did not provide BOKF with notice that the required documents were not filed, BOKF was required to file a notice on EMMA stating that.

The individuals cite SEC findings that BOKF and Neilson concealed that Brogdon drew down on DSRFs and failed to replenish them in the manner laid out by the trust indentures. They also say Neilson and BOKF ignored Brogdon's failure to disclose financial information and event notices on EMMA and avoided filing EMMA notices stating that the Brogdon-controlled borrowers had failed to file.

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