Accused fraudster may pay $1 million or more

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WASHINGTON - The Securities and Exchange Commission is hoping a federal court next month will order Dwayne Edwards, accused of participating in a fraudulent senior housing bond scheme, to pay more than $1 million of ill-gotten gains and civil penalties.

A Jan. 22 hearing has been set in U.S. District Court for the District of New Jersey at which time a judge may order Edwards to disgorge $766,850 plus interest and pay an unspecified amount of civil penalties that could total hundreds of thousands of dollars more. That’s the amount the SEC asked the court earlier this month to order as it seeks to bring a close to an enforcement action it brought in January 2017.

According to the SEC’s complaint, Edwards and co-defendant Todd Barker set up companies and borrowed some $62 million through nine different conduit municipal bond offerings between July 2014 and September 2015, claiming that they would be used to purchase and renovate senior living facilities in Georgia and Alabama.

The SEC alleged that Edwards improperly commingled the funds, a charge he disputed. Eight of the nine offerings cited in the case against Edwards involved facilities purchased from Christopher Brogdon, an Atlanta-based businessman who was forced to repay $86 million to investors after a judge found him guilty of SEC charges that he commingled investor funds in senior living projects.

Barker would pay almost $460,000 under a settlement agreement awaiting court approval. Edwards and the SEC didn’t manage to agree on a settlement, and the securities regulator told the court Edwards plans to oppose the SEC’s efforts to make him pay. The court has already entered a judgment against Edwards, so he can’t claim he didn’t break the law.

In a recent court filing SEC attorney Lee Greenwood told the judge that the losses to investors, even following the efforts of a court-appointed receiver who sold the facilities and recovered as much money as possible, would probably be about $30 million. Recovery efforts continue, as the receiver told the court it has hired a law firm to pursue some additional resolutions and recover more money if possible.

The amount of Edwards’ civil penalty could vary depending on what level of severity the court decides to apply and on how it chooses to count the violations. The SEC told the court that Edwards should pay a “third-tier” penalty per violation, which for violations occurring after March 5, 2013, but before Nov. 2, 2015, would be $160,000.

The judge has discretion over the amount of the penalties, and over how many of such penalties to impose.

“Numerous courts have held that a per-violation calculation may be based on each violative act, measured either by the number of violative transactions or payments,” the SEC told the court. Under that mechanism, the number of penalties Edwards would be subject to could range from two to more than eight.

The SEC also asked the court to order that Edwards’ frozen financial assets, which the SEC said include money directly linked to fraud, be turned over as part of his penalty.

Edwards is likely to file a motion opposing the SEC’s request early next month, according to court scheduling filings.

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SEC enforcement Enforcement actions Securities law Securities fraud SEC Washington DC Georgia Alabama