Bonds for two Georgia assisted living facilities lose tax-exempt status

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WASHINGTON -- The Internal Revenue Service has determined that more than $14 million of bonds issued in 2015 by two authorities for separate assisted living facilities in Georgia are taxable -- the latest development stemming from a 2017 federal fraud case linked to fraudster Christopher Brogdon.

The IRS' final determinations were disclosed by BOK Financial, the trustee for the bonds, in two material event notices filed Thursday on the Municipal Securities Rulemaking Board's EMMA website. The IRS reached the decisions on July 17.

The bonds were issued by the Development Authority of Columbus, Ga. and the Savannah Economic Development Authority. Officials from the authorities were not immediately available for comment Friday.

The proceeds were lent to companies set up by business partners Dwayne Edwards and Todd Barker who bought the facilities from Brogdon.

Edwards was charged with fraud by the U.S. Securities and Exchange Commission in early 2017 for improperly commingling funds from nine different conduit municipal bond offerings totaling nearly $62 million as well as the revenues of the facilities financed by the offerings.

BOKF's material event notices warned bondholders that the sale of the assets would not result in a complete return of the principal of the bonds.

SEC attorney Lee Greenwood wrote to a federal judge in New Jersey last month in the Edwards/Barker case to report that investors are certain to suffer significant losses in those nine bond offerings despite efforts by a receiver to sell assets and use the proceeds to repay them.

Bondholders of only one of the nine issues have been repaid and the court-appointed receiver is trying to arrange partial payments to investors by the end of the year for the other eight. The receiver has completed the sale of all nine facilities.

Greenwood requested that the judge not schedule briefings on the SEC’s motion for monetary relief yet because the commission wants to see how badly investors were harmed and what influence that should have on the money the defendants should pay.

The receiver’s most recent quarterly report filed in July showed that the sale of all the facilities were sold for a combined $26.6 million. The receiver engaged an attorney to potentially pursue further claims against unnamed third parties “for the benefit of investors.”

“As is clear from the sales prices of these facilities, these partial distributions will be at levels well below the principal owed to investors in the corresponding offerings, and will thus result in substantial investor losses,” Greenwood wrote. “The amounts of any investor losses are relevant to the monetary relief the SEC may seek, and which the court may determine to order, from the settling defendants. To that end, the SEC plans to engage in settlement discussions with the settling defendants during the third quarter of 2018 as to the amounts of monetary relief, with the hope of either resolving or narrowing the issues for decision by the court.”

Eight of the nine offerings cited in the case against Edwards involved facilities purchased from 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 intended for senior living projects.

The commission has said that Edwards did not have a prior relationship with Brogdon but sought out Brogdon to purchase some of his facilities and considered him a "bigtime operator" in the industry.

Four of the purchases from Brogdon used "substantially the same financing team that Brogdon himself had used for many years," according to the SEC.

Edwards had also referred to Brogdon as "brilliant" while working with him, according to the SEC.

Edwards agreed in June 2017 to be barred from the municipal securities market, except for buying and selling munis for his personal account, and to pay an undetermined amount of fines and ill-gotten gains.

The 2015 bonds involved in the recent IRS determination included $7.9 million of Series 2015A tax-exempt bonds and $640,000 of taxable Series 2015B first mortgage revenue issued by the Development Authority of Columbus to finance the cost of acquiring, renovating and expanding a 60-unit (licensed for 64 beds) assisted living facility in Columbus.

The Columbus facility was commonly known as the Veranda and was built in 1999 on 4.4 acres. Edwards and his business partner, Todd Barker, planned to spend over $1 million renovations that included new furniture, fixtures and equipment, including the conversion of assisted care units into 13 memory care units.

The other facility was commonly known as the Shadowmoss Plantation and the offering involved $6.46 million of Series 2015A tax-exempt bonds and $535,000 of Series 2015B taxable bonds issued by the Savannah Economic Development Agency for the purchase and renovation of the facility.

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Tax-exempt bonds Taxable bonds Enforcement SEC enforcement Enforcement actions Enforcement actions IRS SEC Washington DC Georgia
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