WASHINGTON – Participants in senior housing bond financings tied to Christopher Brogdon that were charged with fraud by the Securities and Exchange Commission have consented to a judgment that would bar them from the municipal market as well as require them to pay yet-to-be-determined penalties and ill-gotten gains.

The judgment is tied to a complaint the SEC filed in a federal court in January that charged Dwayne Edwards, who has more than 35 years of experience operating nursing home facilities, with 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. The bond proceeds were supposed to be used to finance assisted living or memory care facilities in Georgia and Alabama, according to the SEC.

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 intended for senior living projects.

Besides Edwards, the SEC brought charges against 11 companies that Edwards controlled and allegedly used in committing fraud. There were also charges against two other individuals as well as a bifurcated settlement with Edwards’ business partner Todd Barker. Barker’s settlement includes monetary sanctions that will be determined at a later date.

SEC Building
SEC charges against a number of individuals and companies allegedly tied to municipal securities fraud have resulted in judgments that were entered with the defendants' consent.

Edwards and Barker set up nine of the 11 companies named in the complaint to manage the facilities funded by the bond proceeds. Oxton Senior Living LLC and Manor House Senior Living LLC, the two other companies, provided management support services and kept the bank accounts that were used to commingle the funds, according to the SEC.

Edwards and the 11 defendant companies agreed to the judgment handed down by Judge Esther Salas, who sits on the U.S. Court for the District of New Jersey, without admitting or denying the SEC’s allegations. The civil penalties and disgorgement they will have to pay as a result of the judgment will be determined after the SEC files a motion seeking specific amounts. Until those amounts are determined, the judgment requires that Edwards and the companies hold and retain funds and other assets.

The ban on participating in the municipal market that the judgment includes extends to any officers, agents, servants, employees, and attorneys as well as others that are actively working with Edwards. However, Edwards is still allowed to purchase and sell munis for his own personal account.

In addition to the forthcoming penalties and the muni market ban, Edwards and the companies are enjoined from violating securities laws in the future.

Another judgment in the case concerns Sharon Nunamaker, who the SEC said worked for Oxton Senior Living and Manor House. In addition to receiving payments form the two companies, Nunamaker also benefited from payments to another company she controlled that was said to have done design work for the facilities.

While the SEC dropped Nunamaker’s company from the case, Nunamaker herself has agreed to the judgment, which will have her disgorge $7,742 in profits, plus interest, from conduct associated with the fraud allegations. She agreed to the judgment without admitting or denying the SEC’s allegations.

The other individual originally named in the complaint, Edwards’ wife, was previously dropped from the case.

The series of events that led to the charges took place between July 2014 and September 2015, according to the SEC. During that time, Edwards, along with Barker and the companies they set up to serve as borrowers, raised their money through conduit offerings. The documents for each of the offerings said that the bond proceeds would be used to purchase and renovate a specific facility and that the revenues the facility generated would be used to make the interest and principal payments to the investors, the SEC said.

The documents also said that the bond proceeds would be used for things like working capital for the facility and a debt service reserve fund (DSRF) that would be used only if the facility couldn’t otherwise make interest payments, according to the SEC.

The SEC found that despite those statements in the offering documents, Edwards began commingling funds just days after the second offering closed in August 2014. He used the commingled funds to pay for the costs of purchasing new facilities and took thousands of dollars for his personal use even after some of the facilities had been forced to draw down on their DSRFs, the SEC said.

Edwards denied the SEC’s commingling allegations in an answer to the complaint, arguing there was no language in any of the offering documents that prohibited transfers from one entity to another and that the transactions he made were treated as loans to be repaid.

He also described the centralized management and banking system the facilities used, where the cash from facility-level accounts was “swept up” into a common management account and then used for accounts payable for all participating entities, as “a common mechanism for managing multi-facility senior living facilities.”

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