Judge Orders Brogdon to Submit Plan to Pay Defrauded Investors
WASHINGTON — Christopher Brogdon, facing Securities and Exchange Commission charges for defrauding investors in senior-living facility financings, has been ordered by a federal court in New Jersey to create a plan to pay those investors.
Brogdon, who had agreed to the order from Judge Kevin McNulty of the U.S. District Court for the District of New Jersey, raised $168 million from 54 conduit municipal bond deals and $22 million from private placements during his 25 years in the nursing home business, according to the SEC.
The commission charged in a lawsuit filed with the court in November that Brogdon committed fraud through at least 43 entities he owns or controls 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 other personal business ventures, including restaurants and commercial real estate, according to the SEC.
His fraudulent conduct extended from at least 2000 to at least October 2015, according to the commission. At the time the lawsuit was filed, the SEC worried that Brogdon would not be able to make required payments to investors because many of the facilities he financed had a negative cash flow.
McNulty's Dec. 28 judgment, which includes Brogdon's wife Connie as a "relief defendant," enjoins Brogdon and his associates from violating securities laws designed to prevent manipulative and fraudulent practices. It also bars Brogdon from being an officer or director of an issuer and enforces a previously obtained asset freeze on at least 17 bank and securities accounts that the Brogdons hold either separately or jointly.
In addition to the asset freeze, the Brogdons will have to pay bondholders all of the accrued interest and principal outstanding on a total of 19 conduit muni bond deals and private placements.
The deals span from 1992 to December 2013 and include facilities in Alabama, Georgia, Oklahoma, Illinois and other states. Under the judgment, the SEC can add other securities offerings to the current list of 19. However, the commission would first have to get Brogdon to agree. If Brogdon does not agree, the SEC would have to submit the request to the district court.
Because many of Brogdon's projects currently have a negative cash flow, the court order instructs Brogdon to submit a plan to a court-appointed monitor by Jan. 27 for a "fair, prompt and efficient disposition or refinancing" of any of 50 listed entities or assets that Brogdon controls either in full or in part, many of which are nursing homes and health care centers. The plan is supposed to detail how to use money from those assets to pay bondholders in full.
The monitor will have access to the Brogdons' financial information, including the details of the 50 entities' operations, and must also submit a quarterly report to the court and the SEC providing updates on the current status of the entities and each of their financial situations.
If Brogdon's plan to use his controlled entities and assets does not fully cover the necessary investor payments, he will then have to submit another plan that uses as much of his and his wife's currently frozen personal finances as necessary.
The payments are unlikely to end there as the SEC has yet to file its motion to determine the amount of ill-gotten gains Brogdon will have to disgorge. The court or the SEC has yet to file its motion to determine the amount of ill-gotten gains that Brogdon will have to disgorge to the SEC.
He has yet to file the motion to determine the amount of ill-gotten gains that he will have to disgorge to the SEC and has yet to file the motion to determine the amount of ill-gotten gains Brogdon will have to disgorge requires that, during the hearing on that motion, the allegations in the SEC's November complaint are accepted as fact.
The SEC cited several examples of Brogdon's misappropriation of offering proceeds in its complaint.
In one, for example, he raised money through two offerings in the spring of 2013 for a retirement housing development referred to in the complaint as the "Arcadia Project" in Conyers, Ga.
The offerings included certificates of participation in the Development Authority of Clayton County, Ga.'s revenue bonds and in the Savannah Economic Development Authority's subordinated mortgage health care facility revenue bonds, as well as Cherokee Financial COPs in a 10% promissory note issued by Arcadia Partners.
The confidential disclosure memorandum for the Cherokee Financial private placement, said that $1.4 million of the proceeds would be used to construct the Arcadia Project and that the private placement investors would be paid interest and principal from the revenues of the project.
Instead $177,936 of the proceeds were used to make quarterly interest payments back to the investors in the Cherokee Financial private placement and $644,158 of the proceeds were used to finance undisclosed expenses and payments, including some associated with Brogdon's restaurants and his wife's personal account.
In another example, Brogdon raised $2.15 million through COPs in the Development Authority of Clayton County, Ga.'s first-mortgage revenue bonds. Instead of using $425,000 of the proceeds as working capital for the facility that served as the source of payment of debt service on the bonds, Brogdon used it to pay loans on an unrelated nursing home and commercial property owned by one of his other companies.
He also used the money to pay an employee's salary at a company he co-founded and transferred $74,000 to his wife's personal account.
Brogdon is also facing a private lawsuit from Bank of Oklahoma Financial, a trustee for some of the retirement and nursing home deals involving Brogdon where the bonds eventually defaulted.
In the suit, BOKF, mirroring charges from the SEC, says that Brogdon continued making payments on a health care facility for years by improperly using funds from other bond issues to do so.