WASHINGTON – The Securities and Exchange Commission has told a federal judge that it is in preliminary settlement talks with defendants in a case in which it charged individuals and entities with participating in an alleged fraudulent senior housing bond scheme with ties to Christopher Brogdon.
The letter from SEC attorney Lee Greenwood to Judge Esther Salas, who sits on the U.S. District Court for the District of New Jersey, involves a complaint the SEC filed in January against Dwayne Edwards and his business partner Todd Barker.
The SEC alleged that Edwards improperly commingled funds from nine different conduit municipal bond offerings totaling nearly $62 million as well as the revenues of the facilities financed by the offerings. 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.
The case also involves 11 companies that Edwards controlled and allegedly used to engage in his fraud as well as two other individuals with alleged ties to the fraud.
Greenwood’s letter says that the commission's staff has reached a settlement-in-principle over the SEC’s motion for a preliminary injunction and other non-monetary claims against Edwards and the companies he controls. The injunction the SEC sought in its complaint would, among other things, enjoin Edwards and the companies from future securities law violations, freeze Edward’s assets, and prevent Edwards and the companies from filing for bankruptcy.
The proposed settlement is subject to review and approval by the commission, Greenwood wrote. If the SEC approves it, the settlement would be submitted to the court by June 2. Then, if the court decides to enter the agreed-to judgment, the SEC will file a subsequent motion that will detail the amounts of disgorgement, prejudgment interest, and civil penalties it is seeking in the case.
Greenwood also noted in his letter that SEC staff is asking for commission approval to dismiss Susan Edwards, Dwayne Edwards’ wife, from the case and is in talks with Sharon Nunamaker and her company SDH Design about resolving the SEC’s claims against them. Both Susan Edwards and Nunamaker have denied SEC allegations that they benefited from Dwayne Edwards’ commingling of assets.
Barker has agreed to a bifurcated settlement with the SEC that includes monetary sanctions to be determined at a later date.
The SEC claims that, between July 2014 and September 2015, Edwards, along with Barker and the companies they set up to serve as borrowers, raised their money through the conduit offerings. The documents for each of the offerings said that the bond proceeds would be used to purchase and renovate a particular 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, 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.”