WASHINGTON - The Securities and Exchange Commission plans in the coming months to try to negotiate monetary settlements with two men the commission said engaged in an alleged fraudulent senior housing bond scheme tied to convicted fraudster Christopher Brogdon.
SEC attorney Lee Greenwood wrote to a federal judge in New Jersey earlier this week to report that investors in nine different conduit municipal bond offerings totaling nearly $62 million are certain to suffer significant losses despite the efforts of a receiver to sell assets and use the proceeds to repay them.
The deals were set up by business partners Dwayne Edwards and Todd Barker, who created companies and borrowed the funds 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 the defendants deny. 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 settled with the SEC early in the case, and Edwards agreed in June 2017 to settle and be banned from the municipal market.
The court-appointed receiver has completed the sale of the facilities and managed to fully repay bondholders of one of the nine issues, Greenwood told the court. The receiver told the SEC that he plans to try to arrange for partial payments to investors in the remaining eight bond issues before the year is out.
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 last month, showed that the sale of all the facilities brought in 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.”
The SEC is due to file its next update with the court by Nov. 6 and expects to be ready to recommend a briefing schedule for its motion for monetary relief then, Greenwood told the court.