A $1 Mil­lion End­ing To SEC Case?

The Bond Buyer - - Front Page - By Kyle Glazier

WASH­ING­TON – The Se­cu­ri­ties and Ex­change Com­mis­sion is hop­ing a fed­eral court next month will or­der Dwayne Ed­wards, ac­cused of par­tic­i­pat­ing in a fraud­u­lent se­nior hous­ing bond scheme, to pay more than $1 mil­lion of ill-got­ten gains and civil penal­ties.

A Jan. 22 hear­ing has been set in U.S. Dis­trict Court for the Dis­trict of New Jersey at which time a judge may or­der Ed­wards to dis­gorge $766,850 plus in­ter­est and pay an un­spec­i­fied amount of civil penal­ties that could to­tal hun­dreds of thou­sands of dol­lars more. That’s the amount the SEC asked the court ear­lier this month to or­der as it seeks to bring a close to an en­force­ment ac­tion it brought in Jan­uary 2017.

Ac­cord­ing to the SEC’s com­plaint, Ed­wards and co-de­fen­dant Todd Barker set up com­pa­nies and bor­rowed some $62 mil­lion through nine dif­fer­ent

con­duit mu­nic­i­pal bond of­fer­ings 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 he dis­puted. 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 would pay al­most $460,000 un­der a set­tle­ment agree­ment await­ing court ap­proval. Ed­wards and the

SEC didn’t man­age to agree on a set­tle­ment, and the se­cu­ri­ties reg­u­la­tor told the court Ed­wards plans to op­pose the SEC’s ef­forts to make him pay. The court has al­ready en­tered a judg­ment against Ed­wards, so he can’t claim he didn’t break the law.

In a re­cent court fil­ing SEC at­tor­ney Lee Green­wood told the judge that the losses to in­vestors, even fol­low­ing the ef­forts of a court-ap­pointed re­ceiver who sold the fa­cil­i­ties and re­cov­ered as much money as pos­si­ble, would prob­a­bly be about $30 mil­lion.

Re­cov­ery ef­forts con­tinue, as the re­ceiver told the court it has hired a law firm to pur­sue some ad­di­tional res­o­lu­tions and re­cover more money if pos­si­ble.

The amount of Ed­wards’ civil penalty could vary depend­ing on what level of

sever­ity the court de­cides to ap­ply and on how it chooses to count the vi­o­la­tions.

The SEC told the court that Ed­wards should pay a “third-tier” penalty per vi­o­la­tion, which for vi­o­la­tions oc­cur­ring af­ter March 5, 2013, but be­fore Nov. 2, 2015, would be $160,000. That’s ap­pro­pri­ate be­cause of the sever­ity of the crimes, the SEC said.

The judge has dis­cre­tion over the amount of the penal­ties, and over how many of such penal­ties to im­pose.

“Numer­ous courts have held that a per-vi­o­la­tion cal­cu­la­tion may be based on each vi­ola­tive act, mea­sured ei­ther by the num­ber of vi­ola­tive trans­ac­tions or pay­ments,” the SEC told the court. Un­der that mech­a­nism, the num­ber of penal­ties Ed­wards would be sub­ject to could range from two to more than

eight.

The SEC also asked the court to or­der that Ed­wards’ frozen fi­nan­cial as­sets, which the SEC said in­clude money di­rectly linked to fraud, be turned over as part of his penalty.

Ed­wards is likely to file a mo­tion op­pos­ing the SEC’s re­quest early next month, ac­cord­ing to court sched­ul­ing fil­ings.

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