SEC Says Bank Turned Blind Eye To Fraud, Settles For $1.6 Million

Chris Gaetano
Published Date:
Sep 12, 2016

The Securities and Exchange Commission faulted a subsidiary of an Oklahoma-based banking association for allegedly turning a blind eye to fraudulent bond offerings to investors. 

The fraud involved an Atlanta-based businessman named Christopher F. Brogdon, who has already been charged with fraud and ordered by the court to repay $85 million to investors.The SEC said that Brogdon made about $190 million in municipal bond and private placement offerings where investors were told they would earn interest from revenues generated from retirement community projects like nursing homes. In reality, however, money was not used to fund these projects but to pay for his personal expenses and unrelated business ventures. He covered up the fraud through borrowing money from third parties, using proceeds from other offerings, and drawing down on personal lines of credit. 

The SEC alleged that BOKF NA knew that Brogdon's offering couldn't have been legitimate. The bank knew that Brogdon had withdrawn money from reserve funds for the bond offerings and failed to replenish them, that he failed to file annual financial statements for the offerings, and that the facilities serving as collateral for one of the bond offerings had been closed for years. However, according to the SEC, the bank's senior vice president at the time said that revealing these problem would impair future business and fees from Brogson, upset bondholders, and cause regulatory issues with bond underwriters, and so chose not to inform the bondholders as required. 

“BOKF was in a crucial gatekeeper position to stand up for bondholders and notify them about material problems with the bonds, but instead turned a blind eye and chose to protect Brogdon and the fees it collected from his deals,” said Lara Shalov Mehraban, Associate Regional Director of the SEC’s New York Regional Office. 

Without admitting or denying the SEC’s findings, BOKF agreed to pay disgorgement of $984,200.73 of the fees the bank collected from its work with Brogdon.  The bank also agreed to pay interest totaling $83,520.63 and a penalty of $600,000.  BOKF promptly terminated Neilson following an internal investigation and reported its misconduct to the SEC.

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