Risk & Compliance

Muni Bond Trustee Fined $1.6M in Fraud Case

BOK Financial allegedly failed to warn investors of problems involving the bond offerings of accused fraudster Christopher Brogdon.
Matthew HellerSeptember 12, 2016

Bank of Oklahoma Financial has agreed to pay $1.6 million to settle charges that it allowed a Georgia businessman to defraud investors in municipal bond offerings that raised more than $164 million to purchase and renovate senior living facilities.

The settlement is the latest legal fallout from the relationship between former BOK Financial senior vice president Marrien Neilson and accused fraudster Christopher Brogdon. The U.S. Securities and Exchange Commission said Friday that Neilson was “chiefly responsible” for the failure of the bank’s corporate trust department to oversee Brogdon’s bond programs.

According to an administrative order, BOKF and Neilson failed to warn investors that Brogdon was not replenishing money he had withdrawn from reserve funds for the bond offerings and that he had failed to file annual financial statements for the offerings.

To settle the charges, the bank agreed to pay disgorgement of $984,200.73 of the fees it collected from Brogdon, interest totaling $83,520.63, and a penalty of $600,000. Neilson was charged Friday in a separate civil complaint with providing “substantial assistance” to Brogdon’s alleged fraud.

“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,” Lara Shalov Mehraban, associate regional director of the SEC’s New York regional office, said in a news release.

Brogdon was charged with fraud in November and a judge has ordered him to repay $85 million to investors. Neilson had recruited him as a BOKF client in 2000 and, according to the SEC, she was “the primary recipient of bonus compensation awarded on the basis of the fees paid to BOKF for the Brogdon bond offerings.”

The SEC said Neilson concealed the problems with the offerings from investors because she feared disclosure “could impair future business and fees from Brogdon, upset bondholders, and cause regulatory issues for bond underwriters.”

“Brogdon’s failures should have led BOKF in many instances to declare an event of default,” the SEC alleged.