WASHINGTON -- The Securities and Exchange Commission yesterday barred a former broker with the now-defunct firm of Hereth, Orr & Jones from the securities business and suspended two others in connection with the sale of Polk County, Fla., life-care facility bonds in 1983.
In doing so, the agency stiffened penalties already brought by an administrative law judge in the case. The judge had concluded that William L. Kicklighter Jr. should be suspended from the business for 120 days and Robert Q. Brown and Terry G. Eurich should be suspended for 45 days. The three brokers had appealed the law judge's decision to the SEC.
"They said we conspired to sell bonds and withhold the truth from investors," Mr. Kicklighter, who is now a manufacturers' representative in Atlanta, said yesterday.
"We told investors what we were told to tell them. I think the whole thing is ridiculous," he added, contending that he was spent over $130,000 in attorneys fees and subsequently lost a top job with a major broker-dealer over the matter.
The Commission found that from May to November 1983, Mr. Kicklighter made material misstatements to investors in a $53.17 million offering of Polk County healthcare facilities revenue bonds, which were to fund conversion of a 460-unit apartment complex to a life-care facility for the elderly. The commissioners said all three brokers concealed information from customers about the bonds, which defaulted in December 1983 as a result of poor sales.
The SEC said an October 1982 official statement for the bonds, which all three brokers read, stated that the developer had to fill 95% of the project's units, or project owner Royal REgency of Winter Haven Inc. would not have the revenues to pay debt service.
The SEC said that between spring and winter of 1983, internal research reports at the firm alerted salesmen to serious lags in sales. The agency said that officials nevertheless continued to tell the brokers that the project was viable because of new projections. But it said the brokers were still responsible for alerting buyers to the problems.
The agency said that between May 10 and Nov. 18 Mr. Kicklighter sold 129 Polk County bonds with a face value of $645,000. According to the agency, he told one customer that the bonds he purchased in October were better that AAA-rated; were "solid like the Rock of Gibraltar;" that unit sales were going "as per planned"; and that "everything was going gung-ho forward, everything was going very well."
During the same period, Mr. Brown sold 13 bonds totalling $65,000 and, according to two customers, did not mention anything questionable about the bonds, the SEC said. Also between May and November, Mr. Eurich sold 54 bonds totaling $270,000, and two customers of these bonds said they were not told anything negative, the agency said.
There was "no justification for Mr. Kicklighter's blatant misrepresentations," the SEC said in stiffening the penalty against the broker. And it said that while the other two brokers' misconduct was not as serious, Mr. Brown and Mr. Eurich concealed highly material negative information from customers although they were aware of its importance.
While they barred Mr. Kicklighter from the business, they said he could reapply for a "nonproprietary, nonsupervisory" position with a firm.
Mr. Kicklighter contends he did not make any misrepresentations to customers, and all three brokers challenged the judge's finding that they failed to inform customers of the projects' lack of sales.
But the SEC called the brokers' claims that they were relying on some of the advisory memos of their firm "spurious."
"[They] saw posted on a blackboard [the firm's] inventory of some $100,000 to $150,000 of Polk County bonds, an obvious incentive for [the firm] to paint as rosy a picture as possible to sustain a continued sales effort. In line with that objective, officials did try to put the best face on things and maintain the hope that conditions would improve."
But brokers received information from Herreth Orr repeatedly between May and November at sales meetings and in written updates that clearly delineated a steadily deteriorating situation, the SEC said.
Mr. Eurich was not available for comment.
Mr. Brown objected to the SEC's findings yesterday, saying that in fall 1983 he sent copies of the firm's research report to clients disclosing that unit sales were slow.