Final Order Reinstated in the Matter of Watkins Development, LLC and David Watkins
Jackson, MS—On June 28, 2016, the Mississippi Court of Appeals handed down a decision reinstating a Secretary of State 2014 final order in the matter of Watkins Development, LLC and David Watkins, individually. The Court found Watkins committed four (4) violations of the Mississippi Securities Act and also imposed penalties and remedies as a result of these violations.
“We are pleased the Mississippi Court of Appeals reinstated the original order issued by our Agency,” says Secretary Hosemann. “Yet again, this is another example of how the Secretary of State’s Office protects Mississippians, their investments and enforces Mississippi’s securities laws.”
In August 2010, David Watkins formed Retro Metro, LLC for the purpose of revitalizing the former “Belk Building” of the Metrocenter shopping center. David Watkins, as manager of Retro Metro, LLC, entered into a Development Agreement with Watkins Development to undertake the design-build project. The Development Agreement provided Watkins Development be paid a flat fee of $500,000 plus twenty-five percent (25%) of the “project costs” (a minimum of $1.125 million). The construction costs for the project were estimated to be $2.5 million. Watkins worked to secure bond financing, and the Bond documents representing the proceeds of the Bonds were to be used to revitalize the first floor of the “Belk Building.” The Bond documents did not disclose the $1.125 million financial liability of Retro Metro to Watkins Development.
On April 12, 2011, the financing was finalized and on the same day, Watkins wrote distribution checks totaling $400,000 (40 times initial contributions) to the six (6) members of Retro Metro.
On June 8, 2011, Watkins wired $587,084.34 from the Retro Metro checking account to a real estate closing account for an unrelated project of Watkins Development. The Bond repayment for the project defaulted in April 2012 and has remained one payment in default since said time.
“I am very pleased with the Court’s decision to affirm the Secretary of State’s final order,” says Leroy Walker, partner of RetroMetro, LLC. “The Secretary of State’s Office has been extremely professional in their due diligence in this matter and I am very appreciative. The three remaining partners were committed to fulfilling their obligation to finish the build-out for the City of Jackson borrowing $1.5 Million dollars to complete the project. This is a very good day for the partnership. This ruling further assists us in completing our goal for revitalizing the Metrocenter Mall.”
The Secretary of State’s 2014 final order found Watkins and Watkins Development failed to disclose the substantial financial liabilities of Retro Metro and had taken $587,000 of Retro Metro, LLC funds designated to renovate the “Belk Building”. These funds were used to purchase property in Meridian for an unrelated project of Watkins Development, in violation of Miss. Code Ann. § 75-71-501, Article 5 Fraud and Liabilities, of the Mississippi Securities Act of 2009.
Original post: The Mississippi Court of Appeals dealt a blow to David Watkins' fight against Secretary of State Gibbert Hosemann yesterday. The Secretary of State fined Mr. Watkins $587,084.34* in 2014 for spending bond proceeds for the Metrocenter renovation project on another project in Meridian and violating Mississippi securities laws. Earlier post.
Mr. Hosemann stated back in 2014:
After a two-day hearing in October, Watkins was found to have taken funds designated to renovate the "Belk Building" in the Metrocenter shopping center in Jackson, and instead, used the funds to purchase property in Meridian. The failure to disclose their intentions to use the bond proceeds for any other purpose other than renovating the space at the Metrocenter violates the general fraud statutes of the Mississippi Securities Act.
Mr. Watkins appealed the decision to Hinds County Chancery Court. The Chancellor upheld the fine and Mr. Watkins sought relief from the Court of Appeals. The Court ruled yesterday:
We therefore affirm the chancellor’s determination that Watkins engaged in three violations of the Mississippi Securities Act as set forth in subsections (b), (c), and (d) of the Secretary of State’s Final Order. We find substantial and competent evidence in the record supporting these findings of violations of the Mississippi Securities Act.23 We further find that these the findings of violations were not arbitrary and capricious, and they were made within the Secretary of State’s regulatory authority, and violated no constitutional or statutory right.
The Court also overruled the Chancellor on the fourth violation and reinstated it:
Based upon the foregoing, we find that the chancellor abused his discretion in reversing the Secretary of State’s finding, and penalties related thereto, that Watkins violated section 75-71-501(2) of the Mississippi Securities Act by failing to disclose in the bond documents that Retro Metro possessed significant and material financial obligations to Watkins Development, as set forth in the Development Agreement.Mr. Hosemann will hold a press conference to discuss this ruling at 11:00 today.
We find that the record indeed contains substantial and competent evidence and statutory authority supporting the Secretary of State’s finding that Watkins’s failure to disclose the Development Agreement resulted in an omission of a significant and material liability of Retro Metro in violation of section 75-71-501(2). As a result, we reinstate the Secretary of State’s finding as to this
violation, as well as the following related penalty imposed by the Secretary of State as a result of this finding: “Twenty-Five Thousand Dollars ($25.000.00) for violating [s]ection 75-71-501(2) [of the Act] by omissions and untrue statements in the bond offering and sale."
However, as discussed, we join the chancellor in affirming the Secretary of State’s Final Order as to the other three violations of the Mississippi Securities Act and related penalties. We therefore reinstate the findings of violations of the Mississippi Securities Act, and related penalties imposed as a result of these violations
*Plus interests and other costs.