Ruling Against Watkins and Watkins Development in Securities Fraud Case
“The Secretary of State’s Office has the statutory authority to protect Mississippians’ investments by enforcing our State’s securities laws. The Mississippi Supreme Court has affirmed unanimously our 2014 determination of securities fraud in this case as did the Hinds County Chancery Court and the Mississippi Court of Appeals.”
The Mississippi Supreme Court on Thursday, March 2, 2017, upheld a 2014 final order by the Secretary of State finding David Watkins and Watkins Development in violation of Mississippi Code Section 75-71-501, Article 5 Fraud and Liabilities of the Mississippi Securities Act of 2009. The full text of the decision is accessible here:
The litigation stems from Watkins’ August 2010 formation of Retro Metro, LLC, to revitalize the former “Belk Building” in Metrocenter Mall. As manager of Retro Metro, LLC, Watkins entered into a development agreement with Watkins Development to undertake the project. The agreement provided Watkins Development with a $500,000 fee plus 25 percent of the “project costs” (a minimum of $ 1.125 Million). Construction costs were estimated at $2.5 Million. Watkins secured bond financing, and the bond documents represented that 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. Financing finalized on April 12, 2011. On the same day, Watkins wrote distribution checks totaling $400,000 to the six 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, the purchase of land in Meridian, owned by Watkins Development. The wired funds were supposed to be for Retro Metro construction costs. The bond repayment for the “Belk Building” revitalization project defaulted in April 2012.
In 2014, the Secretary of State issued a final order finding Watkins and Watkins Development failed to disclose the substantial financial liabilities of Retro Metro and had removed $587,000 of Retro Metro, LLC funds designated to renovate the “Belk Building” in violation of Mississippi securities laws.
The Secretary of State alleged four securities violations against Watkins and the Chancery Court of Hinds County affirmed three violations. Watkins appealed. The Court of Appeals affirmed all four violations in the Secretary of State’s final order.