South Carolina’s Attorney General’s office has suspended the license of an Aiken financial adviser and frozen the bank accounts of his businesses, including the new $9 million private school he and his wife are in the midst of launching.
A restraining order filed March 5 in the Fifth District of South Carolina Court of Common Pleas, freezes the use of Security Federal bank accounts belonging to Jonathan W. Brooks, J. Brooks Financial Inc., Brooks Real Estate Holdings and Compass Academy.
The temporary restraining order stems from an investigation by regulators with the Attorney General’s office into millions of dollars in securities sold by Brooks to investors in Compass Academy, a private school under construction on Toolebeck Road, just west of Aiken.
In addition to the restraining order, Brooks’ registrations as a financial adviser and broker-agent in South Carolina were summarily suspended Feb. 25, the same day regulators filed another action seeking a permanent revocation of his licenses to deal in securities.
Assistant Attorney General Tracy Meyers said that revocation is set to take place Friday, unless Brooks requests a hearing.
“That has not occurred yet,” Meyers said.
According to a complaint filed by Meyers, Brooks, who has an office on Laurens Street in Aiken, is accused of violating securities regulations, including selling unregistered securities, committing fraud and making false and misleading statements. The complaint seeks to place Brooks’ assets, including those of Compass Academy in the control of a receiver, to disgorge all “ill-gotten gains” and impose civil penalties of $10,000 per violation of the state securities act.
Meyers explained the complaints do not accuse Brooks of criminal wrongdoing, but that she has referred the matter to the Attorney General’s criminal division.
Mark Powell, spokesman for South Carolina Attorney General Alan Wilson, confirmed the referral, but said the office would not comment on criminal investigations.
How all this will affect Compass Academy, a K-12 private school set to open in August, is unknown.
School administrator Tracy Brooks, who is married to Jonathan Brooks, said construction was continuing and students were being enrolled for the fall term. Tuition starts at $4,700 for early grades and rises to as much as $10,900 for high schoolers, according to the school’s Web site.
Brooks said she was aware of the restraining order, but said, “all of that is behind us.”
“Everything is fine. There isn’t a story,” she said before referring further comment to her attorney, Stan Jackson.
Jackson said construction of the 53,000-square-foot school was about 90 percent complete.
He said investors were actually “lenders,” who had financed buying the land and building the school. He said Compass Academy would lease the facilities from Brooks Real Estate Holdings, once completed. Construction and start-up costs were projected at more than $9 million, according to Compass Academy documents.
“Money is being lent for the construction of the school is actually being used for that and not for some other nefarious purposes,” Jackson said.
According to state documents, state regulators began looking into Brooks’ business dealings in November after it came to their attention that money from his clients’ Individual Retirement Accounts had been invested in the private school.
In response to investigators’ queries, Brooks disclosed that three clients had invested in Brooks Real Estate Holdings, which he said owns the property where the school is located. According to the documents, Brooks also presented copies of checks, purporting to show refunds to those clients for their investments.
State regulators later learned that at least 12 people had invested in the real estate company, and that the checks Brooks claimed to show refunds were not actually used, documents said.
Regulators also allege Brooks has failed to keep adequate records, and has co-mingled funds of the school and his businesses.
Regulators said Brooks also has failed to provide receipts and invoices for more than $5 million in payments of $5,000 or more in 2012 from the Compass bank account.
“To date, all known investor funds have been deposited in a Compass account controlled by Brooks and his wife,” according to the Feb. 25 notice seeking to revoke Brooks’ financial licenses.
According to state documents, Brooks has continued to sell securities, even though he was fired by High Street Securities in November after the premature liquidation of a client’s annuities resulted in “significant penalties.”
Jackson said he had been hired last week to deal with what he called “a big misunderstanding with the Attorney General’s office.”
Jackson said he was unaware Brooks’ financial adviser license had been suspended, but he had been in discussions with state regulators and was working to provide the documents they have requested.
“We are providing information and hope to have this matter resolved this week,” he said. “I believe this is a tempest in a teapot.”
Meyers said any investors seeking information about the allegations could call the Attorney General’s office at (803) 734-9916.