Two Atlanta businessmen who played a role in Detroit’s financial woes by defrauding Michigan public pensions have been ordered to pay a total of $9.5 million in penalties and disgorgements.
The ruling ends a 3 ½-year-old civil case in which the U.S. Securities and Exchange Commission alleges that Roy Dixon Jr. and Michael Farr worked together to misappropriate millions from pensions in Detroit and Pontiac, Mich. About $500,000 of that money was used to help build Dixon’s mansion in northwest Atlanta.
A related criminal case in which Dixon is charged with embezzlement is still pending.
The order Friday by U.S. District Judge Denise Page Hood directs Dixon and his private equity firm, Onyx Capital Advisors, to pay a civil penalty of $3.1 million and an equivalent amount in disgorgement. It requires Farr, who owned a now-defunct used car business, to pay a $1 million civil penalty and $2.3 million in disgorgement.
“They abused the public’s trust, and the court’s order essentially agrees with that,” said Anne McKinley, assistant regional director in the Chicago office of the SEC, which handled the case.
Dixon, who wasn’t represented by an attorney, did not respond to an email seeking comment. Ed Wishnow, Dixon’s attorney in the criminal case, said there would be no comment from him or his client on the ruling in the SEC case.
Farr’s attorney, Rodd Walton, did not return phone calls.
Pension debt was a factor in Detroit’s descent into bankruptcy last year, and federal authorities have said that fraud helped to drain the city’s pension funds. The funds victimized by Dixon and Farr are seeking judgments in excess of $16 million from the two men and related entities.
The fraud dates to 2006 and 2007, when two Detroit pension funds and one Pontiac fund invested nearly $25 million in Onyx Capital. Although Onyx was pitched as a company that would invest in Midwest manufacturing, it sunk nearly $16 million of the pension funds in Farr’s company, Second Chance Motors, which sold used cars to credit-challenged customers in Georgia and other states.
The SEC contends that Dixon and Farr, a former NFL player with the Lions and Patriots, then engaged in a series of transactions that allowed both to use the money for their own benefit, including $513,000 in payments to contractors working on Dixon’s house.
Farr acknowledged in depositions for the SEC that he wrote the checks to the contractors from funds he received from Onyx because he believed he owed Dixon a favor for investing in Second Chance Motors. Farr testified that when the SEC began investigating, he and Dixon created a backdated promissory note to make the transaction appear to be a loan.
Farr contended in court filings that he shouldn’t be required to pay a civil penalty or disgorgement because he cooperated with the SEC. But Hood ruled against him, citing the fact that the money was misappropriated from pension funds.
“Farr does not appear to be the leader in the fraud scheme at issue,” she wrote. “However, in light of the amount at issue and the victims of the fraud, the court finds that (a) civil penalty must be imposed.”
Second Chance Motors once had dealerships in Georgia, Texas, North Carolina and Michigan. But a check by The Atlanta Journal-Constitution last year found that none remained in operation. Farr surrendered his license to sell used cars in Georgia in 2012 to settle an unspecified disciplinary proceeding, records show.
Dixon, 50, filed for bankruptcy in September 2011. His home, valued at $8.5 million, went into foreclosure last year after he defaulted on a $4.8 million note, according to court documents filed by the lender in the bankruptcy case.
Atlanta-based financial adviser Larry Gray serves as the investment consultant for the Pontiac General Employees Retirement System and was responsible for vetting Onyx for the board, which ultimately lost $3.8 million.
In an interview with the AJC last September, Gray said he can’t be blamed for what happened because he checked out Onyx as best he could, including meeting with a proposed manager whose expertise was viewed as critical.
Neither Gray nor the then-adviser for the two Detroit systems were named as defendants by the SEC.
Dixon also has been charged with embezzling more than $3 million from the pensions in a federal criminal case that is scheduled for trial in June.
Dixon’s co-defendants include former Detroit city treasurer Jeffrey Beasley, a college fraternity brother of the city’s disgraced mayor, Kwame Kilpatrick. Prosecutors allege that Beasley solicited bribes and kickbacks from Dixon and others in exchange for approving pension fund investments.
Dixon claims he was a victim of extortion and that he should have a separate trial because of the publicity surrounding Kilpatrick, who is serving a 28-year sentence in federal prison for racketeering and corruption.
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