Two brothers involved in multibillion dollar development projects on the Mississippi Gulf Coast owe millions to the federal government over a stock market manipulation scheme, documents show.

Officials in south Mississippi say it’s an old issue and they don’t anticipate any problems with the developments Richard S. Kern and Donald R. Kern are pushing in the hurricane-wrecked area.

The Kerns, both of Florida, are part owners of Fort Lauderdale-based Paradise Properties Group, which has sought regulatory approval of high-rise condominiums, apartments and commercial projects in Hancock County.

The company had planned to build condominiums but added more apartments to the mix after Hurricane Katrina struck last year, wiping out most housing in the area.

Paradise spokeswoman Angela Kurlander says the Kerns’ pasts have been brought up and unfairly characterized in recent weeks by environmental groups opposed to the company’s projects, which would include more than 2,000 condo units and apartments.

Securities and Exchange Commission records show the Kerns, along with two other men, ran into trouble with the regulatory agency in the late 1990s.

An SEC inquiry into companies once owned by the brothers led to a federal court ruling in 2003 that identified the Kerns in a scheme that bilked investors out of nearly $12 million, documents show.

The Kerns and Charles Wilkins, of Scottsdale, Ariz., were ordered to repay almost $9 million in disgorgement, interest and civil penalties while another man was sentenced to prison, according to SEC documents.

Kurlander said the money would be repaid, but the Kerns are waiting to see how much can be recouped from Peter C. Lybrand, the man the brothers say is responsible for the scheme.

The SEC complaint filed in February 2000 alleges the Kerns and Wilkins helped Lybrand make unregistered stock sales for three shell companies the brothers owned.

Lybrand, also known as Peter C. Tosto, is serving an 87-month prison sentence for his part in the scheme and other violations, according to SEC records.

Lybrand created an artificial market for the shell companies’ shares with a series of matched trades on stock he bought from the Kerns and Wilkins and with misleading press releases between March of 1998 and January of 1999, according to the SEC.

Hancock County Attorney Ronnie Artigues said the Kerns’ past business dealings won’t effect their projects on the coast “as long as they comply with local rules and regulations.”

“As long as the developer — any developer — is in compliance they can move forward,” Artigues said.

Kurlander, the Paradise Properties spokeswoman, said the SEC ordered the Kerns to pay fines and penalties not because of wrongdoing, but because the brothers were held liable for partnering with a man involved in fraudulent activities.

“The Kerns were never charged with any criminal activity. They were victims of a criminal,” Kurlander said. “The records clearly show that they were unaware of what this other gentleman was doing.”

However, an SEC report says the scheme “resulted in millions of dollars in losses to unwitting investors, and could not have occurred but for defendants’ active involvement and knowledge.”

Paradise Properties plans to build several luxury buildings in Mississippi that feature “alternative state-of-the-art building techniques for hurricane resistance” and will be “engineered to 180 mph windloads,” according to the company’s Web site.

Hancock County Board of Supervisors president Rocky Pullman said he is not concerned about the projects in his area.

“We sort of put that to rest a couple of days ago. We sat down with our commission. We sat down with one of the Kerns and we feel comfortable with what they’re doing here,” Pullman said.

Pullman said housing units are desperately needed on the coast, as are the taxes they bring in and he hopes the projects move forward without delay.