U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23062 / August 8, 2014
Securities and Exchange Commission v. AIC, Inc., et al.,, Civil Action No. 3:11-cv-00176 (E.D. Tenn.)
SEC Obtains Final Judgments Against All Defendants and Relief Defendants, Securing Permanent Injunctions and Nearly $70 Million in Disgorgement, Prejudgment Interest, and Civil Penalties
The U.S. District Court for the Eastern District of Tennessee issued a memorandum opinion and final judgments on August 1, 2014, as to Defendants AIC, Inc., Community Bankers Securities, LLC, and Nicholas D. Skaltsounis and Relief Defendants Allied Beacon Partners, Inc. (f/k/a Waterford Investor Services, Inc.), Advent Securities, Inc., and CL Wealth Management, LLC (f/k/a Allied Beacon Wealth Management, LLC and CBS Advisors, LLC). These final judgments impose on Defendants AIC, Community Bankers Securities, and Skaltsounis permanent injunctive relief, disgorgement, prejudgment interest, and third tier civil penalties. Also, orders of disgorgement and prejudgment interest were entered against the Relief Defendants. Altogether, nearly $70 million in disgorgement, prejudgment interest, and civil penalties was imposed on the Defendants and the Relief Defendants.
Defendant AIC was a financial services holding company for three broker-dealers and an investment adviser based in Richmond, Virginia. Defendant Community Bankers Securities was one of the subsidiary broker-dealers. Defendant Skaltsounis was the founder, President, and Chief Executive Officer of AIC and Community Bankers Securities. The Commission's complaint, which was filed in April 2011, alleged that Skaltsounis devised and orchestrated an offering fraud by offering and selling millions of dollars of AIC promissory notes and stock. The Commission's complaint alleged that, from at least January 2006 through November 2009, Skaltsounis, directly and through registered representatives associated with Community Bankers Securities, offered and sold AIC promissory notes and stock to numerous investors across multiple states, many of whom were elderly, unsophisticated brokerage customers of CB Securities. The Defendants misrepresented and omitted material information to investors relating to, among other things, the safety and risk associated with the investments, the rates of return on the investments, and how AIC would use the proceeds of the investments. AIC and its subsidiaries were never profitable. AIC earned de minimis revenue, and its subsidiaries did not earn sufficient revenue to meet their expenses. The Defendants used money raised from new investors to pay back principal and returns to existing investors.
On October 10, 2013, a jury in Knoxville, Tennessee, returned a verdict against Defendants AIC, Community Bankers Securities, and Skaltsounis, after a nearly three-week-long trial.
In the final judgments issued on August 1, 2014, the court ordered significant relief in favor of the Commission. The court imposed against Defendants AIC, Community Bankers Securities, and Skaltsounis permanent injunctions against future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In addition, the court imposed substantial monetary judgments, in the form of disgorgement, prejudgment interest, and third tier civil penalties, as follows:
In addition, the court ordered that Relief Defendants Allied Beacon Partners, Advent Securities, and CL Wealth Management pay disgorgement and prejudgment interest in the amounts of $619,881.92, $591,408.64, and $67,244.02, respectively, representing their ill-gotten proceeds from the Defendants' fraud.
The trial team from the Commission's Philadelphia Regional Office consisted of trial attorneys Michael J. Rinaldi, John V. Donnelly III, G. Jeffrey Boujoukos, and Scott A. Thompson and trial paralegal Nichelle Pridgen. The case was referred by the Office's examination staff, in particular examiners Wilfred M. Campbell and David A. Spencer, who were supervised by Diane J. Hagy.