The SEC obtained a judgment for nearly $70 million in a fraud action based on a jury verdict obtained last fall. SEC v. AIC, Inc., Civil Action No. 3:11-cv-00176 (E.D. Tenn.). The action named as defendants the AIC, Community Bankers Securities, LLC, Nicholas Skaltsounis, John Guyettte and John Graves.

The complaint centered on claims that over a three year period beginning in 2006 Mr. Skaltsounis and others sold promissory notes and stock to investors based on misrepresentations regarding the securities and the use of the proceeds, among other things. ACI and its subsidiaries were never profitable, according to the SEC, and Mr. Skaltscounis and the entities used money raised from new investors to repay back principal and returns to existing investors.

In October 2013 a jury returned a verdict after a three week trial, finding in favor of the Commission on all remaining counts. Specifically, the jury returned a verdict against AIC, Community Bankers and Mr. Skaltsounis finding violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The jury also found in favor of the Commission and against the two entity defendants on Exchange Act Section 20(a) claims and against Mr. Skaltsounis on a Section 20(e) claim.

Prior to trial the Court granted summary judgment in favor of the Commission on its claims against AIC, Community Bankers and Mr. Skaltsounis based on Securities Act Sections 5(a) and 5(c).

Last week the Commission announced the ruling of the Court on remedies. Permanent injunctions prohibiting future violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) were issued as to AIC, Community Bankers Securities and Mr. Skaltsounis. In addition, AIC was order to pay disgorgement of $6,647,540, prejudgment interest and a penalty of $27.95 million. Community Bankers Securities was directed to pay disgorgement of $2,830,946, prejudgment interest and a penalty of $27.95 million. Mr. Skaltsounis was ordered to pay disgorgement of $948,389.13, prejudgment interest and a penalty of $1.505 million.

Mrs. Guyette and Graves settled with the Commission prior to trial. See Lit. Rel. No. 22850 (Oct. 22, 2013).