More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
The Securities and Exchange Commission announced Friday that it has obtained a final judgment in federal court in Tennessee requiring a Richmond, Va.-based financial services holding company, a subsidiary brokerage firm, and their CEO to pay nearly $70 million as the outcome of a trial that found them liable for fraud.
The SEC’s complaint filed against AIC Inc., Community Bankers Securities LLC, and Nicholas D. Skaltsounis alleged that they conducted an offering fraud while selling AIC promissory notes and stock to numerous investors across multiple states, many of whom were elderly or unsophisticated brokerage customers.
“They misrepresented and omitted material information about the investments when pitching them to investors, including the safety and risk associated with the investments, the rates of return, and how the proceeds would be used by AIC,” the SEC states.
In reality, the SEC said that AIC and its subsidiaries were never profitable, and Skaltsounis and the companies used money raised from new investors to pay back principal and returns to existing investors.
“The very significant penalties in this case reinforce the message that we’re prepared to aggressively pursue companies and individuals, and when necessary take them to trial, in order to hold them accountable when they aren’t truthful with investors,” said Andrew Ceresney, director of the SEC’s Division of Enforcement, in a statement.
A jury returned a verdict in the SEC’s favor in October after a nearly three-week trial in the Knoxville division of U.S. District Court for the Eastern District of Tennessee.
Chief Judge Thomas A. Varlan issued the final judgments on Friday that include the following monetary sanctions:
AIC: disgorgement of $6,647,540, prejudgment interest of $969,262.10, and a penalty of $27.95 million for a total of $35,566,802.10.
Community Bankers Securities: disgorgement of $2,830,946 plus prejudgment interest of $412,773.53 and a penalty of $27.95 million for a total of $31,193,719.53.
Skaltsounis: disgorgement of $948,389.13 plus prejudgment interest of $138,282.35 and a penalty of $1.505 million for a total of $2,591,671.48.
The court also imposed permanent injunctions against AIC, Community Bankers Securities and Skaltsounis for future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
Check out SEC Enforcement: Smith & Wesson Fined $2 Million for Bribery on ThinkAdvisor.