ATTORNEY CHARGED BY SEC WITH MUNICIPAL BOND FRAUD

The following excerpt is from the Sec website:

“The Securities and Exchange Commission today announced its filing of a civil injunctive action alleging fraud in the offer and sale of municipal bonds by Chalmer E. Detling, II, an attorney based in Atlanta.

Filed December 29, 2011 in the U.S. District Court for the Northern District of Georgia, the SEC’s complaint alleges that Detling made material misrepresentations and omissions in connection with the 2006 offer and sale of $2.96 million of industrial development revenue bonds. Raleigh County, West Virginia issued the bonds in October 2006 to facilitate Aiken Continental, L.L.C.’s acquisition of Continental Casket, Inc., a casket manufacturing facility located within its jurisdiction. In 2006, Detling served as counsel to Aiken Continental and its sole principal, Charles A. Aiken, for purposes of the acquisition, and simultaneously represented Aiken in an unrelated federal criminal proceeding.

According to the SEC’s complaint, Detling failed to disclose to key participants to the transaction, including the issuer, bond counsel, the underwriter, and the bondholders’ trustee, that Aiken had been indicted for financial fraud in late 2005. Detling also failed to disclose that he was in the process of negotiating a plea agreement for Aiken just before the bonds were issued in October 2006. In addition, Detling failed to disclose material information about a $200,000 loan to Aiken and Aiken Continental from a company that was partially owned by Detling, in order to facilitate the closing of the transaction. This loan required a $100,000 interest payment, and gave the lender a twenty percent equity interest in Aiken Continental if the loan plus interest was not fully repaid within six months. Detling’s failure to disclose details about Aiken’s criminal proceeding and the loan rendered certain statements in the bonds’ Official Statement materially misleading. By reviewing the Official Statement, which was distributed to investors in connection with the transaction, and failing to correct the misstatements and omissions therein, the SEC’s complaint alleges that Detling aided and abetted the violations of Aiken and Aiken Continental.

In addition, the SEC’s complaint alleges that Detling signed an opinion letter as counsel to Aiken Continental in which he made false and misleading representations. Specifically, Detling represented that no proceeding at law was pending which would adversely affect Aiken Continental, and that the Official Statement did not contain any untrue statement of material fact or omit any material facts. The SEC’s complaint alleges that these representations were materially false and misleading due to Detling’s failures to disclose material information about Aiken’s criminal proceeding and the loan.
According to the SEC’s complaint, Aiken served 90 days in federal prison and 90 days of home detention in Georgia following the close of the transaction. Aiken’s six-month absence negatively affected the operations of the casket company and the Raleigh County bonds are now in default, with the entire principal amount and accrued interest due.
Without admitting or denying the allegations in the complaint, Detling agreed to settle the SEC’s charges by consenting to the entry of a final judgment, which will permanently enjoin him from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and from aiding and abetting violations of Exchange Act Section 10(b) and Rule 10b-5. As part of the settlement, Detling also agreed to pay $10,000 in disgorgement, $3,052 in prejudgment interest, and a $25,000 civil penalty, all of which will be distributed on a pro rata basis to Raleigh County bondholders. The SEC’s settlement with Detling is subject to court approval. In addition, pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice, Detling consented to the entry of an administrative order suspending him from appearing or practicing before the Commission as an attorney, with the right to reapply after five years.”