SEC CHARGES REAL ESTATE COMPANY OWNER WITH "OFFERING FRAUD" AND MISUSE OF INVESTOR FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged the owner of a Maryland-based real estate company with conducting an offering fraud and spending investor money on such personal expenses as his mortgage, country club dues, and season tickets to the Baltimore Ravens.  The agency also charged a former stockbroker for participating in the scheme.

The SEC alleges that Wilfred T. Azar III sold investors purported bonds in his company Empire Corporation, which he touted as a successful and profitable business with the resources to pay promised annual returns of 10 percent.  Along with Joseph A. Giordano, Azar and his company raised more than $7 million by making these and other false and misleading statements exaggerating the safety and low risk of the bonds.  However, Empire Corporation was functionally insolvent in reality, and despite saying investor funds would be used for various corporate purposes, Azar used the money to pay personal expenses as well as thousands of dollars in compensation to Giordano for participating in the fraud.  Giordano also steered a mutual fund that he managed into purchasing the bonds despite knowing the company was nearly broke.  The scheme collapsed when they were unable to recruit new investors to fund Empire Corporation’s operations and repay existing investors, who did not receive their promised returns and lost substantially all of their investments.

In a parallel case, the U.S. Attorney’s Office for the District of Maryland today announced criminal charges against Azar.

“As alleged in our complaint, investors in Empire Corporation were fraudulently sold worthless bonds after Azar and Giordano misled them entirely about the profitability of the company,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “Giordano also violated the trust of his customers by entangling them in what he knew was a bad investment.”

The SEC’s complaint filed in federal court in Baltimore charges Empire Corporation, Azar, and Giordano with 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.  The complaint also charges Giordano with violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 as well as Section 34(b) of the Investment Company Act of 1940.  The SEC seeks disgorgement plus prejudgment interest and penalties as well as permanent injunctions.  The agency is seeking an officer-and-director bar against Azar.

The SEC’s investigation, which is continuing, has been conducted by Michael F. McGraw and Dustin Ruta and supervised by Brendan P. McGlynn in the Philadelphia Regional Office.  The SEC’s litigation will be led by Nuriye C. Uygur.  The investigation followed an examination conducted by Andrea Dittert, Peter J. DiMartino, Kevin P. Logue, and Hope A. Santo of the Philadelphia office under the supervision of Frank A. Thomas.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Maryland.

ELDERLY INVESTORS TARGETED WITH OFFERING FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Gary C. Snisky with Offering Fraud

The Securities and Exchange Commission (Commission) filed a civil injunctive action on November 21, 2013, in the United States District Court for the District of Colorado against Gary C. Snisky of Longmont, Colorado. The Commission alleges that Snisky recruited and trained a sales force that raised at least $3.8 million from more than 40 elderly investors in Colorado and seven other states by promising guaranteed returns and safety of principal through a purported investment in government secured bonds.

The Commission's complaint alleges that Snisky and his sales force targeted mostly elderly, annuity-holding investors to purchase interests in Arete, LLC, a purportedly safe alternative to an annuity that also allowed for withdrawal of principal. Additionally, the complaint alleges that Snisky and his salespeople represented to investors that Arete provided a guaranteed annual return of 6% to 7%, a 10% bonus to compensate for any annuity withdrawal penalties, and that investor funds would be placed in bonds backed by the "full faith and credit" of the United States Government. These representations, however, were false, as Snisky misappropriated approximately $2.8 million in investor funds, mostly in cash withdrawals, and used these funds to pay commissions to his salespeople and for his personal use.

The Commission's complaint alleges that Snisky violated the antifraud provisions of the securities laws, Section 17(a) of the Securities Act of 1933 Section 10(b) of the Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and Sections 206(1), (2), and (4) of the Advisers Act of 1940 and Rule 206(4)-8 thereunder; violated the unregistered broker-dealer provisions of the securities laws in Section 15(a) of the Exchange Act; violated the security registration provisions of the securities laws in Sections 5(a) and (c) of the Securities Act; and aided and abetted Arete's failure to register as an investment company under Section 7(a) of the Investment Company Act of 1940. The Commission's complaint seeks a permanent injunction, disgorgement plus prejudgment interest, a civil monetary penalty, and other relief against Snisky.

The Commission's investigation was conducted in the Denver Regional Office by John C. Martin, Kerry M. Matticks and James A. Scoggins. Polly A. Atkinson will lead the Commission's litigation. The SEC acknowledges the assistance of the U.S. Attorney's Office, the Internal Revenue Service and the Federal Bureau of Investigation for the District of Colorado. The SEC's investigation is continuing.

SEC ANNOUNCES JURY VERDICT AGAINST ALL DEFENDANTS IN OFFERING FRAUD CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains Jury Verdict in Its Favor Against All Defendants On All Counts

The Securities and Exchange Commission announced today that, on October 10, 2013, a jury in the Eastern District of Tennessee, Knoxville Division, returned a verdict against AIC, Inc., Community Bankers Securities, LLC, and Nicholas D. Skaltsounis on all counts.  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 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.  

Prior to trial, the United States District Court for the Eastern District of Tennessee granted the Commission’s motion for partial summary judgment and found in favor of the Commission on its claims against AIC, Community Bankers Securities, and Skaltsounis under Sections 5(a) and 5(c) of the Securities Act of 1933.  The court also found in favor of the Commission on its claims against three relief defendants, Allied Beacon Partners, Inc. (f/k/a Waterford Investor Services, Inc.), Advent Securities, Inc., and Allied Beacon Wealth Management, LLC (f/k/a CBS Advisors, LLC), all of which were subsidiaries of AIC and all of which received proceeds from the Defendants’ illegal and fraudulent conduct.  In addition, prior to trial, two co-defendants, John B. Guyette, of Greeley, Colorado, and John R. Graves, formerly of Pensacola, Florida, and now incarcerated at the Federal Detention Center at Oakdale, Louisiana, both of whom were participants in the scheme, entered into settlement agreements with the Commission.  A final judgment ordering injunctive relief, disgorgement of ill-gotten gains, and civil penalties was entered against Guyette, and a final judgment ordering injunctive relief and civil penalties was entered against Graves.

At the conclusion of the almost three-week trial, the jury returned a verdict for the Commission and against Defendants AIC, Community Bankers Securities, and Skaltsounis on all of the remaining claims.  In particular, the jury found in favor of the Commission on its claims under Section 17(a) of the Securities Act and under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  In addition, the jury found in favor of the Commission on its claims against Defendants AIC and Community Bankers Securities under Section 20(a) of the Exchange Act and against Skaltsounis under Section 20(e) of the Exchange Act.

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 3000: WHISTLEBLOWER TIPS TO THE U.S. SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C., Nov. 15, 2012 — Over the past year, the Securities and Exchange Commission received more than 3,000 whistleblower tips from all 50 states and from 49 countries, according to the agency's 2012 Annual Report on the Dodd-Frank Whistleblower Program released today.

The report, which is required by the Dodd Frank Wall Street Reform and Consumer Protection Act, summarizes the activities of the SEC's Office of the Whistleblower.

"In just its first year, the whistleblower program already has proven to be a valuable tool in helping us ferret out financial fraud," said SEC Chairman Mary L. Schapiro. "When insiders provide us with high-quality road maps of fraudulent wrongdoing, it reduces the length of time we spend investigating and saves the agency substantial resources."

Among other things, the report notes:

The SEC made its first award under the new program to a whistleblower who helped the SEC stop an ongoing multi-million dollar fraud. The whistleblower received an award of 30 percent of the amount collected in the SEC's enforcement action, which is the maximum percentage payout allowed by law.
The SEC received 3,001 tips, complaints, and referrals from whistleblowers from individuals in all 50 states, the District of Columbia, and the U.S. territory of Puerto Rico as well as 49 countries outside of the United States.
The most common complaints related to corporate disclosures and financials (18.2 percent), offering fraud (15.5 percent), and manipulation (15.2 percent).
There were 143 enforcement judgments and orders issued during fiscal year 2012 that potentially qualify as eligible for a whistleblower award. The Office of the Whistleblower provided the public with notice of these actions because they involved sanctions exceeding the statutory threshold of more than $1 million.
Under the Dodd-Frank Act, the SEC can pay financial awards to whistleblowers who provide high-quality, original information about a possible securities law violation that leads to a successful SEC enforcement action with more than $1 million in monetary sanctions. The SEC is authorized to pay the whistleblower 10 to 30 percent of the sanctions collected. Awards are paid from the Investor Protection Fund established by Congress to fund payments.

Information on eligibility requirements, directions on how to submit a tip or complaint, instructions on how to apply for an award, and answers to frequently asked questions are available at: www.sec.gov/whistleblower.