The SEC prevailed in court this week, securing two favorable jury verdicts. Both courtroom victories centered on offering fund charges. SEC v. True North Finance Corporation, Civil Action No. 10-3995 (D. Minn.); SEC v. AIC, Inc., Civil Action No. 3:11-cv-00176 (E.D. Tenn.).
True North is an action against the company, Transactional Finance Fund Management LLC, attorney Todd Duckson who controlled the Management company, Michael Bozora, Timothy Redpath, Owen Williams and Capital Solutions Monthly Income Fund. The Fund began operations in 2004, according to the complaint. In May 2008, its sole borrower defaulted and the Fund foreclosed on the borrower’s real estate projects after which the defendants took over its management. Mr. Duckson managed the Fund while Messrs. Bozora and Redpath continued to raise money from investors who were not told of the default and foreclosure. The defendants raised over $21 million from investors in a series of unregistered offerings after the default and at a time when the Fund had no meaningful income, according to the complaint. Investors were solicited using a series of misrepresentations.
True North, which merged with the Fund in 2009, and its CFO, Owen Williams, were alleged to have engaged in accounting fraud. Specifically, in 2008 and 2009 Mr. Williams caused True North to overstate its revenues by as much as 99%. The original complaint alleged violations of the antifraud provisions of the federal securities laws.
The jury returned a verdict this week in favor of the Commission following a five week trial. The jury concluded that: Mr. Duckson and the Fund violated Securities Act Section 17(a) and Exchange Act Section 10(b); that Mr. Duckson aided and abetted the Fund’s violation of Exchange Act Section 10(b); and that Transactional Finance violated Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 22853 (Oct. 23, 2013). Previously, the other defendants settled with the Commission.
AIC is an action against the company, 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. The 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 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). Mrs. Guyette and Graves settled with the Commission prior to trial. See Lit. Rel. No. 22850 (Oct. 22, 2013).
For more commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.
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