WASHINGTON – The Securities and Exchange Commission has sued a Georgia attorney and his client for securities fraud for failing to disclose the client’s criminal indictment in offering documents related to the 2006 sale of $2.96 million of industrial redevelopment revenue bonds by Raleigh County, W. Va.
The SEC’s complaints, filed in federal courts in Georgia and West Virginia late last week but released Tuesday by the commission, seek to recover penalties and ill-gotten gains from Charles Aiken, 38, a Columbus, Ga. resident and Chalmer E. Detling 3d, 35, an attorney who lives in Marietta, Ga, stemming from fraudulent misrepresentations and omissions during the transaction.
Specifically, in the months leading up to the bonds’ issuance, Aiken and Detling failed to disclose to key participants — including the issuer, the underwriter, underwriter’s counsel and the trustee for the bondholders — material information about Aiken’s 2005 criminal indictment for financial fraud, according to the SEC’s complaints.
Detling knew about Aiken’s indictment because he represented Aiken in the criminal proceeding and was in the process of negotiating a plea agreement for him that included a prison term when the bonds were issued, the SEC said.
In October 2006, the county issued the bonds in three series to facilitate Aiken’s acquisition, through his company Aiken Continental LLC, of Continental Casket Co., a casket manufacturer located in the county.
Aiken formed Aiken Continental, the conduit borrower, in August 2006 for the sole purpose of acquiring the casket company’s assets.
The bonds were underwritten and sold to investors by an Atlanta-based financial services firm, which the SEC did not identify. The sales occurred in October 2006 and the fall of 2007.
Aiken signed an agreement pleading guilty to a felony count of financial fraud shortly after the bonds were issued. He was sentenced to 90 days in prison in April 2007 and ordered to pay $103,000 in restitution.
Material information about his indictment was not disclosed in the bonds’ official statement, according to the SEC.
Detling was “severely reckless” by failing to correct the omissions in the official statement, the SEC said.
The bonds are now in default and the entire principal amount and accrued interest on all of the outstanding bonds is due, according to the agency.
