WASHINGTON — The Securities and Exchange Commission has sued a Georgia attorney and his client for securities fraud over their failure to disclose the client’s criminal indictment in bond documents for $2.96 million of industrial redevelopment revenue bonds sold by Raleigh County, W. Va., in 2006 and 2007 that are now in default.

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 Detling 2d, 35, an attorney who lives in Marietta, Ga., stemming from fraudulent misrepresentations and omissions made during the transaction.

“Borrowers’ counsel play an important role in many municipal securities offerings, and their opinions are heavily relied upon by other participants to the transaction,” said Mark Zehner, deputy director of the enforcement division’s municipal securities and public pensions unit. “Detling’s actions in this matter resulted in a deeply flawed disclosure document, and therefore harmed investors.”

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 bank fraud and money laundering, according to the SEC.

Detling knew about Aiken’s indictment because he represented Aiken in the criminal proceeding and, when the bonds were issued, was in the process of negotiating a plea agreement for him that included a prison term, 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 Inc., 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 finacial services firm, which the SEC did not identify. According to the official statement, posted on the Municipal Securities Rulemaking Board’s EMMA website, the underwriter was Atlanta-based J.P. Turner & Co.

Representatives of J.P. Turner did not respond to a request for comment.

The $2 million of tax-exempt Series A bonds and the $360,000 of taxable Series B bonds were sold in October 2006. The $600,000 of taxable Series C bonds were sold in 2007. But all of the bonds were issued under the same official statement.

Aiken signed an agreement pleading guilty to a felony count of concealment 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, who represented Aiken and Aiken Continental, was “severely reckless” in his conduct, including his failure to correct the omissions in the official statement, the SEC said in its complaint against him, which was filed in the U.S. District Court for the Northern District of Georgia.

Specifically, Detling generated a report from a Lexis Nexis database for the underwriter in May 2006, including background information about Aiken, but he did not tell the underwriter about the criminal records.

As “borrower’s counsel,” Detling reviewed the offering documents and did not disclose they omitted information about Aiken’s arrest and indictment.

Before the closing, Detling also signed an opinion letter saying he knew of no action or proceeding that would materially or adversely affect Aiken Continental’s ability to perform its obligations. At the time, Detling was negotiating Aiken’s plea agreement.

“In light of this, Detling was severely reckless in representing that there was no action or proceeding pending that would affect Aiken Continental’s ability to perform its obligations or that would materially and adversely affect its financial condition, among other things,” the SEC said.

Detling could not be reached for comment through his former firm, which did not have contact information for him.

In May, the Georgia Supreme Court reprimanded him for his conduct, noting he had only been a member of the bar since 2004.

Although the court could have disbarred Detling, it found “in mitigation” that he: was “inexperienced in the practice of law at the time in question;” had shown remorse; had no prior disciplinary record; and had “no dishonest motive.”

The opinion also said he was “merely negligent” in failing to work with more experienced counsel, and his actions caused “no actual injury.”

The SEC’s complaint against Aiken, which was filed in the U.S. District Court for the Southern District of West Virginia, said he worked in sales at Continental Casket at the time of his indictment.

Aiken made a failed bid to acquire the casket maker in late 2005, resumed negotiations in early 2006, and in April 2006 agreed to acquire the company for an initial cash payment of $1.5 million and $700,000 of receivables to be paid upon collection.

But he lacked the personal resources to acquire Continental and could not secure a bank loan. A financial services consultant, which the SEC does not identify, suggested a conduit offering.

The consultant enlisted two business associates, whom the SEC identifies as Associates A and B, who had experience with IDR bond transactions. Associate B was a muni investment banker and bond salesman affiliated with the underwriter, the SEC said.

During due diligence, Associate A asked Aiken if he had ever been arrested. Aiken said he had been arrested for a traffic offense, according to the commission.

In August 2006, Aiken and Detling asked the Raleigh County Commission to authorize approximately $3 million in conduit IDR bonds to finance Aiken’s acquisition of Continental Casket. Aiken did not tell the commission about his arrest and indictment.

On Sept. 9, 2006, the commission approved the issuance $3 million in IDR bonds to finance the deal.

The phone number for Aiken Continental has been disconnected, as has a phone number for Continental Casket.

Directory assistance has no listing for Aiken.

The bonds are in default and the entire principal amount and accrued interest on the outstanding bonds is due, according to the SEC.

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