Securities and Exchange Commission v. Airborne Wireless Network

Background

The Securities and Exchange Commission brought this enforcement action against Airborne Wireless Network, Kalistratos Kabilafkas, Timoleon Kabilafkas, Jack Edward Daniels, and other individuals, along with the Tim Kabilafkas Revocable Trust and the Magdaline Kabilafkas 1989 Trust as relief defendants. The SEC alleged that Kabilafkas and related parties took undisclosed control of Airborne, used promotional campaigns to inflate its stock price, and sold shares into the inflated market. The court had previously granted summary judgment for the SEC, finding no genuine dispute that the remaining defendants violated federal securities laws.

The SEC then moved for final judgment, requesting permanent injunctions, penny-stock bars, an officer-and-director bar against Daniels, disgorgement, prejudgment interest, and civil penalties. The court’s decision concerns the final remedies for the parties other than Daniels and whether the case should proceed against Daniels while a related criminal case is pending.

Rulings for Kabilafkas, Airborne, Timoleon Kabilafkas, and the Trusts

The court granted the SEC’s motion for final judgment as to Kalistratos Kabilafkas, Airborne Wireless Network, Timoleon Kabilafkas, Timoleon Kabilafkas in his capacity as trustee of the Tim Kabilafkas Revocable Trust, and Magdaline Kabilafkas in her capacity as trustee of the Magdaline Kabilafkas 1989 Trust.

The court permanently enjoined Kalistratos Kabilafkas, Airborne Wireless Network, and Timoleon Kabilafkas from violating Section 10(b) of the Securities Exchange Act, Rule 10b-5, and Section 17(a) of the Securities Act. It also permanently barred Kalistratos Kabilafkas and Timoleon Kabilafkas from participating in penny-stock offerings.

The court ordered the following monetary relief:

- Kalistratos Kabilafkas: $44,007,530 in disgorgement, $12,438,514 in prejudgment interest, and $21,239,053 in civil penalties. He was held jointly and severally liable for portions of the disgorgement and interest with Airborne Wireless Network, Timoleon Kabilafkas individually, the Tim Kabilafkas Revocable Trust, and the Magdaline Kabilafkas 1989 Trust. The court also ordered him to disgorge $21,238,796 in trading proceeds. - Airborne Wireless Network: $22,768,734 in disgorgement, $5,488,855 in prejudgment interest, and $1,152,314 in civil penalties. Airborne was held jointly and severally liable for portions of the disgorgement and interest with Kalistratos Kabilafkas and the Tim Kabilafkas Revocable Trust. - Timoleon Kabilafkas individually: $13,720,303 in disgorgement, $4,489,438 in prejudgment interest, and $460,928 in civil penalties. He was held jointly and severally liable for portions of the disgorgement and interest with Kalistratos Kabilafkas and the Tim Kabilafkas Revocable Trust. - Tim Kabilafkas Revocable Trust: $11,031,144 in disgorgement and $3,609,515 in prejudgment interest. The trust was held jointly and severally liable with Kalistratos Kabilafkas and Timoleon Kabilafkas for the full amount, and with Airborne for $103,320. - Magdaline Kabilafkas 1989 Trust: $265,000 in disgorgement and $86,711 in civil penalties. The order states that the trust was jointly and severally liable with Kalistratos Kabilafkas for the full amount of the disgorgement and related interest.

The court approved the SEC’s methodology for calculating disgorgement and prejudgment interest. It found that the defendants’ conduct involved deliberate misrepresentations, a high level of knowledge of wrongdoing, a scheme lasting several years, and a likelihood of future violations. It also found that investor losses totaled approximately $51,019,684.

Jack Edward Daniels

The court reserved judgment on the SEC’s motion as to Jack Edward Daniels, including the requested injunctions, penny-stock bar, officer-and-director bar, and $230,464 civil penalty. The court stayed the action as to Daniels until the related criminal proceeding, United States v. Kabilafkas, No. 24-CR-000270 (C.D. Cal.), concludes. The court found that the civil and criminal cases involve identical issues and that Daniels had a significant interest in avoiding self-incrimination.

Disposition

The court’s decision and order is titled “Decision and Order Granting in Part Plaintiff’s Motion for Final Judgment.” It granted the motion as to the specified defendants and relief defendants, ordered the stated injunctions and monetary awards, reserved judgment on Daniels, and stayed the action as to him. The Clerk of Court was directed to remove the pending motion from the docket.