Securities and Exchange Commission v. Airborne Wireless Network et al

Filing 280

DECISION AND ORDER GRANTING IN PART PLAINTIFF'S MOTION FOR FINAL JUDGMENT granting in part and denying in part 262 Motion for Judgment. For the foregoing reasons, the SEC's Motion for Final Judgment is GRANTED as it pertains to Defendan ts Kalistratos Kabilafkas, Airborne Wireless Network, and Timoleon Kabilafkas, as well as Relief Defendants Timoleon Kabilafkas in his capacity as trustee of the Tim Kabilafkas Revocable Trust Dated July 24, 2001, and Magdaline Kabilafkas, in her capacity as trustee of the Magdaline Kabilafkas 1989 Trust Dated May 27, 1989. The Court enters a permanent injunction enjoining and restraining Defendants Kalistratos Kabilafkas, Airborne Wireless Network, and Timoleon Kabilafkas from violating, o r committing future violations of, Section 1 0(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act. The Court enters a permanent injunction barring Defendants Kalistratos Kabilafkas, Airborne Wireless Network, and Timoleon Kabilafkas from participating in an offering of penny stocks, including engaging in activities with a broker, dealer or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny s tock, pursuant to Section 21(d)(6) of the Exchange Act [15 U.S.C. § 78u(d)(6) and Section 20(g)(l) of the Securities Act [15 U.S.C. § 78u(d)(2)]. Judgment shall be entered against Kalistratos Kabilafkas in the amount of $44,007,530 in disgorgement, $12,438,514 in pre-judgment interest, and $21,239,053 in civil penalties. Joint and several liability shall be imposed on the disgorgement and pre-judgment interest with: (1) Airborne Wireless Network for $22,768,73 4; (2) Timoleon Kabilafkas in his individual capacity for $13,720,303; (3) Tim Kabilafkas in his capacity as trustee to the TKRT for $11,031,144; and (4) Magdaline Kabilafkas in her capacity as the trustee to the MKRT for $265,000. Ju dgment shall be entered against Airborne Wireless Network in the amount of $22,768,734 in disgorgement, $5,488,855 in pre-judgment interest, and $1,152,314 in civil penalties. Joint and several liability shall be imposed on the disgor gement and pre-judgment interest with: (1) Kalistratos Kabilafkas for the full amount; and (2) Tim Kabilafkas in his capacity as trustee to the TKRT for $1 03,320. Judgment shall be entered against Timoleon Kabilafkas in his individual capacit y in the amount of $13,720,303 in disgorgement, $4,489,438 in pre-judgment interest, and $460,928 in civil penalties. Joint and several liability shall be imposed on the disgorgement and pre-judgment interest with (1) Kalistratos Ka bilafkas for the full amount; and (2) Timoleon Kabilafkas in his capacity as the trustee to the TKRT for $11,031,144. Judgment shall be entered against Relief Defendant Timoleon Kabilafkas in his capacity as the trustee to the TKRT in the amou nt of $11,031,144 in disgorgement and $3,609,515 in prejudgment interest. Joint and several liability shall be imposed on the disgorgement and pre-judgment interest with: (1) Kalistratos Kabilafkas and Timoleon Kabilafkas for the full amo unt; and (2) Airborne Wireless Network for $103,320. Judgment shall be entered against Relief Defendant Magdaline Kabilafkas in her capacity as the trustee to the MKRT in the amount of $265,000 in disgorgement and $86,711 in civil pe nalties. Joint and several liability shall be imposed on the disgorgement and pre-judgment interest with Kalistratos Kabilafkas for the full amount. The Court reserves judgment on the SEC's Motion for Final Judgment and this action is STAYED a s it pertains to Defendant Jack Edward Daniels until the conclusion of the parallel criminal action United States v. Kabilajkas, 24-CR-000270 (C.D. Cal.). The Clerk of Court is respectfully directed to remove the open motion at Dkt. No. 262. This is the opinion of the court. It is a written decision. (Signed by Judge Colleen McMahon on 11/26/24) (yv)

---===-USDC SD:t\T\
DOCUMENT
ELECTRONIC i.,LYFIT rr

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
SECURITIES AND EXCHANGE
COMMISSION,

I

DOC #:
i-:-t- I
DATEFILED:_U~~p\{

'============-=------,

Plaintiff,
-againstAIRBORNE WIRELESS NETWORK, et al.,
Defendants,

No. 21 Civ. 01772 (CM)
-andTIM KABILAFKAS, in his capacity as trustee of the
TIM KABILAFKAS REVOCABLE TRUST
DATED JULY 24, 2001, AND MAGDALINE
KABILAFKAS , in her capacity as trustee of the
MAGDALINE KABILAFKAS 1989 TRUST
DATED MAY 27, 1989,
Relief Defendants.

DECISION AND ORDER GRANTING IN PART PLAINTIFF'S MOTION FOR FINAL
JUDGMENT
McMahon, J.:
This is a Securities and Exchange Commission ("SEC") enforcement action brought
against Kalistratos Kabila:tkas (referred to herein as Kabila:tkas) 1 and related parties, including
his father Timoleon ("Tim") Kabilafkas, for orchestrating and carrying out a scheme to take
undisclosed control of a public company and profit by engaging in a "pump and dump." The
SEC alleges that Kabilafkas acquired control of Airborne Wireless Network ("Airborne,"
formerly known as Ample-Tee, Inc.) and gave millions of Airborne shares to his associates and

1

Other members of the extended Kabilafkas (or Kabylafkas) family will be referred to by their first names; all
references to "Kabilafkas" mean the principal defendant in this case, Kalistratos Kabilafkas.

1

nominees. Kabilafkas then caused the company to purchase a patent relating to wireless internet
technology in order to give Airborne a veneer of actually doing business in a popular startup
industry. Between 2016 and 2018, Kabilafkas orchestrated the expenditure of massive amounts
of corporate funds on promotional schemes designed to "pump" the price of the stock. During
these campaigns, Kabilafkas, his nominees, and associates proceeded to "dump" their shares into
the artificially inflated market.
Throughout the course of the scheme, which lasted from August 2015 until May 2018,
Kabilafkas and his associates submitted documents containing false statements to Airborne' s
transfer agent, brokers, and investors. Moreover, Kabilafkas and his associates caused Airborne
to file numerous false reports with the SEC -

reports that failed to disclose who truly owned

stock in and controlled Airborne and that made misrepresentations about certain transactions in
which Airborne engaged.
In March 2021 , the Commission sued Airborne Wireless Network, Kalistratos
Kabilafkas, Timoleon Kabilafkas, Jack Edward Daniels, and four other individuals, as well as
Relief Defendants the Tim Kabilafkas Revocable Trust ("TKRT") and the Magdaline Kabilafkas
Revocable Trust ("MKRT"). Dkt. No. 1 ,r,r 17- 27.
On September 23, 2023, the Court granted the SEC' s motion for summary judgment,
finding that there was no genuine issue of fact that Defendants had violated the antifraud
provisions of the federal securities laws. See Dkt. No. 238.
On March 15, 2024, the SEC moved for final judgment against Defendants Kalistratos
Kabilafkas, Airborne Wireless Network, Timoleon Kabilafkas, Jack Edward Daniels, and Relief
Defendants Timoleon Kabilafkas, in his capacity as trustee of the Tim Kabilafkas Revocable

2

Trust Dated July 24, 2001 , and Magdaline Kabilafkas, in her capacity as trustee of the Magdaline
Kabilafkas 1989 Trust Dated May 27, 1989. The Commission asked the Court to enter an order:
•

Permanently restraining and enjoining Defendants from violating, or committing future
violations of, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act")
[15 U. S.C. 78j(b)] and Rule l0b-5 thereunder [17 C.F.R. 240.l0b-5] and Section 17(a)
of the Securities Act of 1933 ("Securities Act") [15 U.S.C. 77q(a)];

•

Permanently barring Kabilafkas, Tim Kabilafkas, and Daniels from participating in an
offering of penny stocks, including engaging in activities with a broker, dealer, or issuer
for purposes of issuing, trading, or inducing or attempting to induce the purchase or
sale of any penny stock, pursuant to Section 21(d)(6) of the Exchange Act [15 U.S.C.
§ 78u(d)(6)] and Section 20(g)(l) of the Securities Act [15 U.S.C. § 77t(g)]2;

•

Permanently barring Daniels from acting as an officer or director of any issuer that has
a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C.
§ 781] or that is required to file reports under Section 15(d) of the Exchange Act [15
U.S. C. § 78o(d)] pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 78t(e)]
and Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)]; and

•

Imposing disgorgement and pre-judgment interest thereon, and civil monetary penalties
as set forth in the chart below. The disgorgement and pre-judgment interest amounts in
the chart provided by the SEC include amounts that the SEC proposed each party
should be held jointly and severally liable for with other Defendants and/or Relief
Defendants.

Party

Disgorgement

Kabilafkas

$44,007,530 3

PreJudgment
Interest
("PJI")
$12,438,514

Penalty

Joint and Several
Disgorgement & PJI

$21 ,239,053

Yes, with:
• Airborne for $22,768,734
• Tim Kabilafkas m his
individual capacity for
$13,720,303
Tim
Kabilafkas, m his
•
capacity as trustee to the
TKRT for $11,031 ,144,
and
• Magdaline Kabilafkas, in
her capacity as the trustee

2

The SEC did not seek a separate injunction for violations of Section 20(a) of the Exchange Act against Kabilafkas
or a penny stock bar against Airborne.
3
In the SEC's Memorandum, Dkt. No. 263, it recommended Kalistratos Kabilafkas pay disgorgement in the amount
of$44,007,787. In Reply, it reduced that amount by $257, Dkt. No. 279, p. 9, which equals $44,007,530.

3

Party

Penalty

PreJudgment
Interest
("PJI'')

Disgorgement

Joint and Several
Disgorgement & PJI

to the MKRT for $265,000
Yes, with:
• Kabilafkas for the full
amount, and
• Tim Kabilafkas, m his
capacity as the trustee to
the TKRT for $103 ,320
Yes, with:
• Kabilafkas for the full
amount, and
• himself in his capacity as
the trustee to the TKRT for
$11,031 ,144
NIA

Airborne

$22,768,734

$5,488,855

$1,152,314

Tim
Kabilafkas

$13,720,303

$4,489,438

$460,928

Jack
Daniels
TKRT

0

0

$230,464

$11,031 ,144

$3,609,515

0

Yes, with:
• Kabilafkas and Tim
Kabilafkas for the full
amount, and
• Airborne for $103,320

MKRT

$265,000

$86,711

0

Yes, with Kabilafkas for the
full amount

Dk:t. No. 263.

For the reasons set forth below, the SEC's Motion for Final Judgment is GRANTED as it
pertains to Defendants Kalistratos Kabilafkas, Airborne Wireless Network, Timoleon Kabilafkas,
and Relief Defendants Timoleon Kabilafkas, in his capacity as trustee of the Tim Kabilafkas
Revocable Trust Dated July 24, 2001, and Magdaline Kabilafkas, in her capacity as trustee of the
Magdaline Kabilafkas 1989 Trust Dated May 27, 1989.

4

The Court enters a permanent injunction enjoining and restraining Defendants Kalistratos
Kabilafkas, Airborne Wireless Network, and Timoleon Kabilafkas from violating, or committing
future violations of, Section lO(b) of the Exchange Act and Rule l0b-5 thereunder, and Section
17(a) of the Securities Act.
The Court enters a permanent injunction barring Defendants Kalistratos Kabilafkas and
Timoleon Kabilafkas from participating in an offering of penny stocks, including engaging in
activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or
attempting to induce the purchase or sale of any penny stock, pursuant to Section 21 (d)( 6) of the
Exchange Act [15 U.S.C. § 78u(d)(6)] and Section 20(g)(l) of the Securities Act [15 U.S.C . §
78u(d)(2)].
Judgment shall be entered against Kalistratos Kabilafkas in the amount of $44,007,530 in
disgorgement, $12,438,514 in pre-judgment interest, and $21 ,239,053 in civil penalties. Joint and
several liability shall be imposed on the disgorgement and pre-judgment interest with: (1)
Airborne Wireless Network for $22,768,734; (2) Timoleon Kabilafkas in his individual capacity
for $13 ,720,303 ; (3) Tim Kabilafkas in his capacity as trustee to the TKRT for $11 ,031 ,144; and
(4) Magdaline Kabilafkas in her capacity as the trustee to the MKRT for $265 ,000.
Judgment shall be entered against Airborne Wireless Network in the amount of
$22,768,734 in disgorgement, $5,488,855 in pre-judgment interest, and $1 ,152,314 in civil
penalties. Joint and several liability shall be imposed on the disgorgement and pre-judgment
interest with: (1 ) Kalistratos Kabilafkas for the full amount; and (2) Tim Kabilafkas in his
capacity as trustee to the TKRT for $103,320.
Judgment shall be entered against Timoleon Kabilafkas in his individual capacity in the
amount of $13 ,720,303 in disgorgement, $4,489,438 in pre-judgment interest, and $460,928 in

5

civil penalties. Joint and several liability shall be imposed on the disgorgement and pre-judgment
interest with (1 ) Kalistratos Kabilafkas for the full amount; and (2) Timoleon Kabilafkas in his
capacity as the trustee to the TKRT for $11 ,031 ,144.
Judgment shall be entered against Relief Defendant Timoleon Kabilafkas in his capacity
as the trustee to the TKRT in the amount of $11 ,031 ,144 in disgorgement and $3 ,609,515 in prejudgment interest. Joint and several liability shall be imposed on the disgorgement and prejudgment interest with: (1) Kalistratos Kabilafkas and Timoleon Kabilafkas for the full amount;
and (2) Airborne Wireless Network for $103 ,320.
Judgment shall be entered against Relief Defendant Magdaline Kabilafkas in her capacity
as the trustee to the MKRT in the amount of $265,000 in disgorgement and $86,711 in civil
penalties. Joint and several liability shall be imposed on the disgorgement and pre-judgment
interest with Kalistratos Kabilafkas for the full amount.
The Court reserves judgment on the SEC' s Motion for Final Judgment and this action is
STAYED as it pertains to Defendant Jack Edward Daniels until a parallel criminal proceeding,

United States v. Kabilajkas, 24-CR-000270 (C.D. Cal.) (the "Criminal Action"), is concluded.

BACKGROUND
I.

Factual Background
The court has already granted summary judgment against all the named Defendants, in an

extensive opinion that recites all the relevant, uncontroverted facts. Dkt. No. 238, pp. 18- 28.
There is no need to reiterate those facts here. The reader is referred to the summary judgment
decision (Dkt. No. 238) for a statement of undisputed material facts, derived largely from the
Securities and Exchange Commission's Rule 56.1 statement (Dkt. No. 185-1), with portions
coming from Defendants ' Counter-Statement (Dkt. No. 203).

6

II.

Procedural History
This case was filed on March 2, 2021. Dkt. No. 1. The SEC filed its Complaint against

eight defendants Scheffey -

Airborne, Kabilafkas, Tim Kabilafkas, Daniels, Rabin, Bolovis, Chrysiliou,

and Relief Defendants TKRT and MKRT.

Defendants Airborne, Kabilafkas, Tim Kabilafkas, Daniels, Bolovis, Scheffey, and
Chrysiliou all filed separate Motions to dismiss the Complaint, which were denied. Dkt. No. 103.
The SEC reached settlements with four of the individual Defendants -

Rabin, Bolovis,

Chrysiliou, and Scheffey. Dkt. No. 22, 147-148, 174.
On November 8, 2022, the SEC filed its Motion for Summary Judgment against the
remaining defendants, Kabilafkas, Tim Kabilafkas, Daniels, and Airborne, and Relief
Defendants MKRT and TKRT which this Court granted on September 12, 2023. Dkt. No. 238.
On March 15, 2024, the SEC filed its motion requesting that the Court enter an order for
final judgment including (1) a permanent injunction restraining and enjoining Defendants from
violating Section l 0(b) of the Exchange Act and Section l0b-5 thereunder, and Section 17(a) of
the Securities Act, (2) a permanent bar against Kabilafkas, Timoleon Kabilafkas, and Daniels
from participating in the offering of penny stocks pursuant to Section 21(d)(6) of the Exchange
Act and Section 20(g)(l ) of the Securities Act, (3) a permanent bar against Daniels from acting
as an officer or director of any issuer that has a class of securities registered pursuant to Section
12 of the Exchange Act or that is required to file reports under Section 15(d) of the Exchange
Act, pursuant to Section 21(d)(2) of the Exchange Act, and (4) imposing disgorgement and prejudgment thereon, and civil monetary penalties as set forth in the chart above, at supra p. 3-4.
Dkt. No. 263.

7

DISCUSSION

I.

The Court Enters a Permanent Injunction Against Defendants enjoining and
restraining Defendants Airborne Wireless Network, Kalistratos Kabilafkas, and
Timoleon Kabilafkas from violating, or committing future violations of Section
lO(b) of the Exchange Act and Rule lOb-5 thereunder, and Section 17(a) of the
Securities Act.
Section 2l(d) of the Exchange Act [15 U.S.C. § 78u(d)] and Section 20(b) of the

Securities Act [15 U.S.C. § 77t(b)] authorize this Court to enjoin Defendants from violating, or
committing future violations of, the securities laws. A permanent injunction is appropriate where
there is a substantial likelihood of future violations. SEC v. Cavanagh, 155 F.3d 129, 135 (2d
Cir. 1998). In determining whether to issue a permanent injunction, courts consider the following
factors:
[ 1] the fact that the defendant has been found liable for illegal
conduct; [2] the degree of scienter involved; [3] whether the
infraction is an "isolated occurrence," [4] whether defendant
continues to maintain that his past conduct was blameless; and [5]
whether, because of his professional occupation, the defendant
might be in a position where future violations could be anticipated.

Id. at 135. These factors weigh in favor of this Court imposing a permanent injunction on each
Defendant.

A. The Court Found Defendants Airborne Wireless Network, Kalistratos Kabilajkas, and
Timoleon Kabilajkas Liable for Securities Law Violations.
In regards to the first factor, the Court determined, when deciding the motion for
summary judgment, that Defendants Kabilafkas, Tim Kabilafkas, and Airborne had made
material misrepresentations and omissions in violation of Exchange Act Section 1O(b) and Rule
1Ob-5 and Securities Act Section 17(a)(2). See Dkt. No. 238.

8

B. Defendants Airborne Wireless Network, Kalistratos Kabilajkas, and Timoleon Kabilajkas

Acted with a High Degree ofScienter.
In the Order, the Court also concluded that each Defendant acted with scienter, and that
there was no genuine issue of material fact on that score. See Dkt. No. 238, pp. 45-49.
The undisputed facts demonstrated that Kabilafkas devised and operated a fraud where,
as a control person, he structured numerous deceptive transactions and made a multitude of
misleading statements to both investors and the SEC. See Dkt. No. 238, pp. 18-28. In SEC v.
Blackout Media Corp., 2012 WL 405 1937 (S.D.N.Y. May 15, 2012), a Magistrate Judge
recommended a permanent injunction where a defendant entity defendant -

who acted as a control person of an

structured multiple deceptive transactions and made misleading statements.

Id. at *6 (recommendation adopted 2012 WL 4051951 (S.D.N.Y. Sep. 14, 2012)). As the control

person, Kabilafkas' scienter may also be attributed to Airborne. In SEC v. CKBI 68 Holdings,
Ltd., 2022 WL 3347253 , at *3 (E.D.N.Y. Aug. 12, 2022), the Court found that the defendant
entity had scienter as it was controlled by the defendant scheme architects, who "used [it] as a
means to carry out the scheme."
Meanwhile, Tim Kabilafkas repeatedly knowingly misled brokers to facilitate his son' s
deceptions and further the scheme. Dkt. No. 238, pp. 48-49. Courts have imposed permanent
injunctions on defendant promoters who knew that their claims were false. See CKBI 68
Holdings, Ltd., 2022 WL 3347253, at *3. Furthermore, Courts may also grant permanent
injunctions on defendants who were "fully aware that [they] knowingly and intentionally [were]
engaging in fraudulent conduct." SEC v. Shkreli, 2022 WL 541792, at *6-8 (E.D.N.Y. Feb. 23 ,
2022). As such, Defendants Airborne Wireless Network, Kalistatos Kabilafkas, and Tim
Kabilafkas all acted with a high degree of scienter.

9

C. Defendants Airborne Wireless Network, Kalistratos Kabilajkas, and Timoleon
Kabilajkas' Conduct Was Not Isolated.

Defendants Kalistatos Kabilafkas and Tim Kabilafkas argue that, because both
Kabilafkas and Tim are first time offenders, and the SEC alleges no further violations, this
conduct is isolated. Dkt. No. 276, pp. 22-23. However, it was anything but. "Courts in this
district have granted permanent injunctive relief... where the fraud scheme at issue was broad in
scope, long in duration, and involved a high degree of scienter." SEC v. Svoboda, 409 F. Supp.
2d 331 , 343 (S .D.N.Y. 2006) (citations omitted). Kabilafkas' scheme took place from 2015
through 2018, during which period Kabilafkas and Tim purchased Airbone, fabricated payments
for S-1 shares, obfuscated Kabilafkas' relationship with Airborne, misled brokers, initiated
misleading promotional campaigns, and sold shares at inflated prices. See Dkt. No. 238, pp. 1828. Such a scheme certainly qualifies as broad in scope and long in duration. Therefore, the
Court finds that Airborne, Kabilafkas, and Tim's conduct was not an "isolated" instance of
securities fraud.
D. Defendants Airborne Wireless Network, Kalistratos Kabilajkas, and Timoleon Kabilajkas

Have Never Taken Responsibility for Their Conduct.
The SEC argues that Defendants have never admitted their misconduct, Dkt. No. 263, p.
5, relying on Defendant's Brief in Opposition to Summary Judgment (Dkt. No. 202), in which
Defendant' s zealously defended themselves. Defendants properly note that the SEC
mischaracterizes their argument. Dkt. No. 276, p. 23. However, this does not equate to
Defendants' accepting the blame for their acts. Still though, Defendants have never actually
accepted blame for their misconduct. This factor, too, weighs in favor of an injunction.
E. Defendants Airborne Wireless Network, Kalistratos Kabilajkas, and Timoleon Kabilajkas

Are in a Position Where Future Violations Can Be Anticipated.

10

The SEC maintains that Defendants' sophistication when perpetuating this fraud indicates
that future violations can be anticipated. Dkt. No. 263, p. 6. Defendants, meanwhile, argue that
there have been no further violations in the past six years and thus, looking forward, there is no
likely repetition. Dkt. No. 276, pp. 22- 23. Defendants, however, have been under investigation
by federal authorities for the past five years, leading to both this matter and an indictment against
Kabilafkas and Daniels in the Central District of California. It stands to reason that Defendants
would restrain themselves, and would, as far as this Court knows, not commit any further
violations while under scrutiny. However, given Kabilafkas ' and Tim Kabilafkas' network and
sophistication in enacting this fraud, coupled with their lack of remorse, it stands to reason that
Defendants are in a position to repeat these violations once they are no longer under federal
scrutiny.
F.

The Second Circuit Allows Injunctive Relief Enjoining and Restraining Defendants from
Violating Securities Laws.
Defendants claim that "in the context of SEC enforcement actions and otherwise, ' obey-

the-law' injunctions are unenforceable." Dkt. No. 276, p. 20 (quoting SEC v. Graham, 823 F.3d
1357, 1362 n. 2 (1 1th Cir. 201 6)). In doing so, Defendants claim that "These injunctions ' lack
specificity and deprive defendants of the procedural protections that would ordinarily accompany
a future charge of a violation of the securities laws."' Dkt. No. 276, pp 20-21 (quoting Graham,
823 F.3d at 1362 n. 2). To support this, Defendants cite cases in the Third, Tenth, and Eleventh
Circuits.
In the Second Circuit, courts have ruled that "Injunctive relief is expressly authorized by
Congress to proscribe future violations of the federal securities laws." Cavanagh, 155 F.3d at
135. More recently, courts have held that "injunctive relief that ... permanently enjoins
defendants from committing future violations of the federal securities laws .. . is plainly within
11

the SEC's authority." SEC v. Xia , 2024 WL 3592170, at *5 (E.D.N.Y. July 26, 2024); SEC v.

Honig, 2024 WL 3454840, at *12 (S.D.N.Y. July 18, 2024). Defendants argument, therefore, is
rejected.
For the foregoing reasons, the Court permanently enjoins Defendants Kalistratos
Kabilafkas, Airborne Wireless Network, and Timoleon Kabilafkas from violating, or committing
future violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section
17(a) of the Securities Act.

II.

The Court Enters a Permanent Injunction Against Defendants Kalistratos
Kabilafkas and Timoleon Kabilafkas from Participating in an Offering of Penny
Stocks.
Section 2l(d)(6) of the Exchange Act [15 U.S.C. § 78u(d)(6)] and Section 20(g) of the

Securities Act [15 U.S.C. § 77t(g)] authorize a district court to impose a penny stock bar against
any person participating in, or, at the time of the alleged misconduct, who was participating in,
an offering of penny stock." Those Acts define a person participating in an offering of a penny
stock as "any person engaging in activities with a[n] .. . issuer for the purposes of ... trading, or
inducing or attempting to induce the purchase." Exchange Act§ 2l(d)(6); Securities Act§
20(g)(2). In determining whether a penny stock bar is appropriate, the court considers: (1) the
egregiousness of the underlying securities law violation; (2) the defendant's repeat offender
status; (3) the defendant's role or position when he engaged in the fraud; (4) the defendant's
degree of scienter; (5) the defendant's economic stake in the violation; and (6) the likelihood that
misconduct will recur. SEC v. Universal Express, Inc. , 475 F.Supp.2d 412, 429-30 (S .D.N.Y.
2007).

A. Defendants Engaged in Egregious Securities Fraud.
As mentioned above, Kabilafkas masterminded and Tim Kabilafkas participated in a
scheme that was both broad in scope and long in duration, with numerous transactions and
12

actors. See supra p. 10. In doing so, Kabilafkas impersonated both Tim Kabilafkas and Zernos in
phone calls with interested parties. Dkt. No. 203 , ,, 82-89. In SEC v. Jean-Pierre, 2015 WL
1054905, at *1 2- 13 (S.D.N.Y. Mar. 9, 2015), the court imposed a penny stock bar on an attorney
who engaged in a scheme to issue a fraudulent attorney opinion letter by, among other things,
impersonating a family member. This is analogous to Kabilafkas' actions of impersonating both
his father and Zernos. Furthermore, in SEC v. Becker, 2010 WL 2710613 at *1-2 (S.D.N.Y. Jul.
8, 2010), the court authorized a permanent penny stock bar in a case where the defendants raised
only $1.3 million by fraudulently selling unregistered securities to at least 29 investors over a
period of years. Here, Airborne raised $22.8 million from investors during 2017 and 2018. Dkt.
No. 203, , 120. Therefore, I can easily determine that this qualifies as egregious securities fraud,
which weighs heavily in favor of granting the penny stock bar.
B.

Defendants Are Not Repeat Offe nders, but Conduct Was Not Isolated.
This is Defendants' first known violation of the securities laws. Dkt. No. 276, p. 22.

Therefore, we weigh this against granting the permanent injunction. However, it is not exactly
fair to stay that they are not "repeat offenders," as they engaged in repeated acts of fraud over the
course of three years before they were caught. It thus does not weigh against granting the
injunction.
C. Defendant Kabilajkas Masterminded the Fraud, and Tim Kabilajkas Repeatedly
Participated in the Fraud.
As mentioned above, Defendant Kabilafkas masterminded and orchestrated this scheme.

See Dkt. No. 238, pp. 18-28. Tim Kabilafkas, meanwhile, obfuscated his knowledge of the
scheme in conversations with Merrill, Dkt. No. 203 , , 87, assisted Kabilafkas in impersonating
him to Merrill, Id. , , 88-89, lied to Interactive about where he received the shares, Id. ,, 92-93,

13

and provided a signed letter to Airbome' s outside law firm with multiple misrepresentations. See
id. ,i 94. This factor weighs heavily in favor of granting the permanent injunction.

D. Defendants Acted with a High Degree of Scienter.
As mentioned above, both Kabilafkas and Tim Kabilafkas acted with a high degree of
scienter. See supra p. 9. This factor also weighs in favor of granting the permanent injunction.
E. Defendants Had a Monetary Stake in the Violation.

Both Defendant Kabilafkas and Tim Kabilafkas had a large monetary stake in the
violation, with Kabilafkas directing over $18 million in sales of the Airborne S-1 Shares to be
kept in both his and Tim Kabilafkas' accounts. Dkt. No. 203 , ,i 117. Therefore, this factor weighs
in favor of granting a permanent injunction.
F. There is a Likelihood the Misconduct Will Recur.

As stated above, supra pp. 9-10, both Kabilafkas and Tim Kabilafkas acted with a high
degree of scienter to carry out an elaborate plan that was both long in scope and broad in
duration. Given both parties' sophistications in carrying out this violation, and their refusal to
admit their misconduct and lack of remorse, the Court finds it likely that this misconduct will
recur. As such, this factor weighs towards granting the injunction.
G. Defendant 's Arguments Fail to Convince the Court.

Defendants argue that "an expulsion or suspension of a securities broker is a penalty, not
a remedy," as it is the "equivalent of capital punishment" to bar an individual from an entire
industry. Dkt. No. 276, p. 23 (quoting Saad v. SEC, 873 F.3d 297, 305 (D.C. Cir. 2017)
(Kavanagh, J. , concurring)). The law in the D.C. Circuit is not controlling in the Second Circuit,
and a statement in a concurrence is not even the law in its own circuit. Moreover, Defendant
agrees that a bar is permissible if the SEC can show that "future misconduct is likely to occur."

14

Dkt. No. 276, p. 24. The SEC has shown such, so Defendant' s arguments fail to convince the
Court.
For the foregoing reasons, the Court permanently bars Kabilafkas and Tim Kabilafkas
from participating in an offering of penny stocks, including engaging in activities with a broker,
dealer or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase
or sale of any penny stock, pursuant to Section 21(d)(6) of the Exchange Act [15 U.S.C. §
78u(d)(6)] and Section 20(g)( l) of the Securities Act [15 U.S.C. § 78u(d)(2)].

III.

The Court Orders that Defendants Kalistratos Kabilafkas, Timoleon Kabilafkas,
and Airborne Wireless Network, and Relief Defendants TKRT and MKRT
Disgorge the Illicit Proceeds of The Securities Violations.
Courts have the authority to award disgorgement in SEC actions, in order to "deprive

violators of their ill-gotten gains." SEC v. First Jersey Securities Inc., 101 F.3d 1450, 1474 (2d
Cir. 1996); see also Liu v. SEC, 591 U.S. 71 , 82-86 (2020). The "district court has broad
discretion not only in determining whether or not to order disgorgement but also in calculating
the amount to be disgorged." First Jersey, 101 F.3d at 1474-75. Disgorgement is calculated by
determining "the wrongful gain obtained by the defendant." SEC v. Govil, 86 F.4th 89, 103 n.14
and 105 (2d Cir. 2024). The disgorgement amount need only be a "reasonable approximation of
profits causally connected to the violation." SEC v. iFresh, Inc. , 2024 WL 416709, at *2
(E.D.N.Y. Feb. 5, 2024) (citations and quotations omitted). "Any risk of uncertainty falls on the
defendant." Id. The Court may also impose disgorgementjointly and severally on "partners
engaged in concerted wrongdoing." Liu, 591 U.S. at 90.
Defendants argue that, here, disgorgement is inappropriate, as the Supreme Court
delineated boundaries between equitable relief and "a penalty outside ... equitable powers." Dkt.
No. 276, p. 11 (citing Liu, 591 U.S. at 82). In doing so, Defendants argue that "equity requires:
(1) any disgorgement amount may not exceed the pecuniary gain obtained by the wrongdoer; (2)

15

any disgorgement amount awarded to a victim may not exceed the pecuniary harm suffered by
that victim; and (3) both the pecuniary gain obtained by the wrongdoer and the pecuniary loss
suffered by the victim must have resulted from the securities law violation." Dkt. No. 276, p. 11
(citing Liu, 59 1 U.S. at 80; Govil, 86 F.4th at 103). They argue that disgorging funds greater than
the pecuniary harm would be conferring a "windfall" to the plaintiff. Dkt. No. 276, pp. 12-16.
Much of Defendants' argument rests on the recent decision in SEC v. Ripple Labs Inc. ,
2024 WL 3730403 (S.D.N.Y. Aug. 7, 2024), in which my colleague Judge Torres refused to
allow disgorgement absent a showing of specific pecuniary loss on the part of the investors.
However, Judge Torres' decision is not binding on this Court. Second Circuit decisions are,
however; and the Second Circuit ruled, in SEC v. 0 'Brien, 2024 WL 2813 722, at *2 (2d Cir. Jun.
3, 2024), that trading losses caused by deceptive and manipulative conduct satisfy the pecuniary
harm requirement. The Second Circuit came to its decision without requiring the SEC to submit
specific data and calculations showing investor losses. Id. In the Eastern District, my colleague
Judge Ross, in SEC v. iFresh, 2024 WL 416709, at *3 (E.D.N.Y. Feb. 5, 2024), stated that the
allegation that stock prices were artifi cially inflated satisfied the precondition that investors
suffered pecuniary harm.
In this case, the SEC established, with record evidence, that investor losses totaled
approximately $51,019,684. Dkt. No. 263, p. 19. The facts here differ from those in Ripple Labs,

Inc. , so with great respect I decline to apply Judge Torres' reasoning to this case.
Courts impose joint and several liability on defendants engaged in "concerted
wrongdoing. " See, e.g. , SEC v. Oppenheimer, 2024 WL 3342098 (S.D.N.Y. Jul. 8, 2024).
Kabilafkas, Airborne, and Tim Kabilafkas engaged in concerted wrongdoing, with Kabilafkas
acting as control person of Airborne and mastermind of the scheme, and Tim Kabilafkas

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participating in, encouraging, and benefiting from the securities violations. See Dkt. No 238, pp.
18-28.

A. The Court Orders Kabilajkas and Airborne to Disgorge $22,768,734 jointly and
severally, and Kabilajkas to Disgorge Trading Proceeds of $21,238,796.
As the control person, Kabilafkas is jointly and severally liable for all $22,768,734 that
Airborne unlawfully raised from investors. See Section 20(a) of the Exchange Act, 15 U.S.C. §
78t(a); First Jersey, 101 F.3d at 1475-76. He had the power to control Airborne' s actions and
repeatedly acted on its behalf. See Dkt. No. 238, pp. 18-28; see SEC v. Johnson, 43 F.4th 382,
390-391 (4th Cir. 2022). Kabilafkas is jointly and severally liable even where he did not assume
direct control or possession of Airborne' s illicit proceeds. First Jersey, 101 F.3d at 1475-76.
Airborne funds that Kabilafkas personally misappropriated are not the only assets that he can be
ordered to disgorge. See FTC v. Shkreli, 581 F.Supp.3d 579, 642 (S.D.N.Y. 2022). As shown
above, Kabilafkas controlled Airborne, used more than $11 million to fund promotional efforts
to artificially inflate Airborne's stock price, and spent at least $3 million on a product Kabilafkas
knew had no actual value. See Dkt. No. 238, pp. 18-28. A "person who controls the distribution
of illegally obtained funds is liable for the funds he or she dissipated as well as the funds he or
she retained." SEC v. Platforms Wireless Intern. Corp., 617 F.3d 1072, 1098 (9th Cir. 2010); see

also SEC v. Tourre, 4 F.Supp.3d 579, 590 (S.D.N.Y. 2014). As the director of the distribution of
funds Airborne raised from investors, Kabilafkas may be disgorged of every investor dollar
Airborne brought in, totaling $22,768,734.
In addition, as the architect of the fraud, he should be ordered to disgorge all $21,239,053
that the "pump-and-dump" generated. See, e.g. , CKB168 Holdings, 2022 WL 3347253 at *4.
District Courts have calculated disgorgement as "the difference between sale and purchase prices
in fraudulent transactions." SEC v. Ahmed, 72 F.4th 379, 397 (2d Cir. 2023). As Kabilafkas
17

acquired the S-1 Shares without using any of his own money, his cost basis was zero and the
sales proceeds were pure profit. See SEC v. Lines, 2011 WL 3611350, at *4-5 (S.D.N.Y. Jun. 7,
2011). The SEC concedes that the penalty imposed against Kabilafkas should be reduced by
$257, the amount obtained by Kabilafkas via the sale of Ample-Tee shares in a nominee account
in October 2015, which is beyond the limitations period. Dkt. No. 279, p. 9. Therefore,
Kalistratos Kabilafkas should be ordered to disgorge trading proceeds of $21,238,796.
For the foregoing reasons, Kalistratos Kabilafkas and Airborne are ordered to disgorge
$22,768,734 jointly and severally, and Kalistratos Kabilafkas is ordered to disgorge trading
proceeds of $21 ,238,796.
B. The Court Orders Timoleon Kabilajka,s to Disgorge $13,720,303.

Tim Kabilafkas violated Section lO(b) of the Exchange Act and Section 17(a) of the
Securities Act. Dkt. No. 238, pp. 40, 50. In doing so, he engaged in concerted wrongdoing with
Kabilafkas by deceiving brokers through impersonation and misrepresentations, allowing his son
to trade in his accounts, and maintaining accounts -

both in his individual capacity and as

trustee of the TKRT- that he and his son used to distribute and receive illicit proceeds. See id.
Therefore, Tim Kabilafkas should be ordered to disgorge $13,720,303 in illicit trading proceeds
jointly and severally with Kabilafkas. I accept the SEC's total and methodology as listed in Dkt.
No. 263, pp. 16-17.
C. The Court Orders Timeoleon Kabilajkas, in His Capacity of Trustee of the TKRT, to
Have the TKRT Disgorge $11,031,144.

The Court found that the TKRT received illicit proceeds to which it had no legitimate
claim. See Dkt. No. 238. Kabilafkas and Tim Kabilafkas used at least some of those funds to
purchase millions of dollars' worth of real estate in TKRT's name. See id. The Court accepts the
SECs total, and orders Tim Kabilafkas, in his capacity as the TKRT's trustee, to disgorge
18

$11,031,144 from the TKRT, jointly and severally with Kabilafkas and with himself in his
individual capacity for the total amount, and jointly and severally with Airborne for $103,320.

D. The Court Orders Magdaline Kabilafkas, in Her Capacity as Trustee of the MKRT, to
Have the MKRT Disgorge $265, 000.
Relief Defendant MKRT received illicit proceeds to which it had no legitimate claim. See
Dkt. No. 238, p. 52. Specifically, the IOLTA account that received illicit trading proceeds
transferred $265,000 to a real estate escrow company to partially fund the MKRT's purchase of
real property. Dkt. No. 263-1 , ,i 14. Therefore, the Court orders Magdaline Kabilafkas to
disgorge $265,000 from the MKRT.
IV.

The Court Orders Defendants to Pay Pre-judgment Interest on Their Illicit Gains.
"Since the primary purpose of disgorgement ... is the deprive violators of their ill-gotten

gains, ... it is within the discretion of a court to award pre-judgment interest on the disgorgement
amount for the period during which a defendant had the use of his illegal profits." SEC v.

Razmilovic,738 F.3 d 14, 36 (2d Cir. 2013) (citations and quotations omitted). "[T]he Second
Circuit has approved the calculation of pre-judgment interest at the IRS underpayment rate."

SEC v. Tavella, 77 F. Supp. 3d 353,360 (S.D.N.Y. 2015) (quoting First Jersey, 101 F. 3d at
1476). The Court accepts the SEC's methodology, calculating pre-judgment interest for the
period from May 3 1, 2018 -

the last day of the month the Complaint alleges the scheme ended

until March 15, 2024, the date the SEC submitted its calculations to the Court. Dkt. No. 263,

p. 21. For the funds Airborne unlawfully raised from investors, the SEC used the period August
31, 2019 -

the last day of the last fiscal year in which airborne sold stock - through today.

Defendants' argument that pre-judgment interest is inappropriate relies on the premise
that disgorgement is inappropriate. Dkt. No. 276 p. 24. As shown above, supra pp. 15-17,

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disgorgement is appropriate. Thus, this Court may order Defendants to pay pre-judgment
interest.

V.

The Court Orders Third-Tier Penalties Against Defendants.
"Section 20(d) of the Securities Act and Section 21 (d)(3) of the Exchange Act provide

three tiers of civil penalties for securities law violations." SEC v. Gallison, 2023 WL 8813637, at
*2 (S.D.N.Y. Aug. 8, 2023) (citing the statutes). Courts may impose a third-tier penalty where
the conduct involved fraud and "the violation directly or indirectly resulted in substantial losses
or created a significant risk of substantial losses to other persons." Razmilovic, 738 F. 3d at 38.
The penalty amount "shall not exceed the greater of a specified [statutory] monetary amount or
the defendant' s gross amount of pecuniary gain." Id. (emphasis in original). The specified
statutory penalties may be applied "per violation." Id.
Courts have discretion to determine the appropriate penalty, including what constitutes a
discrete "violation." SEC v. Fowler, 6 F.4th 255 , 265 (2d Cir. 2021). The Court has discretion in
setting the penalty amount, which may include "treat[ing] each fraudulent transaction as a
discrete violation." SEC v. Lek Securities Corp., 612 F. Supp. 3d 287, 295-96 (S .D.N.Y. 2020).
In setting the penalty amount, courts may consider: " (1) the egregiousness of the defendant's
conduct; (2) the degree of the defendant' s scienter; (3) whether the defendant's conduct created
substantial losses .. . to other persons; (4) whether the defendant's conduct was isolated or
recurrent; and (5) whether the penalty should be reduced due to the defendant' s demonstrated .. .
financial condition." SEC v. Rajaratnam, 918 F. 3d 36, 44 (2d Cir. 2019).
As stated above, Defendants conduct was egregious, had a high degree of scienter,
created substantial losses to other persons, and recurred for years as the scheme went on. See
Dkt. No. 238, pp. 18-28. As Defendants still control a vast amount of the profits earned through

20

their scheme, all factors weigh in favor of granting civil penalties. The Court accepts the SEC' s
calculation of the civil penalties, as shown in Dkt. No. 263 , p. 23.
For the foregoing reasons, the Court orders Defendants Kabilafkas, Airborne, and Tim
Kabilafkas to pay civil penalties as set forth in the Final Judgment that will be entered by the
court.

VI.

The Court Reserves Judgment on the SEC's Motion for Final Judgment as it
Pertains to Jack Edward Daniels.
With regards to Daniels, the SEC asks this Court to: (a) enter permanent injunctive relief;

(b) bar Daniels from serving as an officer/director of a public company; (c) bar Daniels from
participating in the offer or sale of penny stocks; and (d) impose a civil monetary penalty in the
amount of $230,464. See Dkt. No. 264, pp. 4- 7, 22- 23.
On April 30, 2024, an indictment was filed against Daniels and Defendant Kalistratos
Kabilafkas in a parallel criminal proceeding brought by the United States Attorney's Office for
the Central District of California captioned United States v. Kabilajkas, 24-CR-000270 (C.D.
Cal.) (the "Criminal Action"). Defendant Daniels states that he cannot fully defend himself here
without waiving his Fifth Amendment Rights.
A district court may stay a civil proceeding pending the resolution of a parallel criminal
proceeding. A district court may stay a civil action during the pendency of related criminal
proceedings, although "the Constitution rarely, if ever, requires such a stay." Louis Vuitton

Malletier S.A . v. LY USA, Inc., 676 F.3d 83, 98 (2d Cir. 2012) (citing Kashi v. Gratsos, 790 F.2d
1050, 1057 (2d Cir. 1986)). To determine whether to grant a stay, courts in the Second Circuit
consider the following factors :
(1) The extent to which the issues in the criminal case overlap with those presented
in the civil case; (2) the status of the case including whether the defendants have
been indicted; (3) the private interests of the plaintiffs in proceeding expeditiously
weighed against the prej udice to plaintiffs caused by the delay; (4) the private
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interests of and burden on the defendants; (5) the interests of the courts; and (6) the
public interest.
Louis Vuitton , 676 F.3d at 99. Here, going factor by factor: (1) the issues in the criminal

case are identical to those in the civil action; (2) Daniels has been indicted; (3) the SEC
would not be burdened by a delay; (4) Daniels has a significant interest in not
incriminating himself; (5) the court has no material interest in immediate pursuit of a
judgment against Daniels; and (6) the public has a strong interest in ensuring that
securities laws are enforced. I conclude that the Louis Vuitton factors weigh slightly in
favor of reserving judgment as it pertains to Defendant Daniels, pending resolution of the
parallel criminal proceeding. While the government also indicted Defendant Kalistratos
Kabilafkas, he made no argument that this proceeding be stayed so that he could exercise
his Fifth Amendment rights. See Dkt. No. 276.
CONCLUSION
For the foregoing reasons, the SEC's Motion for Final Judgment is GRANTED as it
pertains to Defendants Kalistratos Kabilafkas, Airborne Wireless Network, and Timoleon
Kabilafkas, as well as Relief Defendants Timoleon Kabilafkas in his capacity as trustee of the Tim
Kabilafkas Revocable Trust Dated July 24, 2001, and Magdaline Kabilafkas, in her capacity as
trustee of the Magdaline Kabilafkas 1989 Trust Dated May 27, 1989.
The Court enters a permanent injunction enjoining and restraining Defendants Kalistratos
Kabilafkas, Airborne Wireless Network, and Timoleon Kabilafkas from violating, or committing
future violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section
17(a) of the Securities Act.
The Court enters a permanent injunction barring Defendants Kalistratos Kabilafkas,
Airborne Wireless Network, and Timoleon Kabilafkas from participating in an offering of penny
22

stocks, including engaging in activities with a broker, dealer or issuer for purposes of issuing,
trading, or inducing or attempting to induce the purchase or sale of any penny stock, pursuant to
Section 2l(d)(6) of the Exchange Act [15 U.S.C. § 78u(d)(6) and Section 20(g)(l) of the Securities
Act [15 U.S.C. § 78u(d)(2)] .
Judgment shall be entered against Kalistratos Kabilafkas in the amount of $44,007,530 in
disgorgement, $1 2,438,514 in pre-judgment interest, and $21,239,053 in civil penalties. Joint and
several liability shall be imposed on the disgorgement and pre-judgment interest with: ( 1) Airborne
Wireless Network for $22,768,73 4; (2) Timoleon Kabilafkas in his individual capacity for
$13 ,720,303 ; (3) Tim Kabilafkas in his capacity as trustee to the TKRT for $11 ,031 ,144; and (4)
Magdaline Kabilafkas in her capacity as the trustee to the MKRT for $265,000.
Judgment shall be entered against Airborne Wireless Network in the amount of
$22,768,734 in disgorgement, $5,488,855 in pre-judgment interest, and $1 ,152,314 in civil
penalties. Joint and several liability shall be imposed on the disgorgement and pre-judgment
interest with: (1 ) Kalistratos Kabilafkas for the full amount; and (2) Tim Kabilafkas in his capacity
as trustee to the TKRT for $1 03,320.
Judgment shall be entered against Timoleon Kabilafkas in his individual capacity in the
amount of $13 ,720,303 in disgorgement, $4,489,438 in pre-judgment interest, and $460,928 in
civil penalties. Joint and several liability shall be imposed on the disgorgement and pre-judgment
interest with (1 ) Kalistratos Kabilafkas for the full amount; and (2) Timoleon Kabilafkas in his
capacity as the trustee to the TKRT for $11 ,031 ,144.
Judgment shall be entered against Relief Defendant Timoleon Kabilafkas in his capacity
as the trustee to the TKRT in the amount of $11 ,031 ,144 in disgorgement and $3 ,609,515 in prejudgment interest. Joint and several liability shall be imposed on the disgorgement and pre-

23

judgment interest with: (1) Kalistratos Kabilafkas and Timoleon Kabilafkas for the full amount;
and (2) Airborne Wireless Network for $103,320.
Judgment shall be entered against Relief Defendant Magdaline Kabilafkas in her capacity
as the trustee to the MKRT in the amount of $265,000 in disgorgement and $86,711 in civil
penalties. Joint and several liability shall be imposed on the disgorgement and pre-judgment
interest with Kalistratos Kabilafkas for the full amount.
The Court reserves judgment on the SEC's Motion for Final Judgment and this action is
STAYED as it pertains to Defendant Jack Edward Daniels until the conclusion of the parallel
criminal action United States v. Kabilajkas, 24-CR-000270 (C.D. Cal.).
The Clerk of Court is respectfully directed to remove the open motion at Dkt. No. 262.
This is the opinion of the court. It is a written decision.

Dated:~

4

U.S.D.J

BY ECF TO ALL COUNSEL

24