COMMONWEALTH OF VIRGINIA

STATE CORPORATION COMMISSION

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COMMONWEALTH OF VIRGINIA, ex reL, SCC-CLERK'S OFFICE ©
DOCUMENT CONTROL CENTER
STATE CORPORATION COMMISSION *2
2018 JUL 131 P I2: 03 ©
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v. CASE NO. SEC-2017-00051 ©

COMMUNICLIQUE, INC.
and
ANDREW BRENT POWERS.
Defendants

REPORT OF A. ANN BERKEBILE. HEARING EXAMINER

July 13, 2018

This matter involves the alleged violation of the Virginia Securities Act ("Act"),
§ 13.1-501 etseq. of the Code of Virginia ("Code"), by CommuniClique, Inc. ("CommuniClique")
and Andrew Brent Powers ("Powers") (collectively, "Defendants"). The record of this case
supports the conclusion that the Defendants committed 108 violations of the Act by making
material misrepresentations to investors while offering and selling securities. The evidence also
reflects that the Defendants committed a separate violation of § 12.1-13 of the Code by failing to
respond to a subpoena issued by the State Corporation Commission ("Commission").

HISTORY OF THE CASE

On March 16, 2018, the Commission issued a Rule to Show Cause ("Rule") against the
Defendants based upon allegations made by the Commission's Division of Securities and Retail
Franchising ("Division"). Specifically, the Division alleged that the Defendants violated § 12.1 -13
of the Code by failing to respond to a subpoena issued by the Commission, and § 13.1-502 (2) of
the Act by making material misrepresentations.

Among other things, the Rule scheduled a hearing for June 12, 2018; established
April 6, 2018, as the Defendants' deadline for filing a responsive pleading; and assigned this matter
to a Hearing Examiner to conduct all further proceedings.

On March 23, 2018, the Division filed a Motion for Temporary Injunction ("TRO Motion")
requesting that the Commission enter an order temporarily enjoining the Defendants from: (1)
offering and selling securities in and from the Commonwealth of Virginia; and (2) engaging other
agents or affiliates to offer or sell securities on their behalf until this case has been resolved
(including any appeals).1

On March 26, 2018,1 entered a Ruling establishing an expedited pleadings schedule

associated with the TRO Motion. However, the Defendants did not file a response to the TRO
Motion. Thereafter, I entered a Hearing Examiner's Ruling and Certification to the Commission on
April 2, 2018, wherein I recommended that the Commission enter an order temporarily enjoining

1 TRO Motion at 5.
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the Defendants from: (1) offering and selling securities in and from the Commonwealth of Virginia; Q
and (2) engaging other agents or affiliates to offer or sell securities on their behalf until this case has ^
been resolved (including any appeals). ^

On April 6, 2018, the Defendants, by counsel, filed a Motion for Extension of Time to File a i©
Responsive Pleading ("Extension Motion"). The Defendants represented that they did not retain M
counsel for representation in this case until April 4, 2018, and stated that defense counsel required
"a reasonable period of time to familiarize themselves with the facts and circumstances of this
matter."2 Specifically, the Defendants requested that their deadline for filing a responsive pleading
be extended to April 27,2018.

After an expedited pleading schedule on the Extension Motion, I entered a Ruling on

April 12, 2018, extending Defendants' deadline for filing a responsive pleading to April 23, 2018.
Nevertheless, the Defendants did not file a response to the Rule. I also granted the request of the
Defendants' counsel to withdraw from their representation of the Defendants by Ruling dated April
24,2018.

Furthermore, on April 30, 2018, the Commission entered an Order Granting Motion for
Temporary Injunction ("TRO"). The TRO enjoined the Defendants from offering and selling
securities in the Commonwealth of Virginia and prohibited the Defendants' engagement of other
agents or affiliates to offer or sell securities on their behalf until further Order of the Commission.

On May 15, 2018, the Division filed a Motion for Default Judgment ("Default Motion").
On May 16, 2018,1 entered a Ruling establishing an expedited pleading schedule associated with
the Default Motion. The Defendants did not file a response to the Default Motion. Thereafter, I
entered a Ruling on May 24, 2018 ("May 24Ul Ruling"), deeming that the Defendants had admitted
the allegations in the Rule, and waived objections to the introduction of evidence pertaining to their
violations of the Act. Nevertheless, the May 24lh Ruling also recognized that the Defendants would
be permitted to participate in the hearing relative to sanctions if they appeared on June 12, 2018.

The hearing was convened, as scheduled, on June 12, 2018. Patricia A. C. McCullagh,
Esquire, appeared on behalf of the Division. The Defendants did not appear at the hearing.

The transcript of the hearing ("Tr.") was filed on July 10, 2018.

SUMMARY OF THE RECORD

The Division presented the testimony of Tom Bayly, a senior investigator with the Division.

Mr. Bayly testified that the Division received a complaint in the fall of 2016 from the
accountant of one of CommuniClique's investors regarding a records irregularity. The Division
subsequently initiated an investigation of CommuniClique and determined that CommuniClique
was a start-up communications/software company working out of Northern Virginia.3 The Division
also determined that Powers, the CEO of CommuniClique, was a resident of Northern Virginia.

2 Extension Motion at 1.
3 Mr. Bayly also explained that at one time, CommuniClique went by the name "Clique." Tr. at 24.

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According to Mr. Bayly, the Division obtained various documents throughout its investigation, ©
including documents provided by CommuniClique in response to the Division's requests for ^
information and documents provided by Evergreen Advisors Capital ("Evergreen"), FedEx, Staples, ^
The Hartford, WilmerHale, Airbnb, and Bank of America. Tr. at 23-26.4 y
€9
Mr. Bayly testified that the Defendants produced copies of subscription and share purchase
agreements pertaining to investments made after January 1, 2016, to the Division. He maintained
that the subscription and share purchase agreements constitute evidence of the offer and sale of
securities.5 He also discussed various other documents produced by the Defendants to the Division,
including updates ("Yearly Updates") that had been given by the Defendants to prospective
investors in lieu of private placement memoranda.6 Among other things, the Yearly Updates
represented that: (1) CommuniClique had revenues of $71.5 million at the end of 2014 and $122
million at the end of 2015; and (2) Evergreen, a third-party evaluator, valued CommuniClique at
from $350 to $400 million in July of 2015 and from $850 million to a billion dollars at the end of
2016. Furthermore, the Yearly Updates identified FedEx, WilmerHale, Uber, and Airbnb as clients
as of the end of 2015, and represented that The Hartford and Staples were added as clients in 2016.
According to Mr. Bayly, various investors who were shown or received documentation from the
Defendants,7 told him they relied upon the information provided by the Defendants when deciding
to invest in CommuniClique. In addition, although the Defendants represented to the Division that
the sale of stock in CommuniClique ceased at the end of 2016, Mr. Bayly indicated that he obtained
documentation from additional investors reflecting that stock sales continued into 2017. Tr. at 30-
44.

Mr. Bayly testified that the information obtained by the Division in response to its
preliminary inquiries raised "red flags."8 In particular, he noted that the financial statements
provided by the Defendants were unaudited. He testified that in June 2017,9 the Division requested
backup information from the Defendants such as journals, ledgers, and tax returns. Despite
representing on several occasions that they would provide the information sought by the Division,
the Defendants never complied with the June 2017 request. According to Mr. Bayly, after Labor
Day 2017, the Defendants, through counsel, represented that they would not voluntarily comply
with the Division's June 2017 request. Under the circumstances, the Division sought backup
information through a subpoena issued in October of 2017.10 Mr. Bayly testified that the
Defendants provided limited but incomplete documentation in response to the subpoena. Because

4See Exhibit ("Ex.") 1, Exs. 2 and 2C, Exs. 3 and 3C, Exs.4-6, Exs. 7 and 7C, Exs. 8-18, and Ex. I9C. The Bank of
America records were accepted into the record on a compact disc ("CD"). See Ex. 19C. With regard to the acceptance
of the CD into evidence, the formatting requirements of Rule 5 VAC 5-20-150 of the Commission's Rules of Practice
and Procedure, 5 VAC 5-20-10 et seq., are hereby waived.
5 See Ex. 3.
6 See Exs. 4 and 5.
7 In addition to the Yearly Updates, some investors received profit and loss statements (Ex. 6); an executive summary
including valuation information and referencing supposed clients of CommuniClique (Ex. 8); a "pitch deck" containing
comparable information to the Yearly Updates (Ex. 9); and separate valuation documentation supposedly prepared by
Evergreen (Exs. 10 and 11).
8 Tr. at 44-45.
9 See Ex. 12.
10 See Ex. 13.

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of the Defendants' continued refusal to provide the information sought by the Division, the Division @
requested that the Commission issue the Rule. Tr. at 44-52. ^
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Mr. Bayly testified that the Division also sought documentation from other entities while y
investigating the Defendants. He indicated that the Division subpoenaed records from Bank of
America and Silicon Valley Bank, entities that were identified by Powers as CommuniClique's
banks. The Division also subpoenaed records from Evergreen" and sought infonnation from
individuals who, based upon banking documentation received by the Division, appeared to be
CommuniClique's investors. In addition, Mr. Bayly indicated that he spoke to Joseph Statter, CEO
of Evergreen, who discussed the documentation produced by Evergreen to the Division in response
to the subpoena.12 Mr. Statter explained that Evergreen provided discussion materials for
CommuniClique as a marketing tool, but never actually performed a valuation analysis of
CommuniClique. Mr. Bayly also highlighted the differences between the valuation analyses
provided by CommuniClique to potential investors13 and the discussion materials prepared by
Evergreen. Tr. at 52-61.

Mr. Bayly further explained that the Division subpoenaed or requested records from entities
identified by the Defendants as CommuniClique's customers and determined that such entities had
no records showing that they did business with CommuniClique.14 He also discussed the records
produced by Bank of America, which referenced several accounts of the Defendants. According to
Mr. Bayly, the account information provided by Bank of America reflected significantly lower
revenues than the revenue information provided by the Defendants to potential investors. In
addition, he compared investor proceeds from 2015 ($2.7 million) to the Defendants' total 2015
Bank of America deposits ($5.6 million) and investor proceeds from 2016 ($4.1 million) to the
Defendants' total 2016 Bank of America deposits ($5.8 million).15 He also indicated that the Bank
of America records did not reflect payments made by any of the customers referenced by
CommuniClique to investors. Furthermore, despite the Defendants' representation to the Division
that they ceased attempting to raise capital after 2016, Mr. Bayly identified information in the Bank
of America records showing additional investors throughout 2017 and into 2018. He was unable to
identify any other bank having an account(s) for the Defendants. Tr. at 61-69.

At the conclusion of his testimony, Mr. Bayly summarized the Division's assessment of the
Defendants' violations. Based upon information obtained during the Division's investigation, he
believed the Defendants' stated revenues and customers did not exist and no independent valuation
of CommuniClique was ever performed. The Division concluded that the Defendants' provision of
untruthful information to investors was not the result of a simple mistake or misunderstanding,
because the false information was contained in numerous documents and the Defendants appeared
to alter the Evergreen documentation that was provided to investors. He also discussed the list of

11 See Ex. 14.

12 See Exs. 15 and 16.
13 See Exs. 10 and 11.
14 See Exs. 17 and 18.
13 See Ex. 20. Mr. Bayly also explained he identified the investor proceeds in the Defendants' Bank of America

accounts by comparing incoming deposits to subscription and stock agreements and wire or checking account notations.
Furthermore, although the Division is not pursuing penalties based upon misrepresentations made after 2016, Mr. Bayly
conducted a similar analysis of Bank of America deposits made in 2017 and 2018. Tr. at 66-67.

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investors and violation chart that he prepared.16 He testified that the Division has conservatively ©
detennined 36 stock or securities transactions were made subsequent to January 1, 2016, and ^
maintained that three material misrepresentation violations were committed in connection with each ^
transaction, for a total of 108 violations. Given the egregious nature of the Defendants' conduct, he ly
recommended a civil penalty of $10,000 for each violation. Furthermore, he recommended ©
restitution totaling $9,890,293 to investors and the assessment of investigation costs in the amount ^
of $10,000. In addition, he recommended that the temporary injunction previously issued by the
Commission be made permanent. Finally, he recommended the imposition of an additional civil
penalty in the amount of $10,000 associated with the Defendants' failure to respond to the
Commission's subpoena. Tr. at 70-78.

DISCUSSION

Section 13.1 -502 (2) of the Act makes it unlawful for persons offering and selling securities
"[t]o obtain money or property by means of any untrue statement of a material fact." In addition,
the Commission is empowered pursuant to § 13.1-.521 of the Act to impose a civil penalty of
$10,000 for each violation of the Act and to order restitution.17 Furthermore, § 13.1-519 of the Act
authorizes the Commission to issue temporary and permanent injunctions prohibiting the Act's
violation. Similarly, § 12.1-13 of the Code empowers the Commission to assess civil penalties and
"to issue temporary and permanent injunctions" in accordance with its general authority as set forth
and when administering and enforcing "laws within its jurisdiction." Furthermore, § 13.1-518 of
the Act empowers the Commission to require the subject of Commission investigations to pay the
associated costs of such investigations.

I also recognize that the Division was required to prove its case "by clear and convincing
evidence" in accordance with Rule 5 VAC 5-20-90 A of the Commission's Rules of Practice and
Procedure.18 The Supreme Court of Virginia has quantified this level of proof as being sufficient to
establish a "firm belief or conviction as to the [relevant] allegations" - that is, an "intermediate"
degree of proof that is "more than a mere preponderance," but less stringent than the level of proof
required in criminal cases.19

In my assessment, the Division established by clear and convincing evidence that the
Defendants committed at least 108 violations of the Act by intentionally making a minimum of
three material misrepresentations associated with 36 offers and sales of securities.20 Specifically,
the record supports the conclusion that the Defendants intentionally misrepresented
CommuniClique's revenues, valuation, and clients when soliciting investors. I further conclude that
the severity of the Defendants' violations supports the imposition of the maximum civil penalty of
$ .10,000 per violation (resulting in a total civil penalty of $1,080,000 for violations of the Act).

The evidence also demonstrates that the Defendants failed to comply with a subpoena issued
by the Commission, thereby supporting the imposition of an additional civil penalty in the amount

16 See Exs. 21 and 22.

17 See §§ 13.1-521 A and C of the Act.
18 See Rule 5 VAC 5-20-10 et seq.

19 Walker Agency Inc. v. Lucas, 215 Va. 535, 540-41 (1975).

20 See Ex. 22.

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of $10,000 pursuant to § 12.1-13 of the Code. The Division also established that the Defendants <©
should be required to pay the costs of the investigation in the amount of $10,000, and to make
restitution to investors totaling $9,890,293.2I ^
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Finally, in my assessment, the nature of the Defendants' conduct (as demonstrated by the €3
Division's evidence) supports the Commission's conversion of the TRO into a permanent injunction ^
prohibiting the Defendants from offering and selling securities in and from the Commonwealth of
Virginia and from engaging other agents or affiliates to offer and sell securities in and from the
Commonwealth of Virginia on their behalf.

FINDINGS AND RECOMMENDATIONS

Based upon the evidence presented and for the reasons explained above, 1 find that:

1. The Defendants committed at least 108 violations of the Act;

2. The Defendants violated § 12.1-13 of the Code by failing to comply with a Commission
subpoena;

3. The Defendants should be assessed the maximum civil penalty of $10,000 for each
violation of the Act and an additional civil penalty of $10,000 for failing to comply with
the Commission's subpoena;

4. The Defendants should be required to make restitution totaling $9,890,293 to the

investors identified by the Division;

5. The Defendants should be permanently enjoined from offering and selling securities in
and from the Commonwealth of Virginia and from engaging other agents or affiliates to
offer and sell securities in and from the Commonwealth of Virginia on their behalf; and

6. The Defendants should be required the pay the costs of the Division's investigation
totaling $10,000.

Accordingly, I RECOMMEND that the Commission enter an Order:

1. ADOPTING the findings of this Report;

2. FINDING the Defendants to be in default;

3. ASSESSING civil penalties against the Defendants totaling $1,090,000;

4. DIRECTING the Defendants to make restitution to investors in the amount of

$9,890,293;

21 id.

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es
5. DIRECTING the Defendants to pay the costs of the investigation in the amount of
$10,000; **
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6. PERMANENTLY ENJOINING the Defendants from offering and selling securities in ^
and from the Commonwealth of Virginia and from engaging other agents or affiliates to CJ
offer and sell securities in and from the Commonwealth of Virginia on their behalf; and

7. PASSING the papers herein to the file for ended causes.

COMMENTS

The parties are advised that pursuant to Commission Rule 5 VAC 5-20-120 C of the
Commission's Rules of Practice and Procedure, any comments to this Report must be filed with the
Clerk of the Commission in writing, in an original and fifteen copies, within twenty-one (21)
calendar days from the date hereof. The mailing address to which any such filing must be sent is
Document Control Center, P.O. Box 2118, Richmond, Virginia 23218. Any party filing such
comments shall attach a certificate to the foot of such document certifying that copies have been
mailed or delivered to all counsel of record and any such party not represented by counsel.

Respectfully submitted,

L%OfmA^hd^
A. Ann Berkebile
Hearing Examiner

The Commission's Document Control Center is requested to mail a copy of the above
Report to: CommuniClique, Inc., 11950 Democracy Drive, Suite 275, Reston, Virginia 20190;
Andrew B. Powers, 43571 Freeport Place, Sterling, Virginia 20166; CommuniClique, Inc., 4201
Wilson Boulevard, Suite 110-231, Arlington, Virginia 22203-1859; and Incorporating Services,
Ltd., Registered Agent, 7288 Hanover Green Drive, Mechanicsville, Virginia 23111.