AEI is Kenneth Atchity's company. They are a literary AND screenplay agency.
I wouldn't say they are necessarily a scam--they have handled some books and authors who did quite well, like Steve Alten (author of the bestseller "Meg" and a host of other Jaws-like stories).
I think the reason they are on the Not Recommended list is because they not only represent screenplays and books, but also provide editing services, and offer to teach you to write, and package script/book deals from writers they have edited, etc. etc. They are definitely not in compliance with the AAR Canon, and don't pretend to be--and, by the rules of the P&E website, they deserve their classification.
I'm by no means recommending them, but they ARE in the business of agenting books and screenplays, not just separating fools from their money. (They MAY be in that latter business, too.) I wouldn't shy from an agent simply because he has a past connection with them; if he sold important books while he was there, I would consider it a plus rather than a minus. Ask what he sold.
PS. Atchity is the author of a very eccentric book on writing, entitled "A Writer's Time." I read it once, and am still unsure if it was a work of genius or utterly worthless. But it's unique.