The SEC has filed fraud charge against Behavioral Recognition Systems, Inc. and its former CEO Ray C. Davis. According to the Commission, the Houston-based technology company, and Davis solicited over $28M from hundreds of investors, diverting over $7.8M to the latter’s personal use.
Between 1/2013 and 7/2015, investors targeted in the alleged Texas securities scam were solicited for funds and their involvement in seven equity securities offerings. “Material misrepresentations and misleading statements” were allegedly made to them about: how investor proceeds would be used, executive compensation, operating costs, and related party transactions.
The regulator’s complaint, claims that Behavioral Recognition Systems and Davis lied more than once in order to get investors to give them their money. Offering documents claimed that investor money would go toward “working capital,” “growth, “mezzanine funding,” and “general corporate purposes” for Behavioral Recognition Systems. Instead, contends the SEC, Davis used shell companies under his control to divert about $11M of investor money for his own use–$7.8M of that money was allegedly diverted during the period at issue. Bogus invoices from the shell companies for services purportedly rendered were then generated to conceal the fraud.
Davis allegedly used millions of investors’ money to buy gold, ancient jewelry, and other artifacts, including $697K in payments to an antiques broker to pay for such items. He also is accused of transferring $5.2M to a joint account belonging to him and his wife.
The SEC said that Davis sought to make these purchases seem “legitimate” by setting up LS Farrow, which was a fake entity. He submitted invoices to BRS charging the company for “financial services” provided by LS Farrow, even though the latter wasn’t a real company and did not provide any services.
Now, the regulator is pushing for permanent injunctions, a civil penalty against Davis, and disgorgement of ill-gotten gains plus interest. Meantime, Texas prosecutors are pursuing a criminal securities case against Davis.
Texas Securities Lawyers
At Shepherd Smith Edwards and Kantas LTD LLP, our Texas securities fraud attorneys help investors in Texas and throughout the US in recouping their securities losses.
If you bought or acquired BRS securities and would like to explore your legal options, contact our Houston securities law firm today.
Read the SEC Complaint (PDF)
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