U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 24013 / December 14, 2017
Securities and Exchange Commission v. Ray C. Davis and Behavioral Recognition Systems, Inc., n/k/a Giant Gray, Inc., No. 17-cv-03774 (S.D. Tex. filed Dec. 14, 2017)
Houston Technology Company, Former CEO Charged with Defrauding Investors
The Securities and Exchange Commission today charged a Houston technology company and its former CEO with fraudulently raising approximately $28 million from investors and then diverting more than $7.8 million of those proceeds for the former CEO’s personal benefit.
According to the SEC’s complaint filed in U.S. District Court in Houston, Behavioral Recognition Systems, Inc. (BRS) and CEO Ray C. Davis, solicited over $28 million from hundreds of investors through repeated lies, such as that investor funds would only be used for working capital and BRS only paid Davis a nominal salary. In reality, as the complaint alleges, BRS and Davis secretly diverted millions of dollars of investor money for Davis’s personal use, including to purchase ancient jewelry, gold, and other artifacts and to fund Davis’s and his wife’s joint bank account. BRS and Davis allegedly covered their tracks using fake invoices in the names of two shell companies Davis controlled, the Blackstone Group, Inc. and Afcon Communications, Inc., purportedly for services they provided to BRS. Davis also allegedly invented a fake company and used fictitious invoices in that company’s name to cause BRS to send payments to an antiques broker for Davis’s personal purchases. The invoices listed a purported address for the company in Australia; however the address was for an Australian cemetery where an individual is buried with the name of the fake company.
In a parallel action, the U.S. Attorney’s Office for the Southern District of Texas today unsealed criminal charges against Davis.
The SEC’s complaint charges BRS and Davis with violating Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, BRS with violating Section 17(a)(2) of the Securities Act and Rule 10b-5 under the Exchange Act, and Davis with violating Rules 10b-5(a) and (c) under the Exchange Act and aiding and abetting BRS’ violations of Section 17(a)(2) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. The SEC seeks permanent injunctions and disgorgement of allegedly ill-gotten monetary gains plus interest from BRS and Davis, and a civil penalty from Davis. The SEC also names the Blackstone Group, Afcon and Davis’ wife, Debra Davis, as relief defendants for the purpose of recovering investor proceeds.
The SEC’s investigation was conducted by George Bagnall, Jonathan Carr, Joseph Griffin, Bertram Braganza, and Donato Furlano. It was supervised by Stacy Bogert, Peter Rosario, and Antonia Chion. The litigation will be led by Gregory Bockin and supervised by Cheryl Crumpton. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Texas and the Federal Bureau of Investigation.
https://www.sec.gov/litigation/litreleases/2017/lr24013.htm