The SEC continues to focus on offering fraud cases. This time the action is against a securities law recidivist, his company and a person working with the entity as an unregistered broker. SEC v. Hurd, Civil Action No. 13-cv-04464 (C.D. Cal. June 20, 2013).
The case centers on the sale of interests in defendant Your Best Memories International, Inc., beginning in 2010 and continuing through the fall of 2012. Your Best Memories, formed by defendant Robert Hurd, who had a cease and desist order entered against in the by the Pennsylvania Securities Commission in 2009, was suppose to raise money for the promotion of memory improvement products. Shares in the company were sold to investors by Mr. Hurd, defendant Kenneth Gross and others supervised by them.
The scheme began in June 2010 when Mr. Hurd entered into an arrangement with Moving Pictures, Inc., to promote its products. That company, formed in 2009, sold a DVD containing a digital slideshow of photographs familiar to an individual suffering from memory loss. The photos, set to select background music, were supposed to aid memory. Later the company developed a second product called Your Best Memory Oil. It was virgin coconut oil claimed to serve as a memory-enhancing therapy.
Under the arrangement between Mr. Hurd and the founder of Moving Pictures, securities would be sold in Your Best Memories to raise money for the development of the memory products. The investor funds raised would be split with 40% to Moving Pictures and 60% to Your Best Memories.
Beginning in July 2010 Messrs. Hurd and Gross supervised salesmen marketing the securities of Your Best Memories. Using a script, investors were told that their money would go toward two proven treatments for Alzheimers disease. Investors were assured orally and through written materials that in large part their funds would go for the marketing of Moving Picture products. Under the terms of the subscription agreement investors would be paid a cash distribution of 8% per year, payable quarterly.
The sales representations were false and misleading, according to the Commission’s complaint. In fact at least 37% of the investor funds were taken by Mr. Hurd. Portions of those funds were misappropriated by him. Only fractions of the money went to Motion Pictures. In addition, the offering materials contained misleading disclosures regarding the payment of commissions. While investors did in fact receive some payments, those were funded with money from other investors.
In mid-2012 investors were told in a newsletter that the Best Memory Oil product had received FDA approval. This claim was false, according to the SEC’s complaint.
Over the approximately two years shares of Your Best Memories were sold, about $1.2 million was raised from 50 investors in 18 states. The Commission’s complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) and 20(a). The case is in litigation. See also Lit. Rel. No. 22732 (June 21, 2013).