The founder of a Houston software company accused of embezzling money from his own company and defrauding investors in a $32 million scheme was taken into federal custody Thursday.
Ray C. Davis, 62, who founded Behavioral Recognition Systems more than a decade ago, was charged with securities and wire fraud, according to the 21-count indictment handed down by a grand jury Dec. 7 and unsealed Thursday.
Davis initially appeared in court in shackles and handcuffs while wearing a white dress shirt and gray business suit. By the afternoon, he was brought into court in a wheelchair and ankle cuffs because he relies on a feeding tube and suffers from hypoglycemia. He was allowed to post a $250,000 bond. And he received permission from a federal judge to leave town to attend a Miami boat show, where he may try to liquidate an antique vessel he owns.
Davis lawyer Dick DeGuerin said his client is not guilty of the charges.
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“There’s a lot more to this than is in the indictment,” he said. “We’re going to fight this. It’s going to take a while. It’s going to be complex.”
The company that blew the whistle on the alleged criminal activities on Thursday was charged in a civil case with federal securities violations. The Securities and Exchange Commission accused Behavioral Recognition Systems, which changed its name last year to Giant Gray, of working alongside Davis in a fraudulent scheme, according to court records.
The company, which sells the technology behind business security systems, including video monitoring, artificial intelligence, facial recognition software and other products, raised $28 million from investors over a two-year period beginning in 2013. It was to be used for working capital, mezzanine funding and to build the business, according to the SEC. But the agency alleges that Davis siphoned off $7.8 million for his own use, including transfers to his bank account and to buy art, jewelry and antiques.
Giant Gray and its lawyer could not be reached for comment.
The indictment and SEC lawsuit are the latest developments in a complicated saga involving Davis, who founded Behavioral Recognition Systems in 2005 and served as its chairman and chief executive officer.
Earlier this year, Giant Gray accused Davis and his son, Charles, a former executive vice president, of stealing more than $15 million by creating fraudulent invoices and charging personal expenses, according to the lawsuit the company filed in state district court in Harris County. The suit, which alleges fraud, breach of fiduciary duty and unjust enrichment, seeks to recover the money allegedly diverted from Behavioral Recognition Systems. Giant Gray alleged that Davis used company funds to pay for medical bills, theater tickets and other personal expenses.
The record of personal expenses was found after he left the company, according to Giant Gray’s lawsuit.
Both father and son denied all charges against them in the civil case, according to the responses they filed in court.
Houston lawyer David Isaak is representing Ray Davis in the civil lawsuit and referred all comments to DeGuerin.
In August, Charles Davis filed a counterclaim against Giant Gray, alleging the software company breached his employment contract when he was terminated last year.
Thursday’s criminal indictment against Ray Davis alleges that he opened bank accounts and transferred millions of dollars from Behavioral Recognition Systems to shell companies he owned. Davis used false invoices to conceal the money transfers for an eight-period period beginning in 2008, according to the indictment.
Federal prosecutors are seeking forfeiture of $32 million from Davis. He faces a maximum of 20 years in prison.