Hitsgalore.com — Caveat Emptor?

Caveat emptor remains a sage maxim for those looking to buy Internet promotion on the cheap, as witness a published report that one of the founders of Hitsgalore.com Inc. failed to disclose he was accused of cheating customers last year at a previous firm.

The founder, Dorian Reed, and two co-defendants were ordered by a federal judge in Baltimore last month to pay $613,110 to 100 customers of Internet Business Broadcasting, an Internet advertising company that failed, according to a Bloomberg News report.

Hitsgalore’s market value soared from $53 million to $1 billion in three months. The site claims that for $99, customers can “make money sponsoring free lifetime banner placements.”

The Federal Trade Commission accused Reed and IBB of sending spam touting a 100 percent annual return on investments of $5,000 to $7,500 in its Internet advertising banners. It described Reed as IBB’s “principal telemarketer.” He and the co-defendants were ordered not to make false and deceptive statements in the future.

“We alleged they were lying to investors about how much money they could make,” FTC attorney Mona Sedky Spivack told Bloomberg. The judgment against the three was entered after the defendants failed to appear for trial.

Rancho Cucamonga, CA-based Hitsgalore.com was founded in July, four months after the FTC sued Reed. Reed became chief technology officer of Hitsgalore.com and Steve Bradford, a business associate not involved with IBB, became president. On Feb. 11, it went public by merging with Systems Communications Inc., a publicly traded shell company.

In the merger agreement, Hitsgalore.com said there were no suits or governmental investigations against any of its officers, directors or employees. It didn’t disclose the FTC’s case against Reed in filings with the SEC.

Reed refused to be interviewed when asked for comment by Bloomberg. Bradford said Reed developed the concept for Hitsgalore.com, which is similar to that of IBB.

On Monday, Hitsgalore.com said an organization called the Life Foundation Trust boosted its stake in the company with a $100 million investment. Hitsgalore.com stock gained 4 5/8 to 20 1/8. Hitsgalore, traded on the OTC market, closed Tuesday at 9 3/8, plunging a whopping 53 percent and losing 10 3/4 on the day.

Bradford, Hitsgalore.com’s president, told Bloomberg the trust has assets of more than $1 billion and is based in Arizona. He refused to say where.

Later in the day Tuesday, Hitsgalore issued a statement saying that it “stands by all documents filed on behalf of the company with the SEC.”

Bradford issued a statement saying: “Based on an initial investigation conducted by management, I do not believe that the company has made any fraudulent filing with the SEC or has violated the representations and warranties in the merger agreement in any way, as implied in the (Bloomberg) article. However, we have appointed a committee of independent directors to fully investigate this matter.”

Reed, in a statement, said: “More than one year ago I received the complaint from the FTC. I personally responded without the aid of a lawyer and I denied all allegations. I have heard nothing since I responded and I assumed the matter was taken care of last spring.”

Hitsgalore.com says on its site that it “is a business search community that provides valuable marketing tools free. Business visitors can receive ‘Free Lifetime Banner Placement’ just for visiting the site. The banner placement is offered free from one of hitsgalore.com’s sponsors who, for a fee are empowered to give away the ‘Free Lifetime Banner Placement’.”

“We do most all the selling” and there’s “no limit on your income for doing nothing more than being a sponsor,” Hitsgalore.com says. “Why not become a proactive sponsor and make a killing.”

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