The founder and majority shareholder of Rancho Cucamonga, CA-based ad company Hitsgalore.com, Dorian Reed, spent 10 months in a federal prison after being convicted of wire fraud in 1992, according to published reports.
The disclosure was made in a regulatory filing by the company, according to Bloomberg News.
Earlier this month it was reported that a federal judge ordered Reed and his wife Audrey to pay $613,110 to 100 customers they defrauded at another Internet company two years ago. The Reeds were sued by the Federal Trade Commission.
Reed quit as director and chief technology officer of Hitsgalore.com after the revelation of the FTC suit.
Hitsgalore.com shares have slumped to 5 7/16 since the FTC action against Reed was reported. The stock traded as high as 20 11/16 on May 10.
The filing disclosed for the first time that the company’s $10 million private sale of two million shares announced on April 21 doesn’t require the buyer to give the company any cash for 12 months. When it announced the investment, Hitsgalore.com said it would use the proceeds to fund a national radio advertising campaign.
The investor, Life Foundation Trust of Scottsdale, AZ, secured its investment with a stamp collection it valued at $50 million, according to the filing. The 10-K filing said Life Foundation Trust also agreed to spend another $10 million to buy Web sites from Hitsgalore.com that contain local content, called Local City Editions, over the next 12 months. The second $10 million, not previously announced, was also secured by the stamp collection, the 10-K said.
On May 10, Hitsgalore.com’s shares soared 30 percent after the Trust said it would invest $100 million in Hitsgalore.com. Three days later, the trust said it would pay for the shares with interests in Texas oil and gas wells.
Life Foundation claims to have charitable goals, including feeding the hungry, providing clothing and shelter to the needy, education to the uneducated and ministering to spiritual needs, Bloomberg said. Its trustee, Jeanette Wilcher, has declined requests for interviews.
Hitsgalore.com’s site claims customers can earn 400 percent returns. The company, founded by Reed in July, had revenue of $17,800 in 1998. In March, Reed and minority shareholders merged it with Systems Communications Inc., a Florida-based shell company, in exchange for 37.7 million Systems Communications shares. The surviving company is called Hitsgalore.com.
The 10-K said Reed was unaware of the FTC’s judgment against him until he learned about it through news reports. Reed maintains he filed an answer to the FTC’s complaint in April 1998 and assumed the matter was over, Bloomberg said.