FAQ: SEC v.
|SEC v. The Better Life Club of America, Inc., and Robert N. Taylor, Defendants, and Wilkins McNair, Jr., CPA, as trustee, and Elizabeth Lawson, Relief Defendants, United States District Court for the District of Columbia, Civ. No. 95-1679 (TFH)|
On February 27, 1998, Judge Thomas F. Hogan of the United States District Court for the District of Columbia ruled in favor of the Securities and Exchange Commission in its lawsuit against the Better Life Club of America, Inc., and Robert N. Taylor. For a description of Judge Hogan's decision see: LR-15660: Robert N. Taylor and the Better Life Club of America, Inc., Wilkins McNair, Jr., and Elizabeth Lawson. Judge Hogan's decision has been affirmed on appeal by the United States Court of Appeals for the District of Columbia Circuit.
On August 5, 1998, Judge Hogan approved a plan to distribute all available assets of the Better Life Club and Robert Taylor to investors who lost money in the Better Life Club Advertising Pool. Investors who wished to participate in the plan were required to submit proofs of claim to Michael Missal, the receiver appointed by Judge Hogan, by March 9, 1999. Approximately, 3,600 investors submitted claims. Since the deadline has passed, no new claims will be accepted. Mr. Missal is now attempting to verify the accuracy of the claims submitted. This may involve another mailing to some investors.
Mr. Missal is also in the process of collecting additional funds for the benefit of the investors. Based on settlements with Mr. Taylor's accountant and other parties, Mr. Missal expects to receive additional funds by the end of the year. In addition, Judge Hogan recently ordered that a number of investors who made substantial profits from the Advertising Pool return those profits to the Receiver. Mr. Missal is now attempting to collect those profits. Any funds collected would increase the amount of money that will be returned to the investors. Mr. Missal plans to wait until he collects these additional funds before sending out any checks to investors. He does not anticipate distributing any funds to investors until next year.
Even with the additional funds, investors who have filed valid claims should not expect to receive back more than ten percent of their net losses in the Advertising Pool. Your net loss is calculated based on the total amount you invested with the Better Life Club minus any funds you received back from the Club.
Thank you for your patience.
This investor alert answers some of the most frequently asked questions we have received from Better Life Club investors.
A Ponzi scheme is illegal because investors are not told that their money is simply being used to pay earlier investors. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and many people lose their money.
Why did the SEC freeze the BLC's assets when investors had always been paid on time?
Because the Club did not have anywhere near enough money to keep paying off its promissory notes. When we filed the case, the Club owed investors over $50 million, but it had only about $2.7 million in the bank. Freezing the money also prevented Mr. Taylor from taking more of it for himself. He had already spent roughly $1.2 million of investor money on a house, a swimming pool, cars, and other personal items.
Could Robert Taylor have continued to double BLC investors' money?
No. As Judge Hogan found, on September 1, 1995, Mr. Taylor had only about $2.7 million in the bank but was obligated to pay investors more than $50 million over the next three months. Since the BLC made no profits from any legitimate business activity, Mr. Taylor had to raise this $50 million from new investors. It would have been virtually impossible for him to pull in such an enormous amount of money from new investors by December 1, 1995. But even if he had found a way, he then would have owed those new investors over $100 million by March 1, 1996. The doubling would have continued every three months—and there was no way for Mr. Taylor to get out of it without defaulting. Like all Ponzi schemes, the "Advertising Pool" was doomed to fail and leave thousands of investors empty-handed.
Why did the SEC move so quickly to shut down the "Advertising Pool"?
Once the SEC uncovered evidence that the "Ad Pool" was a Ponzi scheme, it filed suit to stop it immediately. The longer the "Ad Pool" continued, more and more people would have lost their investments. And the greater Robert Taylor's opportunities would have been to take additional investor money for himself.
Will investors get some of their money back?
Yes, but only investors who lost money overall in the "Ad Pool" and who submitted timely and valid claim forms. There is not enough money available to double any investments or to repay investors who made more money in earlier investments than they lost when the Club's assets were frozen.
What if an investor lost money in the "Ad Pool" but has not submitted a proof of claim?
Such an investor will not be able to participate in the distribution plan. The deadline for submitting claims was March 9, 1999.
How much will investors get back?
Unfortunately, at this point it looks like investors who lost money will get back less than 10 cents on the dollar.
What happened to the money?
Most of it was paid out to earlier investors, who saw their money double. The doubling was made possible with the money of later investors. Mr. Taylor also spent approximately $1.2 million of the investors' money on a house, pool, Ford Crown Victoria, Jaguar, trust funds for his children, etc. Mr. Taylor also made so-called loans of $1.2 million to various people, many of whom were his friends and BLC insiders, and then made little or no effort to get back the principal or any interest.
Has Robert Taylor been prosecuted criminally?
Yes. On July 22, 1996, Mr. Taylor pleaded guilty to criminal contempt of court and wire fraud. In his guilty plea, he admitted hundreds of violations of Judge Hogan's asset-freeze order, which is intended to preserve the investors' money until the conclusion of the SEC's case. Mr. Taylor admitted that he hid about thirty bank accounts holding over $1 million of investor funds, withdrew over $325,000 from these concealed accounts, and cashed out and dissipated about $80,000 of the equity in his house (which he had bought using investor funds). Judge Hogan later sentenced Mr. Taylor to 41 months in prison. Mr. Taylor has completed serving his prison term.
What should investors be doing now?
If you have submitted a timely proof of claim, you should keep all documents and papers concerning your investment. This includes all Form 60s or 90s, canceled checks showing the date(s) and amount(s) of your investment(s), and all records of BLC payouts you received. You may need these documents to establish the amount of your loss.
Are "Ad Pool" losses deductible for tax purposes?
We cannot give tax advice. You may call the Internal Revenue Service (IRS) with your tax questions Monday through Friday during regular business hours at (800) 829-1040. To order free IRS publications and forms, please call (800) TAX-FORM. You may also wish to contact your state and local taxing authorities.
How can investors stay informed about the case?
Call the SEC's special toll-free investor hotline at (800) 732-0330. The hotline is available 24 hours a day and is constantly updated as new developments occur.
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