HOUSTON (CN) — A Houston man defrauded members of his “success club” of $4.7 million, skimming nearly $2 million off the top, after making them take “an oath not to criticize him,” the SEC claims in a federal complaint.
Darrell Glenn Hardaway ran his company, Hardaway Net-Works, into the ground, until it “barely had a pulse,” the SEC says in the Feb. 17 complaint.
Hardaway was part of the “inner circle” of Global Information Network, a pyramid scheme founded by convicted fraudster Kevin Trudeau, the SEC says. Trudeau is serving a 10-year criminal contempt sentence in an Alabama federal prison camp.
A federal judge in Chicago sentenced Trudeau in November 2013, after finding he had lied in infomercials that his book “The Weight Loss Cure ‘They’ Don’t Want You To Know About,” contained simple weight-loss techniques.
But the book recommended people take prescription injections of a hormone found only in pregnant women, the Chicago Tribune reported. Trudeau’s Global Information Network also made bogus claims.
“The purpose of the club is to enable people to have, be, or do whatever they want in life,” the narrator says on a Global Information Network promotional video on YouTube, cited in the SEC lawsuit.
The ad claims the network has members in more than 120 countries.
“You’ll be able to network with very successful businessmen worldwide. Our parents and grandparents told us that success in life is largely based on not what you know but who you know. In GIN we say it a little different: It’s who knows you. And as a GIN member other GIN members will know you,” the ad’s narrator gushes with a British accent.
Global Information Network makes club members take an oath to never criticize their peers, making them “the perfect fraud victims for Hardaway,” who defrauded more than 100 of them, the SEC says in the lawsuit.
It claims that from 2010 to 2016 Hardaway raised $4.7 million through a barrage of emails promising investors who bought preferred shares in Hardaway Net-Works that after the company’s “ever-impending” initial public offering they could sell the stock for massive profits.
Hardaway has a journalism degree from Louisiana State University, but has never registered with the SEC. He also lured investors with a series of fraudulent “limited-time” offers, the SEC says.
“Hardaway told investors that if they invested within certain specified time periods, their preferred shares would be convertible to a certain number of post-IPO common stock shares. This ratio ranged from 1:3 to 1:6,” the complaint states.
“In addition, as early as June 2011, Hardaway started a ‘matching program.’ He promised investors in the program an ‘equivalent’ number of shares in ‘every company HNW acquires during the next five years.’”
The SEC says that although Hardaway Net-Works did contract in 2010 and 2011 to provide internet and IT services for a few Houston hotels, the business was an abject failure because Hardaway helped himself to its money while making questionable investments.
“In truth, HNW barely had a pulse,” the SEC says in the complaint. “From 2010-16, HNW’s total revenue was a meager $24,812 from only a handful of customers. By comparison, it had total expenses of approximately $5 million during the same period — over 200 times revenues. Nearly $2 million of these expenses went to fund Hardaway’s lifestyle, rather than toward legitimate business expenses. These payments took the form of both salary and ‘expense reimbursements.’ Hardaway concealed from investors both HNW’s awful financial state and his misuse of funds.”
Among the goodies that stuck to his fingers, the SEC says, were $924,000 in salary, $285,000 on travel and hotel fees for European vacations and trips to Global Information Network conferences, $50,000 for a movie production, $137,500 in private equity, $95,000 on foreign currency trading, $64,000 in “loans,” more than $210,000 on personal items in credit card purchases, and $116,000 from 505 ATM withdrawals.
The SEC seeks disgorgement, restitution, penalties for violations of the Exchange Act and Securities Act and an injunction barring Hardaway from being an officer or director of any company that issues SEC-registered securities.