HOUSTON (CN) — The founder of a Houston company that developed video analysis software that imitates the human brain surrendered to federal agents Thursday to face securities and wire fraud charges that could send him to federal prison for the rest of his life.
Ray Charles Davis, 62, made his initial appearance Thursday in Houston Federal Court.
Looking like a professor, in glasses, a dark blue jacket and black slacks, Davis rubbed his shackled wrists and winced as U.S. Magistrate Judge Dena Palermo read the charges against him.
A sealed Dec. 7 federal indictment charged Davis with mail fraud and 20 counts of wire fraud. It was unsealed Thursday after his hearing. Each count carries a maximum sentence of 20 years in federal prison. He could be fined up to $10 million if he’s convicted.
Davis is accused of defrauding investors in Behavioral Recognition Systems Inc., which he founded in 2005, of $32 million and using shell companies and phony invoices to embezzle $11 million from the company.
He is represented by prominent Houston attorney Dick DeGuerin, known for persuading a Texas jury that Robert Durst, the eccentric real estate scion facing first-degree murder charges in California, acted in self-defense when he killed his Galveston neighbor Morris Black in 2001, though Durst admitted in court that he’d dismembered Black’s body.
Judge Palermo balked when a prosecutor told her that he agreed with the pretrial services department’s recommendation to release Davis on a $20,000 unsecured bond.
“A $20,000 unsecured bond isn’t acceptable in light of the charges,” she said.
DeGuerin asked Palermo to grant the recommended bond, saying Davis has been cooperating with an investigation by the Securities and Exchange Commission, launched in February after Davis and his son were sued by Davis’ former company Giant Gray, in Harris County Court.
Davis got more bad news Thursday, when the SEC filed a securities fraud lawsuit against him, his wife, Behavioral Recognition Systems and two of Davis’ alleged shell companies after his hearing before Palermo.
Nonetheless, DeGuerin argued: “Mr. Davis is neither a flight risk nor a danger to the community. And he has a very serious medical condition. He is unable to eat solid food. He is fed through a feeding tube. He has to take medications every couple hours. He was emergency hospitalized this week for reinsertion of a feeding tube. He’s tethered to his doctors.”
DeGuerin offered to give Palermo two medical reports from Davis’s doctors, but she refused to budge on the bond. She took a 15-minute recess to look into Davis’s finances, during which Davis rocked in a chair in the jury box and smiled as he listened to two marshals and a security guard chat a few feet from him by the jury box railing, seemingly at peace with his surroundings despite the charges he’s facing.
He closed his eyes amid the murmur of five whispered conversations and his wife huddled in a corner of the courtroom with a pretrial services staffer, who took notes with a clipboard in hand.
Palermo returned to the bench and quickly explained why she could not let Davis go free on the recommended bond.
“OK. I do not have adequate information. … I understand you went to pretrial and talked to pretrial services. But I am not letting Mr. Davis out on a $20,000 unsecured bond. I want to have a better picture of his financials so I can determine the appropriate amount to require him to post in order to be released on bond. … This information that he provided to pretrial is not accurate.
“I mean, his house is appraised at $400,000 more than he said, and [his pretrial form] doesn’t have any indication of where his assets are from the sale of his company. He sold his company and he has some money from that. He owned other companies as well. So there’s a huge gap in the financial information that he provided to this court.”
Palermo urged DeGuerin to get her Davis’ financial statements, saying it shouldn’t take more than an hour.
“How long would you like us to keep him in the building for today?” a stocky marshal in a gray suit asked Palermo.
“Keep him until … I’m leaving at 3 p.m. If they can’t come up with the stuff by three, then I’ll see you tomorrow morning,” Palermo said.
DeGuerin objected: “He has very serious medical issues.”
“I don’t want to keep him overnight,” Palermo said. “I’m not trying to put him in jail. I’m trying to get information so I can make a determination that makes sense, and I don’t want to just pick an arbitrary number out of a hat. I’m just trying to make a reasonable determination. Get me the information so I can make a reasonable determination and I’ll let the man go, OK? I don’t think it’s that difficult.”
Davis tried to interject: “May I speak,” he said quietly.
“Don’t talk,” Palermo said. “Your attorney doesn’t want you to talk.”
DeGuerin: “We need to get some medicine into him right away.”
Palermo asked a marshal if it was a problem for Davis to take his medicine in the courthouse.
Marshal: “Your honor, generally we don’t administer medication here. It happens at medical facilities.”
Palermo: “No, it can’t wait. He’s got serious medical conditions. I don’t want to have to rush him out to the hospital. Let him have his medicine. His wife’s got it. As long as it’s in real prescription bottles and it doesn’t look like illegal drugs, let him have whatever he needs.”
Houston attorney Andino Reynal represents Davis’s son Charles Davis in the civil lawsuit.
Reynal said after the hearing that he believes the SEC’s federal charges came out of the civil case because it makes similar allegations against Davis.
“I think the prosecutors probably homed in on the civil case. Interestingly enough, they included securities fraud here; there’s no securities fraud claim in the civil case,” Reynal said.
Reynal said the difference between the civil and criminal case is that Giant Gray “made some conclusory allegations” against Charles Davis.
Asked if Charles knew anything about his father’s alleged fraud, Reynal said he’s confident Charles was not involved.
“It’s a big company. It employs a lot of people, 40,” Reynal said. “Charles Davis the younger worked for the company but he was not on the board of directors, he wasn’t in the accounting department, he was not in charge of vendor payables or receivables. The dad was the CEO. He founded the company.”
Palermo set Charles Davis’s unsecured bond at $250,000 and he was released Thursday after his attorneys made a $50,000 deposit.
Behavioral Recognition Systems Inc. changed its name to Giant Gray in 2016 to reflect new management. Giant Gray formed a new company this year, OMNI Ai to which Giant Gray transferred its intellectual property, employees and office space, according to sources familiar with the company.
OMNI Ai, says on its website that its video analysis software “discriminates between normal and abnormal events from a variety of input data” and is capable of learning on its own.
“It does not rely on predefined patterns to identify events and anomalies but instead learns patterns,” the site states. The software is used by security firms.