SECURITIES AND EXCHANGE COMMISSION Washington, D. C. Litigation Release No. 15660 / March 5, 1998 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 issued a decision granting the Commission s motion for summary judgment on all of its claims against the defendants, Robert N. Taylor and the Better Life Club of America, Inc., and the relief defendants, Wilkins McNair, Jr., CPA, as Trustee, and Elizabeth Lawson. Judge Hogan held that Taylor and his Washington, D.C.-based Better Life Club engaged in securities fraud and the unlawful sale of unregistered securities by perpetrating a massive Ponzi scheme called the Better Life Club Advertising Pool, in which numerous middle- and working-class investors across the country lost more than $25.8 million. The court entered a permanent injunction against Taylor and the Better Life Club and ordered them to pay approximately $25.8 million in disgorgement and restitution, plus prejudgment interest, to the court-appointed Receiver, Michael J. Missal, for distribution to the defrauded investors. The assets to be disgorged include approximately $2.5 million of Better Life Club funds frozen at the outset of the case and a house in Fort Washington, Maryland, and at least three automobiles that Taylor purchased with Better Life Club investor funds. In his 34-page decision, Judge Hogan found that Taylor raised more than $45 million from investors in the Advertising Pool between January 1, 1993, and August 31, 1995, promising to double each investor s money in either 60 or 90 days. Through the Better Life Club s so-called wealth building seminars, publications, fliers, letters, and other promotional efforts, the investors were told that their funds would be used to advertise Better Life Club 900-lines and to promote other profit-making business activities. The court found, however, that almost all of the funds that were coming into Better Life Club accounts were made up of new investments, not of profits from Club activities. None of the Club s profit making ventures ever managed to turn a profit. Judge Hogan noted that even the defendants admitted that the vaunted 900-number services failed to generate any income. When the SEC filed the action and obtained a freeze of the defendants assets on September 1, 1995, the Club had investor obligations in excess of $51.6 million coming due in the next ninety days, yet had only $2.7 million in the bank. It was thus apparent, Judge Hogan concluded, that Taylor s grand pyramid scheme was teetering on the verge of collapse when [the Commission] stepped in to end the masquerade. ======END OF PAGE 1====== The court also found that Taylor had received substantial sums of money from at least 27 Better Life Club bank accounts during his two and a half years at the Club s helm. According to a report filed by Mr. Missal, Taylor received in excess of $800,000, and perhaps as much as $1.2 million; Judge Hogan noted that the net amount of Taylor s withdrawals may in fact have been even higher. Besides withdrawing cash, Taylor used investor funds to finance the purchase of a house in Fort Washington, Maryland, build a 40-foot swimming pool, buy at least three automobiles, and create trusts holding $120,000 for his two sons. In granting summary judgment, Judge Hogan found that the Commission had submitted evidence establishing that there is no genuine dispute concerning any fact material to its claims. The court held that Taylor and the Club violated Section 10(b) of the Securities Exchange Act of 1934, Commission Rule 10b-5, and Section 17(a) of the Securities Act of 1933, which prohibit material misrepresentations in connection with the offer or sale of securities. Holding that investments in the Advertising Pool constitute investment contracts, a type of security, Judge Hogan found that the defendants never revealed to potential investors that the Advertising Pool was nothing more than a pyramid scheme; thus, the entire solicitation process was itself a broad misrepresentation on the grandest scale. In addition, because the defendants never registered the Advertising Pool with the Commission, the court also found that the defendants had engaged in the sale of unregistered securities in violation of Section 5 of the Securities Act of 1933. Judge Hogan also granted summary judgment on the Commission s claims against Taylor s accountant, Wilkins McNair, Jr., and Taylor s former living companion, Elizabeth Lawson, ordering them to disgorge fraudulently obtained investor funds and other assets that Taylor gratuitously gave to them. In particular, McNair was ordered to pay $120,000, plus prejudgment interest, that Taylor gave to him as trustee for Taylor s two sons. Judge Hogan found that McNair took the money in exchange for worthless shares of stock in a failing mortgage company founded and owned by McNair himself. Lawson was ordered to turn over her interest in the Fort Washington house that she owns jointly with Taylor (less the amounts of mortgage payments she has made); a $50,000 loan and $8,000 consulting fee that Taylor paid to a business owned by Lawson; a 1992 Jaguar XJ6 (less a credit for her contribution to the purchase price); and a $7,500 cashier s check. Taylor gave the loan, consulting fee, and Jaguar to Lawson shortly after he learned that he was under investigation by the Commission in the summer of 1995. At the conclusion of his opinion, Judge Hogan observed: The net effect of defendants fraud is that hundreds of middle-class, small-scale investors are left holding losses that exceed $25 million. Defendants are liable to pay that full amount in restitution to the defrauded investors, and the relief defendants must disgorge the money and gifts that they received. Even with such disgorgement and liability, however, it is uncertain that the investors will ever recoup the full amount of their economic losses, much less regain the trust and peace of mind that defendants have so callously stolen from them. Taylor, age 48, is currently serving a 41-month sentence in a federal ======END OF PAGE 2====== correctional institution in Petersburg, Virginia. See SEC Litig. Rel. No. 15277 (Mar. 7, 1997). In July 1996, he pled guilty to one count of wire fraud and one count of criminal contempt based on his hundreds of violations of the asset freeze order entered by Judge Hogan to preserve the investors funds pending the outcome of the Commission s case. See SEC Litig. Rel. No. 14988 (July 23, 1996). McNair, 40, an accountant in Baltimore, Maryland, was previously held in civil contempt of the court s asset-freeze order and ordered to disgorge $380,455 in prepaid, unearned fees he received from Taylor. See SEC Litig. Rel. No. 14914 (May 21, 1996). Lawson, 44, resides in Fort Washington, Maryland. ======END OF PAGE 3======