Blu-ray Technologies Sued by state of CA

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California files suit against BlueRay
Parker Howell
Staff writer
June 25, 2008

The state of California has sued BlueRay Technologies, claiming the Spokane-based company and representatives should pay back at least $4 million in securities the company's founder and others allegedly sold fraudulently to investors.

California's corporations commissioner alleges CEO Erick Hansen and two other men lied or omitted facts when selling unauthorized securities to some or all of a dozen California investors in the past two years, according to a civil lawsuit filed Friday in Los Angeles County Superior Court. The lawsuit also asks that they be fined $25,000 per offense, or at least $900,000.

It's not the first time California's Department of Corporations has accused Hansen of fraudulently selling securities. In 1999 it ordered him and his then-companies to cease and desist for similar violations.

Hansen deferred comment to BlueRay attorney Steven Schneider.

"Our goal is compliance; to the extent that any investors want to have their interests repurchased at some point and don't want to be part of the company, we'll address that with the individual investors," said Schneider, who added the company had not been served with the lawsuit and would have a securities lawyer review it.

The company, which started near Los Angeles in 2005 and moved to downtown Spokane last spring, aims to manufacture and distribute Blu-ray discs ¡V a proprietary high-definition DVD format controlled by a consortium of corporations. It was hindered by debt and equipment issues but has received letters of support from city officials. Now the company hopes it will have the city's permission to operate its First Avenue plant in coming weeks.

The complaint names both BlueRay Technologies LLC, a California limited liability company, and BlueRay Technologies Inc., a defunct California corporation. It also names Matthew Richmond and Rob Reynolds, both of whom it alleges worked in investor relations for BlueRay, and 10 unknown individuals.

The parties sold unauthorized securities through cold calling and e-mailing prospective investors, and without making sure the investors were qualified under California law, the complaint alleges. They also "represented they were affiliated with the Disney and Sony corporation, which in fact was not true," the complaint claims.

Sony, Royal Philips Electronics and other companies run the Blu-ray Disc Association, which licenses the Blu-ray format. BlueRay Technologies is not a member.

The corporations commissioner alleges the defendants sold securities to more than 35 investors. In January, BlueRay Technologies LLC sent investors a memorandum stating, "In December 2007, the Company completed a private placement of 160 units of the Company's limited liability interests for a purchase price of $25,000 per unit - raising total capital of $4,000,000," according to the complaint.

Schneider asserted the regulatory action was prompted by BlueRay investor and former Chief Financial Officer Yelena Simonyan, who earlier this year sued the company to force it to turn over cor porate records. A Spokane County Superior Court judge last month sided with BlueRay, awarding it about $7,400 in attorneys fees.

"It was again used in a ploy in her action to try to disrupt the company," Schneider said.

Simonyan's attorney, Daniel Gibbons, denied that charge.

"Yelena Simonyan is not responsible for initiating this investigation," he said. "That can be confirmed by inquiry to the California Department of Corporations or by reference to material that's already in the record."

A spokesman for the Department of Corporations declined to say whether Simonyan had complained.The U.S. Securities and Exchange Commission late last year referred the matter to California regulators, according to a June 13 e-mail from a department attorney that Gibbons entered into the court record.

"Mr. Hansen was the subject of Desist and Refrain orders issued by the Department of Corporations in 1999 for the fraudulent sale of securities in a start-up DVD manufacturing enterprise, and his current efforts appear to mirror that earlier fraud," writes John Drews, corporations counsel for the department's Enforcement Division.

Schneider said prior investors who wanted their money back after the 1999 incidents "were satisfied," and a securities attorney for Hansen at the time had counseled that the cease and desist order was no longer in effect before the startup of BlueRay.

The Department of Corporations, however, claims Hansen violated those cease and desist orders.

One of Hansen's prior companies, Santa Clarita, Calif.-based DVD maker Optical Disc Media Inc., filed for Chapter 11 bankruptcy in 2002, listing debts of about $4.5 million. That company was harmed by debt and escalating power costs, Hansen said.

Today, the operation doing business as BlueRay is BlueRay Technologies LLC, according to its Web site, but there are several related companies. BlueRay Technologies Inc., a Washington corporation, owns the assets, while Washington company BlueRay Technologies and Manufacturing LLC runs the operation, Schneider said. Nevada company Pacific First West LLC owns the company's building, 1119 W. First Ave., and will merge with the Washington corporation if shareholders approve the move at a July meeting, he said.

Despite its financial and operational woes, BlueRay has received support from Spokane officials. Through a public records request, The Spokesman-Review obtained an April 14 letter from Mayor Mary Verner to "Finance and Technology Partners" endorsing BlueRay.

"We work closely with Mr. Hanson and his company because I am dedicated to successful growth in our City," Verner wrote. "I urge you to consider helping Blue Ray Technologies grow into a cornerstone for Spokane and Eastern Washington."

The mayor frequently gets requests to support businesses, and the letter was "meant to be basically a letter of introduction for BlueRay," including to two banks, said city spokeswoman Marlene Feist.

"In hindsight, she (Verner) thought this letter was a little more broad than she would have liked," Feist said.

In a meeting Friday morning, Hansen, accompanied by his pastor, discussed BlueRay's efforts to move the company toward production.

BlueRay recently purchased equipment from an undisclosed company to make "master stampers" used to manufacture Blu-ray discs, which it could sell to other companies in addition to producing pre-recorded Blu-rays containing movies or other media, Hansen said. He claims it would be one of few companies that would have that capability.

Company leaders still foresee five-employee BlueRay becoming one of the biggest companies in the area, they said. It also plans to employ at-risk youths from Pastor Vince Schott's West Central church, Hansen said.

"We are set and ready to go," said IT consultant Steve Sims. "We're the balloon that's ready to pop."

Reach Parker Howell at (509) 459-5491 or at parkerh@spokesman.com.