fraud

Oregon Regulator Shuts Down 2 Marijuana Businesses for Rule Violations

The Oregon Liquor Control Commission is sending a strong message that marijuana establishments must comply with the regulations or be shut down permanently. The Commission shut down two licensees based on significant regulatory violations including misrepresentation and evidence tampering. The Commission’s decision to terminate the license of serious rule offenders is consistent with last month’s determination to revoke the license of Black Market Distribution due to recidivist activity.

First, the Commission upheld the temporary suspension by an administrative law judge of the Corvallis Cannabis Club’s retail license due to federal criminal investigations. The Commission charged the Corvallis Cannabis Club with five (5) violations following a search warrant that was executed by federal investigators.

The Commission also cancelled the recreational marijuana producer license held by the High Cascades Farm of Bend for thirteen (13) significant violations ranging from performing activities outside the authorized scope of the license, misrepresenting the destruction of marijuana plants, intentionally destroying or concealing evidence, and failing to disclose financial owners. The violations cited by the Commission show an intentional attempt to circumvent the regulations for the entity’s financial benefit.

Compliance with regulatory requirements is going heavily scrutinized as the marijuana industry matures and more states enter into the market. Regulators are armed with significant information through the seed-to-sale tracking systems that allow them to identify potentially fraudulent activity which they have the broad authority to investigate. Licensees must be familiar with the regulatory requirements and ensure that compliance systems are in place to identify any misconduct or failing controls. The penalties for failing to do so are significant and can result in the loss of a business.

CANNABIS INVESTMENT FUND STEALS $3.3 MILLION

The SEC filed a compliant against Michael E. Cone and Greenview Investment Partners, L.P., a cannabis investment fund, for securities fraud.  From August 2017 through March 2018, Cone, a convicted criminal, used an alias and a boiler room to fraudulently raise $3.3 million from 60 investors across 26 states. Marketing materials indicated that investor's fund would be invested in cannabis related businesses that would generate a 24% annual return. In reality, Greenview had no prior  track operational track record or investment success. The money was used to fund Cone's personal expenses, including several luxury cards, and a substantial portion of the money was used to pay ponzi scheme investment returns.

The FBI raided Greenville's offices in February 2018 and seized $1.4 million in cash and assets including Rolex watches, a 2017 Bentley Flying Spur and a 2015 Rolls Royce Wraith. In March 2018, Cone was arrested on an outstanding warrant in Reno, Nevada.

The SEC also released an Investor Alert that highlights the risk of investing in cannabis related stocks.  The SEC states that investors should be wary of any unregistered person contacting them with an investment opportunity that offers a fixed, large rate of return.  

Investor Alert:  Marijuana Investments and Fraud
www.sec.gov/oiea/investor-alerts-and-bulletins/ia_marijuana

 

SEC FINES PERSON FOR CANNABIS STOCK SALES

The US Securities and Exchange Commission brought an action against Richard J. Greenlaw for using Craigslist to sell unregistered securities in companies that market CBD.  Greenlaw raised over $500,000 from fifty-nine individuals in twenty one states. The SEC alleges that Greenlaw failed to comply with the securities regulations by selling interests in limited liability companies (LLC) to non-accredited investors.  The investors signed subscription agreements that indicated that stated they were accredited due to the fact that they were directors, executive officers or general partners of the LLCs.  The SEC indicated that this was not the case, and that the investors did not have the financial resources needed to be an accredited investor. Greenlaw agreed to settle the action with the SEC by paying disgorgement and interest of $340,142 and a $50,000 civil penalty.  Greenlaw is also prohibited from selling unregistered securities in the future.