SEC takes legal action after crowdfunded marijuana investment scheme appears to go up in smoke
- Reference: 1632249132
- News link: https://www.theregister.co.uk/2021/09/21/sec_cannabis_crowdfunding/
- Source link:
The Securities and Exchange Commission (SEC) filed a complaint against three people – named as Robert Shumake Jr, Willard Jackson, and Nicole Birch – and Texan firm 420 Real Estate in the Eastern District court in Michigan, claiming the trio had been involved in selling nearly $2m in unregistered securities through two crowdfunding schemes.
The SEC also charged the registered funding portal that hosted the offerings – TruCrowd – and its CEO Vicent Petrescu (name spelt as listed), with violating Section 4A(a)(5) of the Securities Act and violating crowdfunding rules, alleging they "served as gatekeepers and, as such, were responsible for taking measures to reduce the risk of fraud."
[1]
In [2]papers filed yesterday [PDF], Shumake, Jackson and Birch were accused of marketing both offerings as "opportunities for investors to share in bountiful profits from the cannabis industry, by acquiring real estate and leasing it to companies engaged in the business of growing cannabis."
[3]Twitter offers to cough up 80 days of annual sales to settle 'false' user count lawsuit
[4]GitLab all set to go public as revenues – and losses – rise
[5]App Annie fined $10m by the SEC for deceptive practices around how it presented data
[6]Elizabeth Holmes' Theranos fraud trial begins: Defense claims all she did was fail – and that's not a crime
However, the complaint lodged by the SEC claimed that none of the money raised had been used to "acquire or improve cannabis real estate" as set out.
"None of the investors in either crowdfunding offering has received any return on their investment, and few investors have recovered any of the funds they invested," the watchdog said.
[7]
[8]
Shumake, Birch and Jackson are all charged with violating anti-fraud and registration laws, with the SEC alleging that "they diverted hundreds of thousands of dollars from the offering proceeds for their personal benefit."
The watchdog has asked for financial penalties and injunctions stopping them from serving as corporate officers.
[9]
In a statement announcing the news, Gurbir Grewal, director of the SEC's Division of Enforcement, said that as companies continue to raise funds through crowdfunding, it will continue to make sure all involved are "accountable" and, if needs be, "enforce the protections in place for all investors."
Last year, the SEC [10]relaxed the rules around crowdfunding limits , raising the ceiling from $1m to $5m.
TruCrowd told The Register : "We think we have a good defense against the allegations stated in the complaint, and it is worth noting that there are no allegations of fraud against TruCrowd or [Vincent] Petrescu." ®
Get our [11]Tech Resources
[1] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YUpWGmBZOmFu@IXDaOMpogAAAAo&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[2] https://www.sec.gov/litigation/complaints/2021/comp25210.pdf
[3] https://www.theregister.com/2021/09/20/twitter_mau_settlement/
[4] https://www.theregister.com/2021/09/20/gitlab_ipo/
[5] https://www.theregister.com/2021/09/15/sec_fines_app_annie_10m/
[6] https://www.theregister.com/2021/09/09/elizabeth_holmes_trial/
[7] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YUpWGmBZOmFu@IXDaOMpogAAAAo&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[8] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YUpWGmBZOmFu@IXDaOMpogAAAAo&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[9] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YUpWGmBZOmFu@IXDaOMpogAAAAo&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[10] https://www.theregister.com/2020/11/04/sec_crowdfunding_regulations/
[11] https://whitepapers.theregister.com/
Re: Great business plan
Fortunately, the Excessive Fines Clause of the 8th amendment was recently (2019) incorporated under the Due Process clause of the 14th amendment.
Until that was incorporated, that clause of the 8th amendment did not apply to state and local governments.
(There are still a few clauses which have not been incorporated, such as the right to a jury trial or the right to be indited by a grand jury, however many states have those clauses in their constitution or through statue. And of course, the last BIG amendment to be incorporated was the 2nd in 2010.)
The case that led to the Excessive Fines Clause to be incorporated Timbs v. Indiana, was a result of the state taking someone's vehicle for the crime he committed, however - the vehicle was valued greatly over the maximum fine allowed under the law and thus was found unconstitutional.
Hopefully we'll be seeing a dramatic decrease in successful asset forfeitures in excess of any fines that can be levied.
... with the SEC alleging that "they diverted hundreds of thousands of dollars from the offering proceeds for their personal benefit."
But had they been politicians in virtually every country in the world this would be of no issue at all, members of any party involved would be running around saying that it was OK.
Great business plan
You sign on to the liability of owning the most expensive part, the land, which can be seized from you in a "guilty till proven innocent" asset forfeiture, the biggest liability and risk of the weed business. The grower risks a few thousand to tens of thousands of dollars in equipment, and may also stiff you for the electrical bill and run off with the product.
Fools and their money may be parted soon, or after a drawn out lawsuit, but parted they will be.