C3 International Learns Ignoring the SEC is Expensive

The company refused to participate in the case.

Once again, C3 International has found itself in trouble with the Securities & Exchange Commission (SEC). This time the company was ordered to pay $1.9 million in disgorgement, along with $146,000 in interest and $3.1 million in civil penalties after ignoring the defendant’s case.

The SEC asked the court for the default judgment since the company refused to participate in the litigation. The company’s founders were spared as they apparently responded separately.

SEC Complaint

According to the court order, the 2021 SEC complaint alleged that, from October 2011 through November 2019, Steele Smith and Theresa Smith raised about $2 million from more than 40 investors by selling stock in C3. C3 claimed it had a patent on a cannabis pill called Idrasil. It turns out that there was only a provisional patent application that expired, and no actual patent was ever issued.

The SEC also claimed that the Smiths stated that the money raised for C3 would be used for business purposes, but it was diverted for their personal living expenses instead. The complaint stated, “In one instance where an investor sent $100,000 to purchase C3 shares in August 2018, Steele Smith sent $40,000 of it that same day to a Jeep dealership, as a down payment on an expensive SUV for himself.”

Steele Smith also omitted in disclosing his background that he had been convicted of conspiracy to grow at least 1,000 cannabis plants in 2012.

C3 also represented that insurance companies would reimburse Idrasil expenses, but fewer than half actually accepted the drug. The two also suggested that big pharmaceutical companies were interested in buying C3, and that was also not the case. They also sold C3 stock without ever filing a registration statement.

Other Complaints

This isn’t the only time the SEC has pursued C3. In August, the SEC  filed a suit against Nicolas Arkells, the business development officer of  C3 International, according to Law360.

That complaint stated, “This case concerns Defendant’s fraudulent offering and sale of securities of C3 International, Inc., a purported medical cannabis company, to investors. From July through December of 2018, Defendant offered and sold approximately $477,500 worth of C3 securities through material misstatements he made and disseminated to at least six investors, who lost all of their investments. C3 and its principals paid Defendant a total of $66,205 in commissions on those sales.”

Green Market Report reported that Arkells had not registered the securities and had not registered as a broker-dealer in order to sell the securities.

The SEC claimed that Arkells gave prospective investors documents created by Steele Smith that contained misstatements that he knew, or was reckless in not knowing, that were materially false and misleading.

Arkells allegedly provided investors with financial reports that falsely showed tens of millions of dollars in revenue, profits, and cash flows for C3, when he knew that the company had no cannabis-growing facility, products, or revenue.

In addition, the SEC claims that Arkells falsely claimed that C3 had received $30 million in funding from financial backers, even though he knew at the time that this was untrue and there was no such deal.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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