A California investment manager has filed a lawsuit against the principals of a fraudulent CBD company claiming the individuals misrepresented their experience and the company.
Jacob Stein, manager of Pacific Green LLC and Big Tree Holdings LLC, claimed in the lawsuit that Paul Fiore, owner of One Eleven Advisors LLC, and Jay Rifkin, owner of Rebel Holdings LLC, convinced him to invest in Hills Group LLC, a startup CBD company.
The court complaint, filed Dec. 9, accuses Fiore and Rifkin of claiming to have cannabis business experience, when they didn’t, and inflating the valuations of companies they were operating. In addition, the complaint alleges that the Hill Group fabricated other cannabis industry relationships.
How It Began
The complaint says that in February 2018, the Fiore and Rifkin published a document entitled “Hemp and Cannabis Investment Opportunities Fund” (HCIOF). The HCIOF was created as a business plan of sorts for Hills Group and stated that Hills would operate as “a highly focused hemp and cannabis venture fund with existing strategic portfolio holdings” to “disrupt” the CBD/cannabis industry in the United States. They sent the document to Stein via email in March 2018 hoping to get him to invest into the company.
Hills Group claimed it had formed partnerships with or invested capital to take ownership stakes in various related businesses that provide “strategic value to portfolio companies.” The businesses listed as strategic partner companies included:
- Oregon-based New Earth Biosciences
- Washington-based POSaBIT
- 3C Solutions
- Live Love Chill
- Caseus Group
- Double Beam
- Digital Insight
- Ocean View Media
- CU Wallet.
It turned out that none of these claims were true.
The HCIOF told the truth about two portfolio companies: Skyline Brands and NatureRx. However, the valuations of these companies were said to be exaggerated.
Skyline Brands was given a valuation of $8.75 million, but in reality Oregon-based company had no products, employees, sales contracts, or revenue sources. It had slightly more than $500,000 in equipment, less than $200,000 cash on hand, and no other significant assets.
The valuation of NatureRx was listed at $1.25 million, but NatureRx also had no products or contracts, and no sales. It likely had a value of just $10,000.
The complaint said that HCIOF claimed that the founding partners had invested $3 million of their own money into the Hills Group and that this was false too. They also said they would invest up to $5 million in the company.
Stein says he was targeted for the investment. After receiving the email with the HCIOF document, he received a “pitch deck” touting the Hills Group in March 2018. The deck listed Sean Stockmeyer and Matt Clute as members of Hills Group’s “Top Tier Executive Team.” Neither was ever actually part of the Hills Group management.
By April 2018, Stein was discussing the investment terms. He claims the principals of the Hills Group assured him they would work full-time on the cannabis company when instead they had other ventures where they were committing their time. The Hills Group also began suggesting to Stein that other investors were vying for the Hills Group, such as like Charles Walgreen, a scion of the founding family of the Walgreen’s drugstore chain, which wasn’t true.
Stein even toured a facility in Oregon that the group falsely claimed to have a controlling stake in. Then the Hills Group prepared a new deck in July 2018 that included claims of having 40 SKUs of the product when in fact there was only one – a tincture.
$1 Million Investment
By July 2018, Stein was convinced and invested $1 million in the Hills Group. By January 2019, he invested a total of $4.7 million into the group.
However, the companies never generated much revenue, and the principals are accused of using the funds for other purposes that didn’t pertain to building the CBD business.