Florida-based CBD retailer Hemp Naturals Inc. (PNK: HPMM) agreed this week to pay a $50,000 fine and to quit violating federal securities laws under a settlement agreement with the U.S. Securities and Exchange Commission.
According to the agreement, Hemp Naturals repeatedly failed to file required forms with the SEC between July 8, 2020, and July 6, 2021. During that time, the company sold 534 million shares and raised $2.4 million despite repeatedly lowering its stock price, in contravention with SEC rules.
The SEC charged that Hemp Naturals:
- Engaged in an impermissible delayed offering.
- Improperly changed its offering price.
- Did not update its financial statements at least annually through a post-qualification amendment.
When Hemp Naturals first filed its initial offering documentation with the SEC in April 2020, the company stated its plan was to “sell 1 billion shares of common stock in a continuous offering at a price between $0.002 and $2.00 per share.”
But that price quickly got walked back, after the business “sold no shares” for almost three months after the SEC gave the green light. In July 2020, Hemp Naturals “filed an offering circular supplement on Form 253G2,” set its stock price at 3 cents, and performed a “600-to-1 reverse stock split effective July 1, 2020.” That, the SEC asserted, was illegal.
The move worked at first, however, and Hemp Naturals sold 10 million shares between July 2020 and February 2021, raising $300,000.
Then on Feb. 18, 2021, Hemp Naturals lowered its stock price again with another circular supplement, “decreasing the Offering price by 80% from $0.03 to $0.006 per share.” And then on June 17 that year, the company repeated the process, “decreasing its offering price by approximately 58% from $0.006 to $0.0025 per share.”
Hemp Naturals sold another 296 million shares and raised $740,000 in such a manner between May 2021 and July 2021, according to the settlement agreement.
Because the company didn’t file post-qualification amendments or a new offering statement, the SEC charged that Hemp Naturals violated securities laws. Rather, the company “sold its securities without a registration statement filed or in effect and without a valid exemption from registration.”
Hemp Naturals has 10 days from May 16 to pay the fine before interest begins accruing.
Scott M. Flynn
May 17, 2023 at 1:42 pm
John is it possible to file a class action lawsuit against Hemp Naturals for illegal activity pertaining to their 600 to 1 reverse stock split?
Michael B Barnett
May 24, 2023 at 12:36 pm
This is one of several companies that failed to comply with Regulation A and deployed circular supplement Form 253G2 in some form that got them in trouble with the SEC.
Here is an interesting read on this: https://www.sec.gov/news/press-release/2023-94
I can’t help but wonder if decision makers for these companies are ill informed or simply do not understand the law.
There is a link to the Administrative Proceedings filed for this case on the right side navigation of the SEC web page above.
Violations section, part C may be pertinent to civil proceedings strategy.