MassRoots Investors Sued By SEC In Pump & Dump Scheme

MassRoots (OTC:MSRT) was once the darling of the cannabis industry. CEO Isaac Dietrich was able to raise millions of dollars as he built the “Facebook” of cannabis. The premise was that cannabis consumers would want a friendly social media site to connect with each other and then the ad dollars would be tremendous. That never happened.

Now, the SEC has posted a filing that it is going after the lead investor group in Massroots for stock price manipulation and organizing coordinated buying and selling movements. Dietrich is not a part of the lawsuit. Instead, the defendants are DOUGLAS LEIGHTON, BASS POINT CAPITAL, LLC, AZURE CAPITAL CORP., MICHAEL SULLIVAN, DAVID HALL, ZACHARY HARVEY, PAUL DUTRA, JASON HARMAN, and JESSICA GERAN.

Leighton is specifically called out for promoting the stock, causing a rise in the share prices so that he could sell at a profit. A scheme often referred to as “pump and dump.” Leighton and his trading group, which was comprised of the above-listed individuals and companies owned roughly 90% of MassRoots shares prior to the company going public. He assisted in bringing the company public in 2015.

The SEC lawsuit alleges, “Leighton directed the trading group members how to slow the sales of their privately-purchased MassRoots stock, imposing a limit on how many shares he wanted them to sell at a time. He criticized trading group members who did not follow his “rule” about selling their MassRoots stock.” The intent of this manipulation was to keep MassRoots stock prices high so that Leighton and the trading group members could sell at a large profit.

Help From The Inside

The filing references a MassRoots executive, but the executive is not named. “Before and after MassRoots stock began publicly trading in April 2015, Leighton made efforts to publicize the stock by instructing a MassRoots executive about various ways he should promote MassRoots stock. Even before the trading began, between December 2014 and April 2015, Leighton both took steps to help MassRoots promote the stock and promoted it himself.” Leighton also needed help from the inside in order to learn who was buying and selling stock within his trading group in order to keep manipulating the price.

Leighton told a MassRoots executive that he needed the NOBO “Non-Objecting Beneficial Owner,” list in order to monitor the shares sold and owned in the market. The MassRoots executive, more than once, provided Leighton with the list.

Hiding Ownership

Leighton is alleged to have gone to great efforts to hide his ownership percentage in order to avoid reporting his trading activities.  The case says that had the Defendants filed the forms, the public would have seen that (1) there was a single group that owned more than 10% of MassRoots stock, (2) that group was steadily selling the stock. The case states that “Between April 2015 and March 2016, the Defendants made approximately $3.2 million from their scheme. The Defendants continued to profit from their sales of MassRoots stock through 2018.”

Sullivan used multiple accounts at multiple brokerage firms in order to avoid detection of his trading habits that were directed by Leighton. Sullivan’s purchases in May 2015 manipulated the stock’s share price, which rose from $1.21 per share to $1.26.

Leighton is also accused of threatening other MassRoots insiders to not sell or he would pull his entire holdings.

Reported Demise

Cannabis.net had recently reported that MassRoots was likely to go out of business. The site wrote, “It appears now that Massroots has called it a day and closed up shop, which may be a problem since they are a publicly-traded company with stock symbol MSRT.  While their social media channels have remained active the website has now been down for over 3 weeks and Google has begun to remove all listings that lead to an error or non-connected page.”

Dietrich responded to the story by telling MJ Biz Daily, “Our website will be back online shortly. We recently encountered server issues that are in the process of being resolved.” The stock though is essentially worthless and trading at less than one cent.

Dietrich Ousted Then Returned

In 2017, Dietrich was ousted by the board, but he managed to swing shareholders back to his side. At the time interim CEO Scott Kveton led the coup, but once Dietrich rallied shareholders to his side, Kveton resigned along with board members Tripp Keber, Ean Seeb and Terry Fitch. Leighton’s group of shareholders was undoubtedly the group that rescued Dietrich.

On March 30, Dietrich filed an 8-K with the SEC suggesting that COVID 19 was the reason why “The Company has been unable to identify and raise capital necessary for it to, among other things, pay accounting and audit fees as are necessary for the preparation and filing of the Company’s Annual Report. As a result of the foregoing, the Company is unable to complete its 2019 audit to timely file its Annual Report.” Not perhaps because the company had been run into the ground?

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief 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 Masters degree in Business Journalism from New York University.


2 comments

  • Avatar
    Leland Radovanovic

    April 8, 2020 at 1:14 pm

    Keep up this great reporting! Reporting like this is the only thing holding companies like this accountable for their actions.

    Reply

  • Avatar
    Jonathan corbin

    May 22, 2020 at 2:00 am

    keep it up great reporting! and do an action from time to time and I am very proud of you Debra Borchardt. you are a great.

    Reply

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