SEC Charges Cannabis Executive Geoff Thompson With Securities Violations

On Thursday, the Securities and Exchange Commission (SEC) announced charges against Geoffrey Thompson for illegally selling more $19 million in unregistered securities.

The SEC’s complaint alleges that Thompson, a repeated securities laws violator, and his company, Covalent Collective, Inc., directed numerous offerings of unregistered securities from 2014 to 2019, ultimately raising more than $19 million from approximately 500 investors. “As alleged in the complaint, Thompson used numerous mechanisms to solicit investors, including providing investors video and audio recordings in which Thompson encouraged investors to spread the word about the company’s securities to friends and family. The complaint further alleges that despite raising nearly $20 million, Covalent never commenced any revenue-generating operations. According to the complaint, Thompson diverted more than $2.7 million of investor funds for his own benefit.”

Repeat Offender

Green Market Report has followed the saga of Geoff Thompson and his revolving door of cannabis companies. Investors continued to complain to GMR as to why the SEC allowed Thompson to keep setting up cannabis companies and selling shares if he was really just ripping them off.  In September 2017, the SEC sued Thompson for securities fraud and registration violations in connection with another of his companies, Accelera Innovations, Inc. (See SEC v. Accelera Innovations, Inc., et al., 17-cv-7052 (N.D. Ill). In April of this year, Thompson agreed to a final judgment permanently requiring him to quit violating securities laws.

He was also required to pay $350,000, prejudgment interest in the amount of $74,000, and a $100,000 civil penalty. The court also imposed a five-year ban on Thompson from (a) serving as an officer or director of a public company and (b) offering penny stocks. Even while the SEC was investigating him for Accelera, Thompson founded Covalent Collective, Inc., f/k/a Doyen Elements International Inc. f/k/a Advantameds Solutions Inc. and would insist that any shareholder problems with Doyen were because “there were two Doyens and his wasn’t the bad one.”

Covalent

Between July 2014 through at least June 2019, the SEC said that Covalent and affiliated entities offered several different investments, all of which were connected to Covalent common stock. The Covalent securities offerings resulted in the sale of over 800 investments, to approximately 500 different U.S. investors, cumulatively raising over $19 million. Thompson directed Covalent to use offering methods including unregistered broker-dealers, press releases, an investor relations firm, a public website, and a call center operated by Fortress Legacy.

Covalent sold “special warrants” to approximately 177 different investors, raising a total of approximately $8 million. Approximately 79 of the 177 investors did not indicate that they were accredited. Between 2018 and 2019, an additional 440 subscription agreements with 293 different investors, sold more than $8 million in Covalent common stock. Other investors affirmatively disclosed to Covalent that they were not accredited, but were still allowed to invest. Thompson would email audio recordings about the stock offering and promote it through a public website. Covalent never provided the common stock investors with a prospectus or financial statements.

In a related action, the Commission instituted settled administrative proceedings against Covalent. The document read, “Covalent violated Section 5(a) of the Securities Act, which prohibits the sale of securities through interstate commerce or the mails unless
a registration statement is in effect, and Section 5(c) of the Securities Act, which prohibits the offer to sell any security through interstate commerce or the mails, unless a registration statement has been filed as to such security with the Commission.”

As recently as July, Covalent shareholders were being told of a new endeavor called Black Bear Farms and posted a YouTube video updating the shareholders. The new board says they were informal advisors to Covalent and are now the new management team. The video also mentions the company Hempcentrics. Thompson talked about Hempcentric in a 2019 podcast and it is unclear whether he is still a part of the company. Covalent shareholders can receive shares in this company if they choose.

In a recent email, the company said this about Hempcentrics, “Hempcentrics, formerly known as North American Hemp, is a company rightfully owned by CC.  Gene (Berg) is working with the current Hempcentrics team to properly and fairly carve out our equity stake, taking into account what the individuals that have worked to form this company deserve.  Once complete, Bill Gregorak and myself (Sal Milazzo) will need to approve it.”

Where Did $19 Million Go?

According to the SEC case, despite raising $19 million, Covalent never started any revenue-producing moves. Instead, Thompson is accused of giving $2.7 million to himself, his wife, and other companies he owed. Covalent asked Thompson to resign when this was discovered. The SEC is asking for disgorgement of ill-gotten gains and prejudgment interest, and civil money penalties from Thompson.

Cultive

At the end of August, Covalent sent an email to shareholders saying it was rebranding its parent company to the name Cultive. Just two weeks prior to the SEC prohibiting the company from offering securities through the mail, the company said in its email,

We have decided on a structure that will offer all CC shareholders an equity stake in Cultive without having to further invest personal funds.  Thus, you will have interest in Cultive based on having shares in CC.  Furthermore, accredited CC investors will be invited to purchase additional shares, equal to the number of shares they originally bought in CC.  Basically, Covalent Collective will be issued 5% of our parent company.   46% of the company will be made up of CC accredited shareholders that choose to take advantage of our invitation to invest further in the business, along with those people that loaned Cultive funds to develop the farm and acquire the property and capital for the extraction facility and distribution center.  The remaining 49% ownership, as we have reported prior, is owned by the Joint Venture partners.

In Closing

The new management team wants the investors to believe that they are trying to salvage this mess. Lawsuits involving attempted acquisitions (involving Thompson) and continuous requests for more money make that a difficult task. The SEC may move slowly and eventually punishes those that violate securities laws. However, it can’t return the money to investors and it can’t jail the individuals accused of violations. The SEC would have to refer the case to another agency to pursue incarceration.

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.


8 comments

  • Avatar
    RC

    September 8, 2020 at 10:30 pm

    No comments this time? Reality has finally set in.

    Reply

  • Avatar
    Sal Milazzo

    September 8, 2020 at 11:26 pm

    Debra, there is a correction that needs to be made in your article. Covalent Collective will remain. Cultive is an entirely different entity, not affiliated with CC. We are trying to give CC shareholders a path to prosperity by giving 5% of Cultive to CC, and allowing accredited CC shareholders to participate in Cultive. I know it’s an uphill battle but we are trying to help those investors that gave their life’s savings up, based on what we believe were misleading comments and unrealistic promises. I realize that you didn’t negatively represent us but by saying that we want investors to believe something is somewhat akin to that. I would like you to visit our farm in Humboldt, and will pay your expenses. We truly are trying to help those investors that were taken advantage of by Thompson.

    Reply

    • Debra Borchardt
      Debra Borchardt

      September 9, 2020 at 9:04 am

      I have updated the language to say it is rebranding the “parent”.

      Reply

      • Avatar
        Sick to my stomach

        September 10, 2020 at 8:16 am

        I was taken for tens of thousands is there any recourse for me

        Reply

        • Debra Borchardt
          Debra Borchardt

          September 10, 2020 at 8:48 am

          The new management team has created a new company that it says Covalent shareholders can participate in. However, it is a much smaller portion of ownership. There may be something there. Thompson is supposed to disgorge the money raised according to the SEC, so perhaps if there is any money there you may get something. Good luck.

          Reply

          • Avatar
            JC

            September 12, 2020 at 1:41 pm

            In addition to the SEC charges the FBI is all over this mess and is closing in on Geoff Thompson. He will get his just dues.

  • Avatar
    The Truth

    September 9, 2020 at 5:37 pm

    RC, I agreed totally. I have chimed I’m on these threads for a year, and I was told many times I was in the wrong when I forecasted this demise. It is funny those people do not comment much anymore.

    Here is what is great, and this is right in the SEC’s complaint…..

    “Thompson is currently working as a consultant for a new cannabis-related venture that is seeking to raise funds from investors,.”

    This is just fascinating, I wish they would have named the company. Debra had it right here on him just moving on to be a consultant…… mire like, “com”-sultatant.

    I have nothing against CC or the spinoff company, they just got caught up in Geoff and got played, they are not alone.

    Reply

  • Avatar
    Allan Pinkerton

    September 15, 2020 at 8:03 pm

    SAL,and Debra, There are even more corrections that need to be made to this article, AND more importantly, pertinent information that Sal and the rest of the Board neglected to disclose in the recent investor update, past updates or by any other means. Speaking of Investor Updates, Where was the CFO during Geoff Thompsons reign; Bill Gregorik?? The new CEO had to have knowledge in the overall Fraud back then, His absence makes me question his involvement even more.. Being in lock down has given me the opportunity to focus on the due diligence i have sought since i feared my money had vanished. . SO Debra, Please do me a favor and add some Key Info that everyshareholder should have heard from the board….
    Covalent (through its shareholders) Already purchased Black Bear Farms . THEN, WITHOUT Notifying Shareholders Sold it to Gene Berg and Phil Lagori (Current/New Board Members) I am assuming to hide ownership.. I mean, who wants assets During a Lawsuit ?? Good idea when a possible Asset Recovery may take place in the near future. A Recovery may be the only way for me to get a small portion of the money i invested and these guys are hiding and not disclosing huge transactions, It honestly feels like Geoff Used some of the 20 Million to clone himself to Keep the scamming alive and alive it is… SO, now they want us to reinvest in an asset we that we already owned, but have a smaller ownership in this “New” Company. HMMM, lets add some more Fraud to it.. What i dont understand is that Covalent Defaulted on the Colorado 16 Contract (The Only reason i invested) and admitted defoult.
    WHY didn’t they ask for money then?? Why didn’t they approach a bank for a loan? How much money was needed to prevent default? At the time of Default, How much was left in the Bank? These are all questions the SEC and FBI need to ask them, In the latest Investor update, they mention that the Colorado 16 case was held up by the courts because of Covid-19. BLATANT LIE , i reached out to the Boulder County Courts, and Covalent is the only one preventing the Case to Proceed. I assume they are most likely Hiding more assets and covering up anything they can before the Truth Comes out. If i can uncover these few items that SAL and the rest of the board failed to disclose, i am afraid to see what the SEC and FBI uncover, what a waste of my hard earned money,

    Reply

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