SEC Takes Down Another in HempAmericana Fraud

Kauderer is accused of orchestrating the actual stock promotions.

The Securities and Exchange Commission filed another case in the ongoing HempAmericana (OTC: HMPQ) stock promotion fraud, this time accusing Eleazar Kauderer of using a portion of the proceeds raised for HempAmericana through GPL Ventures LLP to secretly fund stock promotions that would enable GPL to sell its HempAmericana shares at a profit.

“The HempAmericana scheme was very lucrative for the GPL Defendants,” the complaint said. “The GPL Defendants paid $7.4 million to acquire more than 1.5 billion shares of HempAmericana stock and, in conjunction with Kauderer’s promotional activity, sold the shares for more than $18.4 million, for approximately $11 million in illegal profit.”

The complaint states that Kauderer orchestrated fraudulent promotional campaigns that the others needed in order to facilitate the scheme and made sure the connections to the promotions was concealed. Kauderer lives in New Jersey and at one time held Series 7 and 63 securities licenses, which are now expired.

According to the filing, in 2003, Kauderer pled guilty to conspiracy to commit mail and wire fraud and was sentenced to a two-year prison term. (United States v. Graziano, et al., 02-cr-60049 [S.D. Fla.; criminal minute Jan. 23, 2003; judgment entered Apr. 8, 2004])

The SEC wants to bar Kauderer from the securities industry and make him disgorge some of his profits from the scheme.

Original Case

The original case stems from HempAmericana’s first Reg. A capital raise that was qualified on June 29, 2017.

HempAmericana CEO Salvador Rosillo began issuing unrestricted Reg. A shares to the GPL defendants. The offering told investors that the money raised would be used for the business, but instead, it was used to promote the stock.

The case stated that the GPL defendants repeatedly acquired stock purportedly sold pursuant to the Reg. A registration exemption, conditioned on a portion of the stock sales proceeds being sent by the issuer to Seaside. Seaside then paid a professional stock promoter (Kauderer) to promote the stock, and the defendants sold the stock during the promotional campaigns, which did not disclose that the promotions were indirectly funded by the issuer, HempAmericana.

Additionally, in order to deposit and sell their HempAmericana shares, the GPL defendants falsely told their brokers that they were not involved in the promotional activity. Hiring Kauderer was an attempt to hide the stock promotion scheme and say that it wasn’t them.

Stock Promotion

Kauderer used two types of promotions. First, he hired people whom he understood to have email lists or social media mechanisms that would enable them to get buyers to purchase the stock, apparently with the promise of buying cheaper stock in advance of the promotion. Second, he hired people who would in turn pay others to engage in more traditional promotional activity during the actual “pump.”

According to the complaint, here’s how it worked:

“As an example of how the scheme unfolded, in January 2018, the GPL Defendants purchased $170,000 of HempAmericana stock. $70,000 of the sales proceeds went to Seaside, and $55,000 of that amount went to Kauderer, who in turn paid an entity, ‘Entity A.’ Later that month, another entity, ‘Entity B,’ put out email blasts promoting HempAmericana stock and disclosing that it was compensated by Entity A, which was described as a non-affiliated third party. The promotion’s disclaimer said that Entity B did not own any shares in HempAmericana, and it made no reference to anyone intending to sell shares into the promotion. Kauderer’s hiring of such intermediaries assured that the GPL Defendants’
connection to the promotional campaigns was obscured.”

Earlier this month, Alexander J. Dillon and Cosmin I. Panait, both co-owners of GPL Ventures, were ordered to pay civil penalties of $3.5 million each. The judgment also ordered the defendants to surrender all remaining unconverted convertible notes still held and imposed 5-year penny stock bars.

The SEC has filed claims against HempAmericana and Seaside that are still being litigated.

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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