Debra BorchardtDecember 21, 2021
How does one make $11 million when the company records less than $10,000 in revenue for a year? Apparently by pumping and dumping the stock says the SEC (Securities and Exchange Commission). The SEC is opposing an attempt by HempAmericana (OTC: HMPQ) to have its complaint dismissed.
Hemp Americana
HempAmericana was incorporated in 2014 with a factory and equipment aimed at processing, bottling, and selling products made of industrial hemp, including CBD oil. Since its incorporation, HempAmericana has never been profitable. From 2017 through May 2020, HempAmericana generated a mere $9,727 in revenues. Salvador E. Rosillo is HempAmericana’s CEO. The complaint alleges that almost a third of the company’s money was used for stock promotion – not for actually growing the business.
The company reported that for the year ended in February 2021, it had revenues of $7,793 and expenses of $478,064, leaving a net loss of $551,291. For the quarter ending in May, the company had revenues of $300 and the quarter ending in August had no revenues and just $12,000 in cash.
SEC Complaint
In August 2021, The SEC accused GPL Ventures and GPL Management of acting as unregistered dealers by privately acquiring large blocks of stock in approximately 140 microcap issuers and publicly selling those blocks into the market for their own account, generating gross proceeds of at least $81 million. The most lucrative of the penny stocks was HempAmericana which generated a profit of $11 million.
The GPL defendants are accused of secretly funding promotional activity in penny stocks in a scheme known as “scalping.” Scalping is when someone buys shares of a stock for his or her own benefit before recommending that stock to others and doesn’t say anything during that recommendation of plans to sell them. The action is then followed by selling the shares once they rise after the recommendation. It’s also called a pump and dump scheme. The SEC accuses the GPL Defendants of buying and selling large blocks of HempAmericana securities from 2017 through at least late 2019.
The SEC complaint alleges that HempAmericana, through Rosillo sold shares to Alexander Dillon, Cosmin Panait, GPL Ventures LLC, and GPL Management LLC on the condition that HempAmericana then pays a portion of the proceeds from those sales to stock promoters in order to tout the company’s stock. The filing stated, “HempAmericana then issued stock to the GPL Defendants under Regulation A—an exemption from the requirement that securities offerings be registered—and indeed provided a significant portion of the proceeds to stock promoters or their intermediaries. The GPL Defendants sold (or “dumped”) the stock at a profit once the promoters had touted the stock and “pumped” up its volume and price. As Rosillo knew, the GPL Defendants would not purchase more HempAmericana stock each time until they had sold their prior holdings. This practice took place over the course of three years, through multiple issuances of shares, and was never disclosed to other investors in the company.”
Dillon and Panait co-own and control GPL Ventures and GPL Management, through which they invest in microcap companies. Dillon previously held a Series 7 securities license and was briefly employed at a registered broker-dealer from April 2013 to July 2013. Panait is a Romanian citizen.
Stock Promoters
Seaside Advisors, LLC and Lawrence B. Adams were hired to promote the HempAmericana stock. They didn’t disclose that the GPL Defendants funded the promotions, and they are accused of failing to disclose that the GPL Defendants intended to sell HempAmericana stock at the same time that Seaside and Adams were paying promoters to recommend that investors purchase the stock. Adams owns Seaside and is also the CEO of a microcap issuer, Image Protect Inc. (ticker OTC: IMTL).
The SEC alleges that the GPL Defendants repeatedly bought HempAmericana stock at a discount and then sold with HempAmericana sending a portion of its resulting stock sale proceeds to Seaside. Once HempAmericana sent stock proceeds to Seaside, Seaside used the proceeds to pay a professional stock promoter. That stock promoter hired other promoters to tout the stock. The GPL Defendants would sell their HempAmericana stock during the promotional campaigns.
For example, in August 2017, when the GPL Defendants purchased 16 million shares of stock for $80,000, the funds went to a HempAmericana escrow account from which Dillon then provided instructions for $50,000 to be sent to HempAmericana and $30,000 to be sent to Seaside. Overall, of the $7.4 million in stock purchase proceeds that the GPL Defendants paid to HempAmericana during the scheme, HempAmericana paid $2.18 million to Seaside, and Seaside in turn forwarded nearly 60% of the amount it received to an unnamed individual hired to promote the stock.
The unnamed individual then is accused of using two kinds of promoters. First, he hired people whom he understood to have email lists or social media mechanisms that would enable them to get buyers into 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 “pump” of HempAmericana’s stock price (before the GPL Defendants “dumped” their stock).
The complaint stated, “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 Individual A, 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 made no reference to anyone intending to sell shares into the promotion. Individual A’s hiring of such intermediaries further insulated the GPL Defendants (and HempAmericana) from any apparent connection to the promotional campaign.”
OTC Skull & Crossbones
While the SEC case didn’t mention the stock promoters, back in 2018 when the OTC placed a warning on the stock, that information was disclosed. At the time, the company had paid $71,000 to OTC Tip Reporter and $71,000 to Stock Prophet to promote the company through the end of 2017. Buzz Stocks was also paid $71,000 for the same time period. In addition to these outlets, Epicstockpicks.com was compensated $20,000 cash via bank wire by a third party, Awarness Consulting Network LLC for a one-day HempAmericana Inc. promotion.
The list of promotions continues…….PennyStockGeneral.com was compensated $3,000 via electronic transfer from a non-affiliated third party for the profile of HMPQ. ShiznitStocks.com was compensated $3,000 via electronic transfer from a non-affiliated third party for the profile of HMPQ. ValueStockPick.com is a web property owned by Brilliant Innovators and was also compensated $6,000 cash via bank wire by a Sand Stone Marketing LLC to conduct investor relations advertising and marketing for HMPQ. This is not the complete list of promotions.
HempAmericana Asks For Dismissal
In September GPL Ventures LLC, GPL Management LLC and its co-owners Alexander Dillon and Cosmin Panait agreed to a preliminary injunction and asset freeze, without admitting or denying the SEC’s claims. Then last month Hemp Americana and GPL Ventures said they wanted the case dismissed and filed separate motions.
“By attempting to expand the definition of ‘dealer’ to include private investors without customers, the SEC is engaging in a regulation-by-enforcement effort that threatens to capture literally thousands of day traders, hedge fund managers, family offices, or other traditional private investors who are active in their trading activities,” GPL argued. The defendants claimed that they did disclose in the offering that 20% of the funds raised would go towards sales and marketing and that the SEC is quibbling over the actual amount being 29%. However, the SEC says there’s a big difference between Sales & Marketing expenses versus stock promotion.
The defendants argued, “If the SEC wants to quibble about this alleged discrepancy, it should get its math correct. The SEC alleges that GPL purchased, in total, $7.4 million of HempAmericana stock; that HempAmericana paid Seaside $2.18 million; and that “nearly sixty percent” of that $2.18 million—i.e., nearly $1.308 million—was actually used to fund the promotional campaign. But $1.308 million represents less than eighteen percent of the stock proceeds received from GPL, not twenty-nine percent.”
“The only alleged conduct in this ‘scheme’ attributed to HempAmericana or Rosillo is the retention of a consultant to engage in a stock promotion campaign — a fact it publicly disclosed, though it was under no obligation to do so,” HempAmericana and Rosillo both argued in their filings. They say they never saw the promotional materials or had any input into the stock promotion and so they aren’t guilty of stock promotion.
They went on to argue that “if there was pumping, there was no dumping.”
