SEC Archives - Green Market Report

Debra BorchardtJanuary 25, 2022
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The U.S. Securities and Exchange Commission (SEC) scored a big W this week when a California federal judge ordered cannabis investment firm VerdeGroup to pay more than $1 million in civil penalties, disgorgement, and interest. Law360 reported the final judgment was issued on January 20, 2022, and the defendants have 14 days to pay the SEC. In addition to the payments, the judge has permanently banned VerdeGroup, Thomas Gaffney, and Lisa Gordon from the securities industry.

U.S. District Judge Stanley Blumenfeld Jr. has ordered VerdeGroup to pay a civil penalty of $500,000. VerdeGroup, Tommy’s Pizza, Gaffney and his wife Cynthia Gaffney are jointly and severally liable for disgorgement of more than $470,000, including prejudgment interest. Gaffney and Lisa Gordon were also ordered to pay civil penalties of $100,000 and $5,000, respectively.

Cannabis Scam

The SEC had alleged that from January 2018 through July 2019, VerdeGroup raised approximately $612,765 from about 27 investors from several states. Thomas Gaffney is described in the original complaint as a recidivist violator of the securities laws. Gaffney was sued by the SEC in 2013 for engaging in a fraudulent stock scheme involving illicit kickbacks and phony agreements to mask the kickback. He was sentenced to time served, followed by three years of supervised release with a special condition of eight months of home confinement,
among other things.

In this alleged scam, Gaffney is accused of fooling 27 investors and raising nearly $612,765 that was supposed to go towards cannabis investments. Instead, the funds were “transferred from that third party account to an account in the name of relief defendant Tommy’s Pizza Ventures, Inc. (“Tommy’s Pizza”), the signatories of which are Gaffney and relief defendant Cynthia Gaffney. Investor funds were then used for Gaffney’s personal expenses, and a pizza parlor business, among other things. VerdeGroup and Gaffney misappropriated approximately $467,110 of investor money. To further generate investor interest in the offering, defendants Gaffney and VerdeGroup also made material misrepresentations to investors and prospective
investors about VerdeGroup’s business partners and its efforts to undertake an initial public offering. Gaffney and VerdeGroup made the same or similar misrepresentations
to lull investors into not withdrawing funds and to encourage investors to invest more and/or rollover funds to a different entity.” Some of the personal expenses included cruises and Tiffany’s jewelry.

Lisa Gordon was hired by Gaffney to handle VerdeGroup investor relations and acted as an unregistered broker-dealer in connection with the offering and directly offered and sold securities by soliciting investors through phone calls and emails. Gordon did not have a securities license. The securities offering was not registered with the SEC as required by the Securities Act and at least some of the investors were not provided with the information that a registration statement is required to provide for the protection of investors. In addition, the complaint said that at least one of the investors was unaccredited.

The offering was conducted using a Private Placement Memorandum (“PPM”) that offered $25,000,000 in promissory notes at $5,000 per unit with a minimum purchase of $10,000.
The PPM stated that the notes provided a 12% annual rate of return that matured in 24 months and converted to equity at maturity. VerdeGroup also claimed in the PPM that it “invests in equity positions with legal marijuana companies” and that it “anticipates ‘Going Public’ in 2019.” Investors were fooled when the PPM stated that Thomas “Lynch” was the person involved with VerdeGroup not Thomas Gaffney.

Investors May Get Some Money Back

According to the court order, the SEC “Shall hold the funds (collectively, the Fund) and shall distribute the Fund in a manner consistent with the Supreme Court’s admonition in Liu that the disgorgement remedy must be for the benefit of investors. Liu v. SEC, 140 S. Ct. 1936, 1947–49 (2020). The Court shall retain jurisdiction over the administration of any distribution of the Fund. The SEC may disburse funds to the defrauded investors without seeking leave of Court. If the SEC wishes to send any portion of the Fund to the United States Treasury or otherwise dispose of the Fund in any manner besides compensating the defrauded investors, the SEC must first obtain approval from the Court unless it has already distributed the full
disgorgement amount to investors.”

 

 


Debra BorchardtDecember 21, 2021
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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.” 

 


Debra BorchardtSeptember 28, 2021
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The Securities and Exchange Commission has filed a lawsuit against Wyoming-based VerdeGroup Investment Partners, Inc. and its principal Thomas Gaffney (Gaffney), who is a repeat securities fraud offender. The SEC also included the company’s investor relations contact, Lisa Gordon. They are accused of raising more than $600,000 from over two dozen investors for a cannabis investment that never occurred. The SEC noted that Gaffney has done this before having been previously charged by the SEC and prosecuted by criminal authorities for securities fraud.

The SEC’s complaint alleges that, from January 2018 through July 2019, VerdeGroup and Gaffney raised the money to supposedly finance a legal marijuana business. Instead, the group which listed Wyoming as the company’s location used the money to fund the Florida-based Tommy’s Pizza, which was founded and run by Gaffney and his wife Cynthia Gaffney. The SEC also alleges that investor funds were used for a variety of Gaffney’s personal expenses, including Tiffany jewelry and travel on the Carnival Cruise lines. They are accused of taking $467,110 of investor money.

Unregistered Stock

Gaffney and VerdeGroup are also accused of making material misrepresentations to investors and prospective investors about VerdeGroup’s business partners and its efforts to form an initial public offering (IPO). The offering was a Private Placement Memorandum (“PPM”) that offered $25,000,000 in promissory notes at $5,000 per unit with a minimum purchase of $10,000. The PPM said that the notes would give a 12% annual rate of return that matured in 24 months and converted to equity at maturity. The IPO was planned for 2019. Investors were told the money would be used to provide high-interest loans to cannabis companies and put deposits on properties.  VerdeGroup also is said to have claimed in the PPM that it “invests in equity positions with legal marijuana companies.”

The PPM also said that VerdeGroup’s President was named Thomas Lynch, but in actuality, it was Gaffney that was running the show. The group also claimed it had filed an S-1 registration form with the SEC, but that never happened. The group ran advertisements in several states to raise money.

The SEC said that Gordon was hired by Gaffney to handle VerdeGroup investor relations and acted as an unregistered broker-dealer in connection with the offering and directly offered and sold securities by soliciting investors through phone calls and emails. The securities offering was not registered with the SEC as required by the Securities Act and some of the investors were not provided a registration statement that is required. At least one of the investors was unaccredited. Gaffney and VerdeGroup also tried to convince investors into not withdrawing funds and to encourage investors to invest more and/or rollover funds to a different entity. Gordon told Law360 that she was unaware of the complaint filed against her.

VerdeGroup claimed on its website that it was associated with the Marijuana Business Association (MJBA) and the National Cannabis Industry Association (NCIA), which wasn’t true. NCIA found out and requested that its badge be removed from the website and the company complied.

According to the lawsuit, one elderly investor asked about her supposed annual return. She received a check that had the Florida address associated with the pizza place. Once she received her check, Gordon is accused of asking her for additional investment. The woman gave another $10,000 in 2019.

Gaffney’s Past

Gaffney is listed as a VerdeGroup director in its Wyoming corporate filings. He apparently had practice at defrauding investors. the SEC sued him in 2013 when he was the CEO of Health Sciences Group, Inc., for a fraudulent scheme involving a company’s stock. That scheme involved illicit kickbacks to encourage the purchase of the stock and phony agreements to mask those kickbacks. The SEC said that Gaffney entered a guilty plea and was sentenced to time served, followed by three years of supervised release with a special condition of eight months of home confinement, among other things.

Punishment

The SEC said it wants the court to permanently prohibit the defendants from violating federal securities laws and to give back the money raised from the scheme. The agency also wants to permanently prohibit Gaffney from participating in the issuance, purchase, offer, or sale of any security in an unregistered offering by an issuer, except for securities for his own personal account. Gaffney’s wife Cynthia and Tommy’s pizza are both requested to give back money received from the fraud.

Unfortunately for investors, it looks like Tommy’s Pizza Ventures was dissolved last week and the Wyoming Secretary of State’s website indicates VerdeGroup was dissolved in April.

 

 


Debra BorchardtAugust 4, 2020
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A cautionary tale for cannabis companies and the Securities & Exchange Commission (SEC) was laid bare last week when the Central District of California filed a $25 million complaint against nine defendants. The group raised money from investors by selling the unregistered stock for the purpose of funding a marijuana farm in Salinas California. 

The individuals named included Anthony Todd Johnson (aka Todd Johnson), Jeremy Johnson, Richard Portillo, Charles Lloyd, Mark Heckele, and Michael Gregory. The companies that wanted funds for the marijuana farm were named as Smart Initiatives, LLC, Valley View Enterprises LLC, Target Equity LLC, Zabala Farms Group, LLC, and Green Growth Ventures, LLC. The companies that raised money for a CBD extraction facility were named as – C Quadrant LLC, GPA Enterprises LLC, RJ Holdings Group, LLC, and Extraction Capital Tier 1, LLC. 

Alleged Actions

The group engaged in so many alleged actions, it’s easiest to just list them as follows:

  • Claimed the investments would generate returns of 100% or more
  • Misrepresented their compensation
  • Misappropriated $2.7 million
  • misled and deceived investors about a purported “business loan,” secured by C-Quadrant’s real property
  • Rather than using that business loan for the benefit of C-Quadrant, Gregory used the loan proceeds to pay off different investors in an entirely unrelated entity. 
  • Falsely claimed a relationship with a prominent California University
  • Acted as unregistered broker-dealers in connection with the offerings, none of which were registered with the Commission
  • Used general solicitation to attract prospective investors, including via cold calls, Craigslist, Facebook, and other websites and social media.
  • None of the securities offerings were registered with the Commission as required by the Securities Act
  • Many of the investors in each offering were unaccredited and unsophisticated. 
  • The defendants did not take reasonable steps to verify the investors’ accreditation status

The alleged behavior took place between 2017 and 2019. The Johnsons used pro-forma numbers when soliciting investors. The farm though revised those figures.   The revised pro forma P&L statement adjusted the farm’s projected net income significantly downward, from a range of $23 to 37 million per year to a range of just $6 – $23 million per year. The group though continued to raise money knowing the farm could not generate the amounts they are accused of touting. They also told the investors they would get quarterly payments, which the farm said it had not agreed to make.

C-Quadrant Property

The case says that the sales team touted C-Quadrant’s ownership of the property, the Johnsons and Gregory failed to disclose that they had collateralized C-Quadrant’s property and that Gregory had used the loan proceeds to pay off investors in an unrelated entity. In early 2018, C-Quadrant purchased a former recycling plant, where it planned to locate its extraction facility. In October 2018, prior to the start of the second C-Quadrant offering, the Johnsons and Gregory transferred ownership of the property to another entity they controlled and used it as collateral for an almost $2.9 million loan. Gregory used the majority of the loan proceeds to make payments to investors in an unrelated cannabis farm that he owned. 

Less Than Honest Bios

The group was also less than honest with investors about their backgrounds.  Johnson told prospective investors, in Gregory’s presence, that Gregory had an MBA, which he apparently did not have. Jeremy Johnson had filed for personal bankruptcy in 2012 but did not disclose this to investors. 

Portillo has an extensive criminal record that also wasn’t disclosed to investors. In June 2018, Portillo was convicted of felony domestic violence and witness intimidation. He had at least two prior convictions for domestic violence, and was on probation and subject to a restraining order at the time of the 2018 assault. Portillo also has prior convictions for felony possession of marijuana for sale, felony taking of a vehicle, and felony assault with a deadly weapon. Investors, no doubt, would have liked to have this information.  

Punishment

The SEC is asking the group to disgorge all the money received and pay civil fines.


Debra BorchardtJuly 23, 2020
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Irth Communications and Andrew Haag may not ring a bell for many cannabis stock shareholders, but the group was hired to promote stocks and did not disclose that information. The two received a cease and desist order from the Securities Exchange Commission on Wednesday.

No cannabis companies were named in the order. The order states that the company, “Tweeted or retweeted twenty-three times positive news articles describing the business, products, and securities of nine clients. Irth received approximately $35,000 in compensation from these nine clients attributable to these twenty-three tweets and re-tweets.” this compensation was not disclosed.

The order also stated that “Irth shall, within 10 days of the entry of this Order, pay disgorgement of
$35,000, prejudgment interest of $4,233.71, and a civil money penalty of $35,000 (for a total of $74,233.71) to the Securities and Exchange Commission.” Haag, who is the majority owner Haag was told that within 10 days of the entry of this Order, he was to pay a civil money penalty of $7,500 to the Securities and Exchange Commission.

Irth Clients

MassRoots (MSRT) was one of the companies that had hired Irth Communications, but insisted it did not know about stock promotions. Other cannabis companies said to have hired Irth Communications include 22nd Century (XXII), Lexaria Bioscience Corp. (LXX) and CV Sciences (CVSI). Having hired Irth Communications doesn’t necessarily mean that the companies violated regualtions as it was up to Irth Communications to disclose it had been hired and paid by these companies.

Irth Communications was also a sponsor of Benzinga’s February 2020 conference in Miami and the ROTH Conference in March 2019.

Sharesleuth chronicled in a lengthy investigative piece how Irth Communications was planting stories in various financial news websites. (None of these appeared in Green Market Report nor has GMR ever worked with Irth Communications writers.) The company appeared to have created ficticious authors to write stories touting certain stocks.

 


Debra BorchardtJune 20, 2019
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The following is Litigation Release No. 24489 / June 4, 2019

Securities and Exchange Commission v. Covalent Collective, Inc., Civil Action No. 1:19-cv-03721 (N.D. Ill., filed June 4, 2019)

The Securities and Exchange Commission (“SEC”) announced today that it filed a subpoena enforcement action in the U.S. District Court for the Northern District of Illinois against Covalent Collective, Inc. f/k/a Doyen Elements International, Inc. f/k/a Advantameds Solutions, Inc. (“Doyen”) for failure to produce documents in an investigation.

The SEC’s application alleges that Doyen, through its founder, Geoffrey Thompson, may have violated the registration provisions of the securities laws by engaging in an unregistered offering of securities, and may also have made misleading representations to investors and potential investors about the operations, acquisitions, and projected stock price of Doyen and related entities.

As part of its investigation, the staff in the SEC’s Chicago Regional office served Doyen with a document subpoena on October 24, 2018. The SEC’s application alleges that Doyen repeatedly refused to produce any documents in response to the subpoena, notwithstanding multiple efforts by the SEC to secure its compliance.

The SEC’s application seeks an order from the federal district court compelling Doyen to comply fully with the subpoena. The SEC is continuing its fact-finding investigation and, to date, has not concluded that anyone has violated the securities laws.

Geoff Thompson was asked to comment but has not responded.


Debra BorchardtNovember 16, 2018
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The Securities and Exchange Commission announced today that it has reached settlements with two companies that sold digital tokens in initial coin offerings or ICO’s. Cannabis-related company Paragon Coin was one of the businesses investigated by the SEC.

The SEC said that Paragon raised approximately $12 million worth of digital assets to develop and implement its business plan to add blockchain technology to the cannabis industry and work toward legalization of cannabis. The SEC statement wrote that Paragon did not register its ICO pursuant to the federal securities laws, nor did it qualify for an exemption to the registration requirements.

“We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets.”

Paragon faces a $250,000 penalty and must compensate the investors. They must register the tokens as securities and file periodic reports with the SEC. “By providing investors who purchased securities in these ICOs with the opportunity to be reimbursed and having the issuers register their tokens with the SEC, these orders provide a model for companies that have issued tokens in ICOs and seek to comply with the federal securities laws,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

Paragon’s CEO Jessica Ver Steeg would not comment on the settlement. However, it was well known that the money raised from the ICO was used to acquire a building in order to create a co-working space for cannabis startups in Los Angeles, called Paragon Space.

Paragon faced a lawsuit not long after the ICO. The lawsuit stated that approximately between August 15, 2017, through October 16, 2017, the defendants raised at least $70 million in digital cryptocurrencies by offering and selling unregistered securities in direct violation of the Securities Act. It also stated that on November 2, 2017,  Paragon ICO investors received an email updating them that during the Paragon ICO “crowd sale” they had collected 533 BTC and 8,092 ETH— worth approximately $7.3 million and $10.2 million, respectively, as of January 12, 2018. Unfortunately, these amounts did not include any of the cryptocurrencies they collected during the Paragon ICO “presale.”

At the time Ver Steeg said, “Paragon is dedicated to staying compliant with all applicable laws, and endeavored to do so throughout the entire ICO process. As U.S. Securities and Exchange Commission Chairman Jay Clayton recently stated, “there are cryptocurrencies that do not appear to be securities,” and whether an initial coin offering implicates the securities laws “depends on the facts.” We are confident that the ParagonCoin token is not a security and can prove so in a court of law.” Apparently, the SEC disagreed.

In order to reimburse the investors, it will need to somehow retrieve the tokens from the market, make the investors whole and then reregister the tokens as securities. A daunting task to be sure.

Paragon’s case follows the SEC’s first non-fraud ICO registration case, Munchee, Inc.  The Commission did not impose a penalty or include undertakings from Munchee, which stopped its offering before delivering any tokens and promptly returned proceeds to investors.

Blockchain

Paragon is moving forward with its ParagonChain, based on smart-contract interaction with the Ethereum blockchain. The company said it would begin to roll out user interfaces for different aspects of the supply chain, for both cannabis businesses and consumers. Paragon said it has entered into agreements with several major cannabis companies who are expected to start using ParagonChain for their day-to-day operations as early as December, including Dreamfields, Fundanna, Flux, Oakland Distribution, Pearl Pharma, Mammoth Labs, and THC Design (TBD).

 

 

 

 

 


StaffNovember 16, 2018
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Resolution gives the PRG token and other ICOs a path to full compliance with U.S. securities laws

Los Angeles, CA, November 16, 2018 /AxisWire/ “Paragon is making history! We’re excited to announce an important settlement we’ve been working on for over a year — a very positive agreement with the U.S. Securities and Exchange Commission that will effectively put an end to the uncertainties of the legal status of our PRG tokens,” said Jessica VerSteeg, CEO of Paragon.  “Working shoulder to shoulder with an amazing team of lawyers from Schulte Roth & Zabel LLP, as well as an extremely knowledgeable team at the SEC, we have been able to reach this trailblazing deal that we expect will serve as the model for compliance for ICOs going forward.”

Under the terms of the settlement, Paragon will be given the opportunity to pursue registration of the PRG tokens as a class of securities under Section 12(g) of the Securities Exchange Act of 1934 by filing a Form 10, and will also be issuing a claims form allowing certain eligible ICO purchasers to elect to obtain a payment for purchases of PRG tokens before and including October 15, 2017.  The settlement also provides for the payment of a monetary penalty to the SEC.

“This resolution with the SEC gives Paragon the path forward to full compliance with the U.S. securities laws and clears the way for Paragon to pursue its vision of bringing transparency and accountability to the cannabis industry through blockchain technology.  Paragon is proud that the PRG token is included in today’s action by the SEC and are thereby being granted the opportunity to avail itself of this groundbreaking path forward while continuing to pioneer efforts and to participate in the ever evolving ICO marketplace,” said Ms. VerSteeg, CEO of Paragon.  “We believe many purchasers of PRG tokens share our vision of revolutionizing the cannabis industry through blockchain technology, and this action today is an important step in solidifying our compliance and furthering developments of our state-of-the-art cannabis seed-to-sale technology platform and co-working space.”

2018 has been an exciting year for Paragon: we’ve purchased, rebuilt, and launched ParagonSpace—a first-of-its-kind co-working space for cannabis startups in Los Angeles, California, the world’s capital of the “Green Rush.” In the heart of Hollywood, industry leaders are meeting, working, and hosting events to educate, support, and strengthen the community. Over the last few months a variety of companies have become tenants at ParagonSpace, and the energy and excitement generated in this innovation incubator is helping fuel the continuing growth and acceptance of the cannabis industry.

Paragon has also made significant advances in our software solution development. The core elements of ParagonChain are ready, based on smart-contract interaction with the Ethereum blockchain. Soon we’ll begin to roll out user interfaces for different aspects of the supply chain, for both cannabis businesses and consumers. Paragon has entered into agreements with several major cannabis companies who are expected to start using ParagonChain for their day-to-day operations as early as December, including: Dreamfields, Fundanna, Flux, Oakland Distribution, Pearl Pharma, and Mammoth Labs. As for the mobile app, Paragon has launched Phase 1, with the first functionalities including the official PRG wallet and ParagonSpace member portal. As one of the first beta partners to implement Civic Technology’s secure login solutions, you can expect to see official ID verification online by the end of Q4.

Likewise, ParagonAccelerator is picking up speed: it is on the verge of announcing the first “startup” developed through its comprehensive business acceleration program.

 

This emerging company has joined the co-working space and has been utilizing Paragon’s vast network and internal / external resources, anticipating to officially launch next year. Paragon has been building out a partner network full of platforms, services, media, influencers, brands and products to help members grow and connect across the industry. Additionally, our offering includes marketing and PR support, and helping companies connect with legal and finance teams to navigate through the complications of the cannabis industry. Soon we’ll be announcing how we’re collaborating with other cannabis co-working spaces in the nation to bring members the utmost value by joining our community.

Paragon has been a topic of conversation across the cannabis industry, landing features in some of the top national publications. Q1 brought much anticipation for ParagonSpace with High Times announcing “In the City of Angels, the moment cannabis entrepreneurs have been waiting for is finally here.” The news quickly spread across DOPE, Leafly, and The Hollywood Reporter to name a few. Leading up to the official launch and opening, Paragon was also featured in Inc, Forbes, Bitcoin Magazine and Nasdaq, highlighting the innovation behind our technology developments. Since the official opening of ParagonSpace, and the live NBC airing of the launch event, the company has continued to make waves across both the media and cannabis industry alike. Over the past 6 months, we’ve proudly worked with some of today’s top brands, including MedMen, Daily High Club, Eaze, CannaRegs, CCTV, Merry Jane, DOPE, PROHBTD, Stone Road, Levo Oil, Greenbox Robotics, Lowell Herb Co, Atlas Ediles, Green Helix, and Kiskanu, to name a few. Before the end of Q4, you can expect to see more updates and announcements surrounding Paragon’s partnerships, blockchain seed-to-sale technology, co-working space developments, and overall business expansion.

About Paragon

Paragon seeks to pull the cannabis community from marginalized to mainstream by building blockchain into every step of the cannabis industry and working toward full legalization.  Our strength lies in the unique blockchain/cannabis connection that uses smart contracts. We believe in blockchain, and we believe in the benefits of cannabis. More uses of cannabis are coming to light, and we want to accelerate that process.  We believe cannabis is good for individuals and good for countries. We are passionate about moving forward in an ethical, morally responsible, and legal way. To learn more about Paragon, visit https://paragoncoin.com/ or follow us at https://twitter.com/paragoncoin.

Forward Looking Statements

This press release contains forward-looking statements of the Company that involve substantial risks and uncertainties.  All statements, other than statements of historical facts, contained in this press release are forward-looking statements.  Forward looking statements can be identified by the use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions.  The forward-looking statements in this press release represent the Company’s views as of the date of this press release. The Company anticipates that subsequent events and developments will cause its views to change. However, while it may elect to update these forward-looking statements at some point in the future, it has no current intention of doing so except to the extent required by applicable law.  You should, therefore, not rely on these forward-looking statements as representing the Company’s views as of any date subsequent to the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement.

 


William SumnerMay 22, 2018
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Leafbuyer Technologies (LBUY) is in hot water after the OTC Markets Group, Inc. flagged the company for heavy stock promotion. In an announcement made after the close of the markets, Leafbuyer disclosed that OTC Markets had questioned the company about a recent distributed newsletter and e-mail promoting the company.

Since February of this year, Leafbuyer has engaged the services of MIDAM Ventures, the parent company of MarijuanaStocks.com, to promote its stock. The amount in which MIDAM was paid by Leafbuyer to promote its stock is somewhat in dispute.

According to the disclaimer in one of the recently released promotional “reports,” MIDAM was paid up to $445,000 in cash as well as 77,000 restricted common shares of the company. Leafbuyer contents that the disclaimer was incorrect and only paid $225,000; which is nevertheless a substantial sum.

The sheer size of this sum becomes even more apparent when you consider the company’s financial situation. According to the company’s most recent filings with the SEC, the company reported sales totaling to the amount of $287,224 and a loss of $1.1 million for the quarter ending on March 31, 2018; up from a loss $339,820 during the same period last year.

With a significant portion of the company’s revenue being spent on promotion, some have begun to question the soundness of this strategy. Alan Brochstein of New Cannabis Ventures described the move as bordering on “sheer lunacy” and urged investors to ask “why the company has been so promotional, as the business certainly appears to be real though not financially stable.”

For their part, Leafbuyer defends its actions by stating that the company’s directors, officers, and controlling shareholders have not sold any company stock on the open market within the last 90 days. Furthermore, Leafbuyer contends that the company’s stock has only declined since engaging MIDAM’s services and that none of its promotional material contained false or misleading information.

In a statement the company said, “The company states definitively that its officers, directors and, to the Company’s knowledge, its controlling shareholders (i.e., shareholders owning 10% or more of the Company’s securities), of which there are only three, have not sold or purchased the Company’s securities within the past 90 days on the open market. The promotional material primarily consisted of previously disclosed and available information. After a review of the material, the statements contained therein are neither materially false nor misleading.”

News of the inquiry by OTC Markets caused the company’s stock to plunge at the opening of the markets today, falling 3.29% from $1.33 per share to $1.29, with some fluctuations.


Debra BorchardtApril 6, 2018
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The OTC Markets Group, which is home to most cannabis stocks, is taking the lead on identifying stock promotions for its investors. Stock promotion isn’t illegal. What is illegal is not being transparent about it.

Microcaps or penny stocks are especially susceptible to these types of manipulations because information on these companies can often be limited. In 2014, the SEC charged four people with manipulating stock prices for GrowLife Inc and Hemp Inc.

The OTC Markets has employed various tactics to help investors like what it calls the “blunt club” or the skull & crossbones icon that warns the market of bad behavior. However, the OTC doesn’t have the power to engage in disciplinary measures which falls to the SEC. The SEC though doesn’t move very quickly and even if it is investigating a company or person, that information is rarely made public. The OTC believes it can at least react more quickly and warn investors of questionable activity.

In its latest action, the OTC has set up a “Promotion flag” to warn market participants that the trading could be under suspicion. “For market forces to work, it’s got to be about providing more information so investors can make the right decisions,” said Cromwell Coulson Chief Executive Officer of the OTC Markets Group. “The companies have a responsibility to immediately address information regarding trading rumors. We’ve removed issuers because they weren’t truthful about sponsoring promotions.”

Investors can check this page for a list of companies that have recently paid for stock promotions. For example, Hemp Americana (HMPQ) appears on this list and also has a skull and crossbones icon. On the company Overview page under the Caveat Emptor designation, there is now a megaphone icon underneath that says stock promotion.

The process relies on mostly human observation, with either the OTC team spotting the behavior or an investor bringing it to their attention. “The job of the market is to sniff out what’s true and false,” said Coulson, “In the long term, it usually comes out. In the short term? Not so much.” Coulson said the OTC was pushing for changes to the rule called 17-B around anonymously paid promotions.

The SEC also warns about press releases announcing events that never happen or contracts that never get finalized. Other behavior in stock promoting companies that issue a lot of shares without a corresponding increase in assets. The SEC said in a statement, investors should exercise extreme caution if there appears to be more promotion of the company’s stock versus its actual products. It also said that guaranteed high investment returns, “limited time” stock promotions and unsolicited stock recommendations.

Investors are also warned not to feel more comfortable if the promoter suggests you buy the stock through your own brokerage account. Your purchase may be their “sell.” The SEC wrote, “Even if you do not give the promoter any money directly, your stock purchases may enable the organizers of the promotion to offload their otherwise valueless shares.”

In addition to the promotion flag, the OTC has added a shell-risk flag. This icon identifies whether a company is a shell as defined by the SEC. “The term shell company means a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB that has: (1) No or nominal operations; and (2) Either: (i) No or nominal assets; (ii) Assets consisting solely of cash and cash equivalents; or (iii) Assets consisting of any amount of cash and cash equivalents and nominal other assets.”

“Over-valuation is the biggest risk,” said Coulson. “It happens even with electric car companies. With small companies, we need to build markets to fit .”


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