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.
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 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.
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.