Posternak Blankstein & Lund LLP is now Arent Fox. Read the press release

SEC Charges Cannabis Pill Company with $2 Million Securities Fraud

Headlines that Matter for Companies and Executives in Regulated Industries.

JD Supra has awarded our Investigations team with its 2021 Readers' Choice Award as the Top Firm for White Collar analysis. The award comes during a year when the legal intelligence platform quadrupled its content production.

SEC Charges Cannabis Pill Company with $2 Million Securities Fraud

On September 28, 2021, the Securities and Exchange Commission (“SEC”) charged a California-based cannabis company C3 International, Inc. (“C3”) and its CEO and President with defrauding at least 40 investors out of approximately $2 million by selling stock in the company through misrepresentations, omissions, and false statements.
The SEC filed suit in the United States District Court for the Central District of California, charging the company, CEO, and President with securities fraud violations. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, civil penalties, and officer and director bars against the CEO and President.
The SEC’s complaint alleges that from October 2011 through November 2019, the cannabis company deceived investors by making numerous material misrepresentations and omissions related to the company’s business and its cannabis pill, Idrasil. Specifically, the complaint alleges that on the C3 and Idrasil websites, in investor communications and offering materials, and on social media, the CEO misrepresented that Idrasil was patented or “patent-pending” or trademarked, that most insurance companies would cover Idrasil, and that investor funds would be used for business purposes. The CEO also allegedly omitted his prior criminal conviction for conspiracy to manufacture marijuana plants when making statements about his background and legal history. The complaint further alleges that the CEO and his wife, the President of the company, misappropriated over $1 million of investor funds for personal use.
The SEC complaint can be found here, and the SEC press release can be found here

Energy Company to Pay $6.15 Million For Alleged False Claims Act Violations

On September 27, 2021, Devon Energy Corporation, an oil and natural gas exploration and production company, and its affiliates (collectively, “Devon”) agreed to a settlement payment of $6.15 million to resolve allegations that it underpaid and underreported royalties for natural gas from federal lands in Wyoming and New Mexico, in violation of the False Claims Act (“FCA”).
The government alleged that Devon wrongly deducted payments to third parties for gas shipping and processing that included costs to place the gas in marketable condition. When the United States leases federal lands for natural gas production in exchange for royalty payments, lessees must make the gas in marketable condition at their own cost and at no cost to the United States. By deducting these payments, Devon knowingly underreported and underpaid royalties to the United States government.
The DOJ press release can be found here, and the settlement agreement can be found here.

Four Defendants Indicted for Alleged Wire Fraud by Gift Card Laundering

On September 28, 2021, a Los Angeles federal grand jury indictment was unsealed, which charges four defendants with conspiring to launder proceeds of wire fraud that were stored on Target gift cards.
The indictment alleges that three of the defendants obtained and caused to be distributed over 5,000 gift cards to “runners,” including the fourth defendant. The “runners” then allegedly used the funds on the gift cards at Target retail stores in California to purchase consumer electronics and other gift cards, among other items. The defendants allegedly aimed to hide that the gift cards had originally been funded with fraudulent proceeds through the series of purchases, returns, and other transactions at multiple Target retail stores.
According to the indictment, the defendants induced victims to purchase the gift cards and send them to defendants and defendants’ associates.  The defendants, if convicted, face a maximum penalty of 20 years in prison. 
The DOJ press release can be found here.



Continue Reading