The Securities and Exchange Commission awarded $4 million to a whistleblower; and, in two separate cases, charged a marijuana-related company and a blank check company manufacturer with fraud.
SEC Charges Execs, Companies in Marijuana Fraud Scheme
The SEC announced fraud charges against three individuals and four companies in a scheme involving illegal stock sales and false financial filings of a company that makes containers for growing marijuana.
According to the agency, William Sears orchestrated the scheme along with his brother-in-law Scott Dittman, who was the chief executive officer and sole officer at Fusion Pharm Inc.; Sears concealed his control from behind the scenes.
Sears and Dittman hired Cliffe Bodden to help them create fraudulent corporate documents that enabled Fusion Pharm to issue common stock to three other companies controlled by Sears, who then illegally sold the restricted stock into the market for $12.2 million in profits while hiding the companies’ connection to Fusion Pharm.
Sears transferred some of his illegal proceeds back to Fusion Pharm so the money could be falsely reported as revenue, and the company issued press releases and financial reports that misled investors to believe the revenue came from sales of the containers called PharmPods.
Sears, Dittman and Bodden, as well as Fusion Pharm and Sears’s other three companies, agreed to settle the SEC’s charges, with monetary sanctions to be determined at a later date.
The SEC has barred Sears and his three companies, Dittman and Bodden from participating in any future penny stock offerings, and Sears and Dittman are permanently barred from serving as an officer or director of any public company. Dittman also is permanently suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.
In a parallel action, the U.S. Attorney’s Office for the District of Colorado has announced criminal charges against Sears and Dittman.
The SEC has also separately instituted an administrative proceeding against attorney Tod DiTommaso, in which its enforcement division alleges that he issued attorney opinion letters for Sears and Dittman falsely stating that unrestricted shares in Fusion Pharm could be issued into the market when in reality it was restricted stock.
SEC Rewards Whistleblower With $4 Million
In its latest award to a whistleblower, the SEC announced it had provided more than $4 million to one whose original information alerted the agency to a fraud.
Whistleblowers’ identities are protected by the agency, which does not disclose information that might directly or indirectly reveal a whistleblower’s identity. The SEC has, since the inception of the program in 2011, presented more than $111 million in awards to 34 whistleblowers.
Whistleblower awards can range from 10–30% of the money collected when monetary sanctions exceed $1 million. All payments are made out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.
Blank Check Company Manufacturer Charged With Fraud
The SEC has charged a Florida man with fraud for being part of a scheme to register and sell stock in blank check companies disguised as promising startups to illicitly profit off the investing public.
According to the agency, Sheldon Rose created more than a dozen blank check companies that have no operations and no value other than their registered status to sell stock. Rose installed friends and family as figurehead company officers and shareholders so he could control the companies and their securities without anyone knowing he was running things.
Registration statements and other corporate filings made it look as if these companies were pursuing real business ventures, but instead all they were intended for was reverse mergers. In those mergers, all their securities, including a pool of supposedly unrestricted shares, were sold to enrich Rose and others.
Rose is also connected to another scheme the SEC stopped last year with fraud charges against 10 other people.
In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida also announced criminal charges against Rose and a former broker-dealer registered representative named Ian Kass, whom the SEC charged last month.
The SEC said that Rose and his company MKJJ Consulting LLC violated or aided and abetted violations of the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws. Rose has agreed to settle the charges, and is barred from future penny stock offerings or from serving as an officer or director of a public company. An administrative law judge will determine monetary sanctions.
The SEC’s investigation is continuing.
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