Massachusetts Secretary of State William Galvin, the state’s top securities regulator, charged an investment advisor representative who oversaw the solicitation of millions of dollars from more than 100 investors in order to fund various medical marijuana ventures.
However, no licenses were ever acquired in Massachusetts and no dispensary was ever opened.
Frederick McDonald Jr., CEO of the investment advisor US Advisory Group Inc., funded several of his ventures through one high-net-worth client, who lost more than $3 million due to McDonald’s activities.
Collectively, investors lost control of more than $8 million in assets, while seeing no returns on their investments, according to the administrative complaint filed by Galvin’s Securities Division.
The Massachusetts Securities Division accuses McDonald of failing to disclose key risk factors in the cannabis industry, withholding information about his own conflicting interests in the investments he was recommending, concealing crucial information from the investors, and breaching his fiduciary duty to his client.
“McDonald failed to educate himself regarding the unique and complex licensing process in Massachusetts, which resulted in the distribution of offering documents that failed to adequately disclose to investors the risks or difficulties the investment could face,” the complaint says.
The complaint alleges that McDonald took advantage of his advisory relationship with at least one client in order to pursue side marijuana projects, while hiding important information from investors. McDonald provided only minimal information about the various marijuana ventures, while accessing investor funds to support his own projects.
While McDonald and his partners planned to open a medical marijuana dispensary, a lack of transparency and communication led to funding issues.
According to the complaint, McDonald and his partners jointly raised money for the venture, but when his partners began to dispute existing agreements, the relationship collapsed, and they subsequently failed to obtain a lease or license.
The complaint further alleges that McDonald and his partners deliberately hid the identity of an individual who acted as an agent and fundraiser for the potential dispensary, as the discovery of that individual’s criminal record could have led to denial of a license.
“McDonald’s free-wheeling practices included cutting corners at every opportunity and lying to his own business partners and investors to cover his own mistakes,” the complaint states.
Also charged in the complaint are McDonald’s various companies and corporations, including US Advisory Group, Commonwealth Pain Management Connections LLC, and Kettle Black of MA LLC.
Galvin’s office is seeking censure of the respondents, an order permanently barring McDonald and USAG from registration in Massachusetts, disgorgement of profits, requirement that respondents make offers of rescission and provide restitution to compensate investors for the alleged wrongdoing, and an administrative fine.
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