There’s a lot of money to be made off of the legalization trends in marijuana. Many business owners in the still-controversial segment of cannabis have struck a new fortune. It’s a business that relies heavily upon cash where banks often have little or no involvement at all. And many investors have hit pay-dirt by investing in the so-called cannabis sector. It almost sounds like a sure thing, and as if nothing could go wrong.
It turns out that a lot can go wrong. The Securities and Exchange Commission (SEC) has now charged a Texas-based investment fund and its founder with defrauding investors by giving false promises of massive returns in cannabis-related businesses.
In a separate issue, the SEC has also now issued an alert that is aimed at warnings retail investors about marijuana-related securities offerings. This warning is about unlicensed and unregistered sellers, guaranteed returns, and unsolicited offers. The warning also pertains to market manipulation, where companies change names or their business model and even warns of false press releases.
In the instance of the SEC charging an investment fund and its founder, the complaint alleges that Greenview Investment Partners L.P. and founder Michael E. Cone used misleading marketing materials which raised over $3.3 million from investors. The SEC bulletin describes what sounds like a Ponzi scheme and a complete misuse of funds. The complaint said:
Cone allegedly employed boiler room sales staff who made cold calls to investors and promised them up to 24 percent annual returns from investments in Greenview. According to the complaint, Cone used an alias to conceal his prior criminal convictions, lied about having a former agent from the U.S. Drug Enforcement Administration on staff, and falsely claimed to have a long record of profitably investing millions in cannabis-related businesses. The complaint alleges that, in reality, Greenview had no track record and its sole investment of $400,000 was in a cannabis company that had yet to harvest a crop. According to the complaint, Cone spent investors’ money on designer clothes and luxury cars, and on payments to earlier investors to prolong the alleged scheme. In a parallel criminal proceeding, the U.S. Attorney’s Office for the Central District of California charged Cone and seized approximately $1.4 million in cash and assets.
Also alleged in the SEC statements are charges that Mr. Cone lied about high returns, as well as the backgrounds of its key executives. Greenview and Cone are charged with securities fraud and violations of the registration provisions of federal securities laws. It also noted that Mr. Cone has agreed to an officer-and-director bar and a permanent injunction and that the court will determine disgorgement and prejudgment interest at a later time.
If this seems surprising, it shouldn’t. It seems that every time a hot sector with huge growth comes around, many pitfalls suck unknowing retail investors in where they lose almost all or all of what they thought was an investment. This has been seen in bitcoin and blockchain, dot-com companies, and just about any other hot sector over time.
Sadly, there’s more proof that someone somewhere is still willing to buy a bridge.