US financial watchdogs have launched legal action against a cannabis-related investment scheme said to be the first case involving crowdfunding regulation.
The Securities and Exchange Commission (SEC) filed a complaint against three people – named as Robert Shumake Jr, Willard Jackson, and Nicole Birch – and Texan firm 420 Real Estate in the Eastern District court in Michigan, claiming the trio had been involved in selling nearly $2m in unregistered securities through two crowdfunding schemes.
The SEC also charged the registered funding portal that hosted the offerings – TruCrowd – and its CEO Vicent Petrescu (name spelled as listed), with violating Section 4A(a)(5) of the Securities Act and violating crowdfunding rules, alleging they "served as gatekeepers and, as such, were responsible for taking measures to reduce the risk of fraud."
In papers filed yesterday [PDF], Shumake, Jackson and Birch were accused of marketing both offerings as "opportunities for investors to share in bountiful profits from the cannabis industry, by acquiring real estate and leasing it to companies engaged in the business of growing cannabis."
- Twitter offers to cough up 80 days of annual sales to settle 'false' user count lawsuit
- GitLab all set to go public as revenues – and losses – rise
- App Annie fined $10m by the SEC for deceptive practices around how it presented data
- Elizabeth Holmes' Theranos fraud trial begins: Defense claims all she did was fail – and that's not a crime
However, the complaint lodged by the SEC claimed that none of the money raised had been used to "acquire or improve cannabis real estate" as set out.
"None of the investors in either crowdfunding offering has received any return on their investment, and few investors have recovered any of the funds they invested," the watchdog said.
Shumake, Birch and Jackson are all charged with violating anti-fraud and registration laws, with the SEC alleging that "they diverted hundreds of thousands of dollars from the offering proceeds for their personal benefit."
The watchdog has asked for financial penalties and injunctions stopping them from serving as corporate officers.
In a statement announcing the news, Gurbir Grewal, director of the SEC's Division of Enforcement, said that as companies continue to raise funds through crowdfunding, it will continue to make sure all involved are "accountable" and, if needs be, "enforce the protections in place for all investors."
Last year, the SEC relaxed the rules around crowdfunding limits, raising the ceiling from $1m to $5m.
TruCrowd told The Register: "We think we have a good defense against the allegations stated in the complaint, and it is worth noting that there are no allegations of fraud against TruCrowd or Petrescu." ®