A group of hemp startup founders are accused of stock fraud, according to a lawsuit filed by the US Securities and Exchange Commission. The SEC alleges that the company was “in reality an elaborate Ponzi scheme” with no product or revenue, and calls for all defendants to be banned from public companies.
In a lawsuit, the canafarma founders are accused of stock fraud. The founders have been charged with using the company to pump up their own personal wealth.
CanaFarma Hemp Products’ two co-founders have been charged with defrauding investors out of $15 million by making false claims about the “farm to table” hemp business and its management.
Vitaly Fargesen and Igor Palatnik, according to the US Securities and Exchange Commission, misrepresented CanaFarma as a “fully integrated” hemp company and inflated its revenue in materials for two private stock offerings while pocketing $4 million in investor funds for personal use and purposes unrelated to CanaFarma.
They also bragged about CanaFarma’s management team, which was allegedly led by CEO David Lonsdale when, in reality, he “was CEO in name only, making no substantive decisions and taking direction from Fargesen and Palatnik,” according to a civil complaint filed by the Securities and Exchange Commission.
Fargesen and Palatnik have both been charged with criminal fraud in connection with the case.
In a press release, Manhattan U.S. Attorney Audrey Strauss stated, “Fargesen and Palatnik were simply exploiting the trappings of a startup to conduct an old-time scam: lying to investors to steal money for themselves.”
CanaFarma’s claimed business strategy, according to the SEC, was to cultivate hemp on two farms in New York and turn it into hemp products like “Yooforic” chewing gum that it would sell directly to customers. Lonsdale, the president of Lonsdale Group, a boutique finance company, was recruited in March 2019.
On paper, vice presidents Fargesen and Palatnik “told [Lonsdale] and others at CanaFarma that [he] would serve as a mere figurehead CEO and would not make any real decisions,” according to the SEC.
CanaFarma, on the other hand, is said to have licensed the manufacturing of Yooforic to a third party and stored the hemp it cultivated in storage. According to the SEC, “Fargesen informed a person… that CanaFarma was paying payments to the first hemp farm ‘simply for the narrative.’”
The business stated in its second offering that it was “reaching almost $1,000,000 per month revenue” in March 2020, however it actually made “roughly $44,000 in income in March 2020” and “never surpassed $1 million in monthly revenue” while raising funds.
Lonsdale Resources, a hemp startup company founded by former professional athletes was accused of stock fraud. The founders were said to have been involved in the manipulation of the company’s stock price and its eventual bankruptcy. Reference: lonsdale resources llc.
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