U.S. securities regulators secured over US$40 million in disgorgement and penalties against a group of cannabis companies and executives that were accused of defrauding investors.
A federal court in California entered a final judgment against American Patriot Brands, Inc. (APB), its various subsidiaries and a pair of executives — former CEO Robert Lee and chief operating officer Brian Pallas — that raised millions from investors and allegedly diverted much of that money for personal use.
According to a complaint from the U.S. Securities and Exchange Commission (SEC), APB decided to get into the marijuana business in 2016, acquiring companies that cultivated and distributed cannabis. It had previously operated a food truck business, and was known as The Grilled Cheese Truck Inc.
To finance its expansion, the company raised capital from investors and allegedly began misleading investors about various aspects of the company, including its financial condition and operations.
The SEC also alleged that the company funnelled millions of investors’ money to its executives’ personal accounts.
Now, the SEC has resolved its litigation through a final judgment that ordered US$24 million in disgorgement and interest against the companies — plus US$13 million in penalties.
The judgment also ordered US$6.4 million in sanctions against Lee; and a civil penalty of $472,902 against Pallas. It also imposed various injunctions, and banned the executives.