Federal prosecutors indict cannabis industry executives with securities fraud

Federal law enforcement officials on Tuesday announced the indictment of two cannabis industry executives with securities fraud and other crimes, alleging the couple defrauded millions of dollars from investors. In a federal indictment released on Tuesday, Vitaly Fargesen and Igor Palatnik, co-founders of Canafarma Corp, are accused of defrauding investors by soliciting funds based on false statements and failing to invest those funds as promised. The two men from New Jersey, who are listed on Canafarma website as senior vice presidents, also allegedly embezzled millions of dollars in funds and manipulated the shares of the publicly traded company.

“Vitaly Fargesen and Igor Palatnik have presented themselves as entrepreneurs developing a new business for an emerging industry,” said Audrey Strauss, United States Attorney for the Southern District of New York. noted in a press release. “But, as it is claimed, Fargesen and Palatnik were simply using a startup’s traps to launch an old-fashioned scam: lying to investors to take money for themselves.”

According to federal prosecutors, Canafarma was a private company with offices in New York until March 2020, when the company was listed on the Canadian Stock Exchange and the Frankfurt Stock Exchange. The company presented itself to investors as a “fully integrated cannabis company spanning the entire spectrum of cannabis, from seeds to the delivery of consumer products.”

Prosecutors also allege that Fargesen and Palatnik hid their de facto control of the company from investors by “convincing an experienced businessman to falsely present himself in the market as the company’s CEO.” The pair then used their control of the company to raise around $ 14 million from investors using false and misleading representations about the company’s finances, products and management. The couple then implemented their ploy by not investing the funds as promised and manipulating the company’s stock price to get rich, secretly embezzling around $ 4 million in company funds for their own benefit.

The SEC also files a complaint

Also on Tuesday, the Securities and Exchange Commission filed a lawsuit against Canafarma and accused the company, Fargesen and Palatnik of violating anti-fraud provisions of federal securities laws. The complaint alleges that the company made false statements “that CanaFarma was a fully integrated company which processed hemp from its own farm when in fact it had not processed any of this hemp and its products used supplied hemp. by third parties ”.

“As alleged in our complaint, the defendants presented lies to investors about a fully integrated hemp company with optimistic financial projections” Richard R. Best, director of the SEC’s regional office in New York, noted in an agency press release. “We will relentlessly prosecute those who deceive investors and embezzle and abuse their funds.”

In June, Canafarma merged with Vertical Wellness, the maker of a line of hemp-based CBD products from entrepreneur and former model Kathy Ireland. The combined company retained Canafarma Corp as a corporate entity, but left the Vertical Wellness name and management team in place. J. Smoke Wallin, President and CEO of Vertical Wellness, says the company is “surprised by the allegations against CanaFarma and the named executives.”

“Neither Vertical Wellness, nor any of our advisers, lawyers or people we work with on a daily basis, had any prior knowledge of this situation,” Wallin wrote in an email. “We hope that CanaFarma can resolve these issues and that the truth will eventually be revealed. “

“Vertical Wellness, a separate business entity, will continue to develop our business as planned,” added Wallin. “Vertical Wellness has created or acquired several long-planned health and wellness brands; we are ahead of the launch of our CBD drinks and exciting products in the category. We will of course assess the policy options in light of today’s allegations.

Fargesen, 52, and Palatnik, 47, both of New Jersey, are each charged with one count of conspiracy to commit securities fraud, carrying a maximum sentence of five years in prison, one count of securities fraud, punishable by up to 20 years in prison, one count of conspiracy to commit wire fraud, punishable by up to 20 years in prison, and one count of wire fraud , punishable by a maximum sentence of 20 years in prison. The case is assigned to US District Judge Loretta A. Preska.

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