SEC Charges Cannabis Company American Patriot Brands, CEO, and Others with Fraud
The Securities and Exchange Commission today charged American Patriot
Brands Inc. (APB), a cannabis cultivation and distribution company,
its CEO, and five other entities and individuals for their
participation in a long-running scheme in which they raised more than
$30 million from more than one hundred investors across the country
and siphoned off millions of those funds to enrich themselves.
According to the SEC’s complaint, filed in the United States
District Court for the District of Puerto Rico, since at least
mid-2016, APB, its CEO Robert Y. Lee, and current and former
executives Brian L. Pallas and J. Bernard Rice made a series of false
and misleading statements to investors about various aspects of the
company, including its financial condition, the scope of its
operations, the value of its Oregon cannabis farm, and the safety and
security of investing in APB. The complaint alleges that APB funneled
millions in investor proceeds to the APB executives’ personal accounts
and spent tens of thousands on the executives’ personal expenses.
“As the SEC complaint alleges, American Patriot Brands Inc.
and some of its senior executives fabricated business profits and
prospects to entice investors with falsehoods that in the end left
investors with essentially worthless securities,” said Carolyn M.
Welshhans, Associate Director of the SEC’s Enforcement Division. “This
action reflects the SEC’s ongoing commitment to holding accountable
those who seek to profit through lies and deception. ”
The
complaint charges APB, Lee, Pallas, Rice, and APB subsidiaries DJ&S;
Property #1 LLC, TSL Distribution LLC, and Urban Pharms LLC with
violating the antifraud provisions of the federal securities laws and
seeks permanent injunctive relief, disgorgement with prejudgment
interest, civil penalties, and officer and director bars against Lee,
Pallas, and Rice. The complaint names as relief defendants, and seeks
disgorgement with prejudgment interest from, three affiliated entities
(Legion Accounting Services, Inc. , Puerto Rico One Corp. , and Castro
Business Enterprises LLC. ) that allegedly received millions in
investor proceeds.
The SEC’s investigation was conducted by
Andrew Elliott and Brianna Ripa, with assistance from accountant Jamie
Wohlert, and it was supervised by Ms. Welshhans and Amy L. Friedman.
The litigation will be led by Samantha Williams and supervised by
James Carlson.