Platform and individuals charged in first case of its kind
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January 25th, 2023
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SEC takes legal action after crowdfunded marijuana investment scheme appears to go up in smoke
The Register | Tim Richardson | Sep 21, 2021
Platform and individuals charged in first case of its kind
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.
See: Crowdfunding Is Revolutionizing The Cannabis Industry. Here’s Why.
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."
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.
See: SEC Votes to Approve Changes to Regulation Crowdfunding Increasing the Maximum Raise to $5 Million
Gurbir Grewal, director of the SEC's Division of Enforcement said:
"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.
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