Former CannaRegs Investors File Securities Fraud Lawsuit After $10 Million Acquisition

Lester Firstenberger and Sathya Rajavelu have filed a federal lawsuit in the Southern District of New York against CannaRegs, its acquirer, Fyllo, and its founder, Amanda Ostrowitz, as well as two cannabis investors and people associated with those firms. CannaRegs, which was founded in 2014 and provides regulatory data for the cannabis industry, was acquired by Chicago-based Fyllo in January.

Firstenberger, who had previously served as CEO of CannaRegs, and Rajavelu, who had served as CTO, allege that Ostrowitz colluded with Panther Opportunity Fund and Phyto II, LP, a fund run by Phyto Partners, to allow them to buy their shares at a substantial discount to the price paid by Fyllo just four months later. According to the lawsuit, Ostrowitz reached out to them in September 2019 to repurchase their stock representing almost 12% of the company for approximately $179K, implying a company valuation of $1.52 million. Four months later, the company was sold to Fyllo for $10 million in cash and stock. The plaintiffs allege that at the time they sold their stock to Panther Opportunity Fund and Phyto II, LP that Ostrowitz had already struck the deal and had informed both investors but not the sellers. Panther’s David Friedman, Ramie Tritt and Jordan Tritt as well as Larry Schnurmacher of Phyto Partners were named in the suit as well.

The lawsuit points to a “longstanding dispute” between the plaintiffs and Ostrowitz,  alleging that she mismanaged the company. The plaintiffs allege that this dispute led Ostrowitz to act in a “vindictive effort to harm the plaintiffs.” According to Firstenberger and Rajavelu, Ostrowitz had a fiduciary duty to all shareholders that she breached. They further allege that the other defendants colluded with Ostrowitz to conceal information of the pending acquisition by Fyllo.

The plaintiffs have demanded a jury trial and are seeking $1.175 million as well as interest, costs and attorney fees. New Cannabis Ventures reached out to Ostrowitz, but she declined to provide any comment.

Download the complaint

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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