The SEC charged publicly traded Notis Global (OTC: NGBL), formerly Medbox, and its founder Vincent Mehdizadeh with illegal stock sales that were funnelled back to the company as revenue. Medbox was one of the early cannabis stocks that gained notoriety for its meteoric rise at the end of 2012, when it rallied from about $1 to over $200 briefly:
After leaving the company in 2015, Mehdizadeh formed Pineapple Express (OTC: PNPL), which was suspended by the SEC on April 28th 2016 for two weeks due to “unusual and unexplained market activity in the company’s stock that raises concerns about the adequacy of publicly-available information regarding the company.” For some great background on Mehdizadeh, we highly recommend Roddy Boyd’s work at Southern Investigative Reporting Foundation, as he identified several issues with him and his company in 2013.
Here is the full SEC press release regarding Mehdizadeh and Medbox:
SEC Charges Marijuana-Related Company and Executives With Touting Bogus Revenues
FOR IMMEDIATE RELEASE
Washington D.C., March 9, 2017 —The Securities and Exchange Commission today charged a California-based company and its founder with falsely touting “record” revenue numbers to investors and claiming to be a leader in the marijuana industry while some of its earnings came from sham transactions with a secret affiliate.
According to the SEC’s complaint, Medbox provided marijuana consulting services and claimed to sell vending machines known as “Medbox” devices capable of dispensing marijuana on the basis of biometric identification. The SEC alleges that Vincent Mehdizadeh created a shell company called New-Age Investment Consulting to carry out illegal stock sales and used the proceeds from those sales to boost Medbox’s revenue. Medbox allegedly issued press releases headlining the phony revenues as record earnings to legitimize itself as a viable commercial operation when in fact nearly 90 percent of the company’s revenue in the first quarter of 2014 stemmed from sham transactions with New-Age. Mehdizadeh allegedly acknowledged in a text message that “the only thing we are really good at is public company publicity and stock awareness. We get an A+ for creating revenue off sheer will but that won’t continue.”
Meanwhile, according to the SEC’s complaint, Mehdizadeh funded the purchase of a luxury home in the Pacific Palisades with proceeds from New-Age’s illicit stock sales.
The SEC’s complaint additionally charges Medbox’s then-CEO Bruce Bedrick with being complicit in the scheme and personally profiting. The SEC also charged New-Age and Mehdizadeh’s then-fiancée Yocelin Legaspi with unlawfully selling unregistered securities. Mehdizadeh installed Legaspi as the supposed CEO of New-Age when he created the company.
As alleged in our complaint, investors were misled into believing that Medbox was a leader in the burgeoning marijuana industry when the company was just round-tripping money from illegal stock sales to boost revenue.
Michele Wein Layne,
Director of the SEC’s Los Angeles Regional Office
Mehdizadeh and Medbox, which has since changed its name to Notis Global, have agreed to settle the SEC’s charges. Mehdizadeh agreed to pay more than $12 million in disgorgement and penalties and agreed to be barred from serving as an officer or director of a public company or participating in any penny stock offerings. The settlements are subject to court approval. The SEC’s litigation continues against Bedrick, Legaspi, and New-Age.
The SEC’s investigation was conducted by Megan M. Bergstrom, Roger Boudreau, and Spencer Bendell of the Los Angeles office. The litigation will be led by Gary Leung. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
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