SEC Claims Fraud by Michael Mona, Jr., CEO of CBD Seller CV Sciences, and Company

After the close on Friday, the SEC announced that it has filed suit against Michael Mona, Jr., CEO of CV Sciences (OTC: CVSI) and the company, which was formerly known as CannaVest. In the litigation release, the SEC asserts that the purchase of the PhytoSphere Systems assets in 2013 from Medical Marijuana, Inc. (OTC: MJNA) was followed by accounting fraud, with the assets reported at an inflated $35mm in the company’s financial statements.  According to the SEC, the company received a third-party valuation of just $8mm later in 2013 but didn’t write down the asset value until 2014.

Download SEC Complaint

In the complaint, the SEC states  that “Mona knew that CannaVEST was paying substantially less than $35 million to acquire the PhytoSphere business, that PhytoSphere was not worth $35 million, and that CannaVEST would have never agreed to the purported purchase price if CannaVEST were required to pay cash for PhytoSphere.” In what was one of my first cannabis stock articles in 2013, I came to this conclusion as well and also questioned how MJNA was able to book this as “revenue”.

The complaint also suggests that “Mona did not obtain any financial information on PhytoSphere, did not perform any valuation on PhytoSphere, and did not conduct due diligence on the acquisition.” The SEC is seeking payment of civil penalties from both CV Sciences and Mona, return of a $10,000 bonus for 2013 paid to Mona as well as other bonuses and equity-based compensation, and to bar Mona from acting as officer or director of a public company. The SEC still has an open fraud complaint against Bruce Perlowin of Hemp, Inc. (OTC: HEMP) that was filed a year ago.

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Breaking news by Alan Brochstein, CFA

ab-byline-ncvBased in Houston, Alan leverages his experience as founder of online communities 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.

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