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SEC Sues Six Individuals In $25 Mln Cannabis-related Offering Fraud

The U.S. Securities and Exchange Commission said it has filed charges against six individuals and their companies for fraudulently raising $25 million from more than 400 investors to invest in two separate cannabis-related businesses in California.

The SEC's complaint alleges that, between September 2017 and February 2019, the six individuals raised funds from the individuals to invest in a marijuana farm and a cannabidiol or CBD extraction facility in California.

Of the six individuals, Anthony Todd Johnson, Jeremy Johnson, Richard Portillo, and Michael Gregory are all residents of California. Charles Lloyd and Mark Heckele are residents of Arizona.

The six individuals allegedly conducted the scheme through nine issuers and three marketing companies.

According to the complaint, brothers Todd and Jeremy Johnson, Portillo, Lloyd, and Heckele led investors to believe they would receive a guaranteed annual return of 100 percent or more on their investments.

The Johnsons allegedly misappropriated more than $2.7 million of investor money and, with Gregory, deceived investors about a purported "business loan" secured by real property to develop the CBD extraction facility that in fact was used to pay back investors in an unrelated entity.

According to the complaint, one group of companies raised about $12.3 million from approximately 226 investors for investing in a newly established and licensed marijuana farm located in Salinas, California.

Another group of companies allegedly raised about $13.2 million from approximately 211 investors for developing C-Quadrant, a startup cannabidiol or CBD extraction facility, also located in Salinas.

The complaint alleges that the individuals misrepresented the principals' backgrounds, their capital contributions, and a purported relationship with a California university.

The SEC said it is seeking permanent injunctions against the six individuals, disgorgement of their ill-gotten gains plus prejudgment interest, and civil penalties.

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