The SEC recently got an emergency order to shut down a company called Integrated Natural Resources, Inc., which was doing business as WeedGenics. The agency is charging its owners with securities fraud after it discovered that the business was a complete sham.
According to the SEC, the two owners have been promising huge returns: up to 36%. The pitch was that the company was already operating cannabis facilities and was rapidly expanding as legalization continues to march forward. That pitch was a lie.
In fact, the SEC says, WeedGenics neither owned nor operated any facilities. It wasn’t using the more than $60 million it received in investments to expand or operate any business. They were simply operating a Ponzi scheme, where early investors are paid back with money from subsequent investors. However, in Ponzi schemes, the money ultimately runs out and the last round of investors is left holding the bag.
“[The two owners] allegedly had no real company, no product, and no business, yet despite this, they promised investors everything and then delivered nothing,” said a spokesperson for the SEC. “This action demonstrates that, despite the defendants’ extensive efforts to avoid detection, the SEC has the ability to uncover fraud to protect investors.”
The owners had allegedly transferred investors’ money into multiple accounts and then used it to enrich themselves and others. For example, they used the money to launch a rapper’s career. Suspiciously, one of the men used the fake name “Max Bergmann” throughout the scheme.
When the SEC’s investigation turned up evidence of fraud, the agency went to the court for an emergency restraining order to end the scheme, an order freezing the company’s and its owners’ assets, and an order putting WeedGenics into a temporary receivership. That way, the agency hopes to collect most of the remaining money to return to investors and pay any fines.
It’s natural to want to get in on the ground floor, but that requires more diligence
We can all understand the urge to find a prospering startup that is ready to explode. Investing in such an enterprise could be very lucrative. The cannabis industry is growing rapidly and could offer many opportunities.
Here, it was all smoke and mirrors. Investors may have felt it was best not to ask too many questions.
Ask the questions.
