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12 Dec

Shady Colorado CBD company Folium Biosciences described in Lawsuit attempting reverse merger with Australis : $AUSA $AUSAF

A Colorado Springs wholesale CBD company, Folium Biosciences, announced it is going public via a reverse merger with Australis Capital ($AUSA) this week. Australis Capital is a spin-off of Aurora Cannabis ($ACB) a large Canadian cannabis company. I have reported extensively on some troubling behavior of Folium’s CEO Kashif Shan at Cannabis Law Report. This includes allegations of siphoning off company cash to his own family bank accounts, sidestepping regulations and risking employee safety in pursuit of profits, using hot hemp, faking COA reports and even attempting a murder for hire when a former executive left to start a competitive CBD company. Folium is currently battling at least three lawsuits from former executives who alleged Shan cheated them out of ownership in the company that they have contractual rights to. Shan was former mortgage broker who filed bankruptcy during the financial crisis and was sued by the trustee of the bankruptcy for fraudulent conveyance. He started Folium in 2015 under the llc Whole Hemp Company, which is structured as partnership of membership units (not equity).

Folium’s relationship with Scott Dowty of Australis started earlier in the year when Dowty’s company made a $3 million investment into Folium. I have previously reported that Dowty was part of a false and misleading press release that alleged cause the stock price to jump. Dowty is a native of Las Vegas with no previous experience in the cannabis business. Australis is listed on the Canadian Stock Exchange which has weak reporting requirements and trades in the U.S. as a foreign issuer on the OTC Markets ($AUSAF). The stock hasn’t done well since Dowty spun out the company trading under $1. This merger appears to be a last ditch effort for both men to exit their investment.

Folium announced a new llc they set up this year called Folium Equity Holding will merge with a new llc Australis set up called Folium Merger Sub. The agreement was signed on Tuesday December 10. Here is the thing tough, according to people who hold Folium membership units the company didn’t send out a notice for a vote of membership unit holders. To approve a reverse merger with an llc all unit holders have to approve the merger with an unanimous vote and that appears to not have happened.

Additionally, Folium is currently battling a lawsuit that is trying to remove Shan and appoint a receivership to run the company because a membership unit holder is worried he is moving assets out of the company. Any of the three former Folium employee suing could also make a move to file an emergency injunction motion to stop the merger or file a FINCIN complaint with the Securities and Exchange Commission if they think Shan didn’t follow the bylaws of the company in signing the merger deal.

When Kashif Shan first learned that he was going to be personally named in a lawsuit accusing him of taking money out of Folium for personal gain he moved his 5 bedroom, 6 bath, 11,000 square foot home into an llc called Motu llc on August 12th 2019, according to Colorado Springs public records. During the first year of starting Folium, Shan paid $1.4 million for the mansion in 2016. The name of the person running the llc that owns the mansion now is a Denver lawyer from Holland & Hart, David E Crandall who is know for helping individuals manage their wealth and reduce their tax liabilities.

Folium’s Kashif Shan has refused to respond to emails and phone calls requesting comment and the company’s former general counsel Craig Brand appears to be missing from the company and refuses to comment.

Update: I have reported the third part of my investigation into Folium Biosciences at Cannabis Law Report. If you are a former or current Folium employee or investor in the company who wants to speak out about wrong doing you have seen at the company you can contact me anonymously at teribuhl@gmail.com

UPDATE 2.19.20: Scott Dowty, the CEO of Australis, announced his company has called off the merger with Folium Biosciences. Dowty said new information came to light that influenced his decision but did not list the reason in the company press release. Folium recently went through massive layoffs according to staff who said Folium founders/executives said the company is having financial problems.

Folium CEO office poster

This is a poster Kashif Shan had made which use to hang in his office at Folium Biosciences. The caption says “Around this camp their is only one Chief. The rest are Indians.” Shan’s family is from Pakistan and is not Native American.

1 Comment
18 Oct

Did Aphria’s Irwin Simon give Selective Disclosure to investor Michael Serruya? $APHA $LHS

Aphria interim CEO Irwin Simon worked a backroom deal to off load the company’s stake in U.S. cannabis investments with Canadian mega million Michael Serruya before he took over the CEO job at the Canadian marijuana company. According to text messages obtained by this reporter between Serruya and Irwin sent on the morning of Feb 6, 2019, Michael Serruya took the lead in speaking for his family and Andy Defrancesco to negotiate the price and timing of when Aphria ($APHA) would exit its stake in Liberty Health Science ($LHS). In December 2018 the Toronto Stock Exchange, where Aphria was listed, forced the company to divest any stake in U.S. cannabis companies because they sold products that were illegal by federal law. Irwin was Chairman of the board at the time but Aphria was run by Vic Neufeld who had made an investment in a special-purpose private company called DFMMJ Investment Ltd for Aphria. DFMMJ managed cannabis farm Chestnut Hill Tree Farm, which was one of only seven licensed dispensaries of medical cannabis in the state of Florida at the time. Chestnut Hill Tree Farm was bought by Liberty Healthy Science.

DFMMJ Investment was first exposed as being secretly set up as an LLC by Andy Defrancesco when two short sellers published a series of reports about self-dealing and a lack of disclosures at Apheria and Liberty Health Science in December 2018. The reports tanked Aphria’s stock. Serruya is a board member of Aphria. I have previously reported, based on text and emails from Serruya, he was also controlling Liberty Health Science and DFMMJ investments from behind the scenes by placing puppet executives in charge.

Instead of selling Aphria’s stake in $LHS on the open market through a broker dealer, where buyers don’t know who is selling, the text messages show a transaction was being set up to benefit the Serruya family fund and Andy Defrancesco.

At 8:14 am Simon Irwin sent a text inviting Serruya to a hockey game. Irwin’s follow-on text said ” wrong person” but “welcome to come”. 50 minutes latter Michael Serruya responded:

Spoke to family member and Andy.
-They are prepared to leave in place what we agreed to, in the event that the shares are sold within the first 6 months.
-if the shares are sold from 6-12 they would pay aphria 3% of the net gain. ie. if during month 6-12 the shares are sold for $1.72 per share, (profit of $64 million), they would pay aphria $1.92 million)
-Alternatively they would be prepared to pay an additional $.02 per share ($0.74 p/s), and make the entire 6-12 month section go away.

An hour latter Irwin texted Serruya “call me”

Later in the day Michael Serruya texted he tried to call. Then at 7:48 pm Irwin texted Serruya “Hey working on getting done”.

The exchange leaves a lot of open questions. First why wasn’t the CEO of the company, Vic Neufeld, speaking to Serruya. Why was Serruya speaking for Andy Defrancesco who was not an officer/board member of Aphria or considered an insider? Did this arrangement constitute Serruya or Defrancesco getting inside information and did they trade off that? Why wasn’t the people involved in this arrangement disclosed in Aphria’s public filings?

On the face of things this read like Aphria is giving selective disclosure, which is against securities law in Canada and the U.S.

On February 19th Aphria made this announcement about offloading $LHS. The public announcement only mentions “a group of buyers” but doesn’t name Serruya or Defrancesco. In February, the company was on a PR campaign to repair its image of buying inflated cannabis assets in LatAm and Jamaica from companies that benefited Andy Defrancesco, Serruya and their buddies. Irwin Simon officially took over the CEO job after Vic Neufeld was kicked out on February 15, 2019.

This week Aphria announced earnings which showed the company is not turning a profit yet from marijuana operations. They also disclosed Michael Serruya will no longer be on the board. According to people I spoke with who work on Bay Street, Serruya is telling people he resigned from the board. I call B.S. on that and think it’s more likely Irwin finally asked him to leave given my story last month that showed how Serruya worked with the head of Canadian broker dealer Clarus to allegedly get inside info and conduct match trades.

Last month I verifed the text messages were written by Irwin when I called the cell phone and he answered. I told him I had copies of his text with Serruya and began to read them to him so he could comment on their intent. He then hung up on me and didn’t let me finish. I texted him saying we need to finish our conversation as the messages could imply insider trading and other things and he immediately answered “I am not worried as there is no truth to this, this never would happen.” Except he didn’t know which text I had.

Michael Serruya didn’t return an email for comment asking about him leaving the board. In fact, Serruya has never responded to any of my requests for comment. He has aggressively been grilling people on Bay street (or anyone he has worked with) trying to find the source of the people who leaked the texts.

The Globe and Mail this week reported Irwin would be getting a $10 million pay package in stock and cash. “Mr. Simon’s arrangement treats him as an independent contractor, paying him $500,000 annually for the CEO job and $600,000 annually to be chairman”, according to the Globe and Mail.

Aphria is still battling a shareholder securities fraud class action lawsuit that names Andy Defrancesco personally as a defendant along with the former Aphria CEO Vic Neufeld.

8 Comments
20 Sep

Text messages show Cannabis investors Defrancesco & Serruya allegedly Colluded with Clarus Securities’ Christodoulis in Multiple Stocks

A foreign investor in the cannabis sector published a report this week detailing how Andy Defrancesco and a gang of high net worth investors set up complicated private transactions securing dirt cheap stock in the company Sol Global Investments would reverse merge with to become publicly traded. The report only uses research from the cannabis company’s obscure and often confusing financial statements to show Team Defrancesco getting millions of shares of stock at a discount 25 times less than what it was sold to unsuspecting retail investors. To execute the scheme they had to have had help from gatekeepers. New emails and text message obtained by this publication now show enablers such as lawyers, friendly CEO’s, the head of a broker dealer, and a mega millionaire investor collude together to allegedly manipulate multiple stocks, like Sol Global, over the last decade, rape retail investors through self dealing transactions, and possibly trade on inside information.

The investor report goes back to September 2016 when a highly diluted private placement took place with an investment into a cash poor company called Kitrinor Metals led by a “finder” who happen to get 8 percent of the gross proceeds of the offering and discounted warrants. The report says:

While past shareholders paid over $1.2/share, participants of the private placement got them for $0.05 (Common Shares) and $0.10(Warrants) respectively-That’s25x higher.

The author of the report reached out to Sol Global’s current CEO Brady Cobb and ask him to identify the unnamed players in the public filings. Cobb said he answered some of the author’s questions on twitter but Cobb wouldn’t say who the finder was when I wrote him for comment.

According to a person who worked with Defrancesco along with a review of deal documents and press releases that finder is none other than Andy Defrancesco. This means before he became chairman and CIO of Sol Global he was already racking in thousands of dollars to set up a Multi State Operator cannabis company that he knew he was going to control as a public company down the road. Defrancesco became CIO in the fall of 2018 and as I reported early this month was forced out as an officer of the company from negative press. It’s unclear how much of the millions in cheap warrants and stock Defrancesco has retained through multiple llc’s and family members names.

Defrancesco uses some of the discounted warrants and stock by giving them to a trader named Andrew Rudensky. I reported this month Rudensky was named in an OSC investigation and was banned as a broker for two years by Canadian regulator IIROC. Rudensky effectually now works for Defrancesco. On Monday there was an opening run on Sol Global stock ahead of the investors report. The company knew the report was coming out. The stock, which trades on the Canadian Stock Exchange and the OTC Markets, flew up by ten cents without a lot of volume of trading. $Sol.cn $Solcf are the tickers for the stock which has been trading under one dollar. According to a person who worked with Defrancesco, he uses Rudensky to effect trading orders to get the stock up to counter negative press or so Defrancesco and friends can dump their shares.

The investor report goes on to detail other private placements that benefited team Defrancesco at the expense of retail holders. We also see another one of Defrancesco’s enablers helping raise money for the creation of Sol Global (formerly named Scythian Biosciences) which is Clarus Securities run by Jimmy Christodoulis.

Christodoulis, another Canadian, is often rumored to be very close friends with Andy Defrancesco. The broker dealer he runs is a sponsor of Andy’s son’s professional race car team. And now based on a series of text messages I received between Christodoulis, Andy Defrancesco, and mega millionaire investor Michael Serruya we know they are more than just drinking buddies.

Michael Serruya was a major investor in an LLC that Sol Global bought with cash and stock called CannCure, according to a copy of Serruya’s internal documents at his private equity firm, obtained by this reporter, the initial investment was for $22 million. When Defrancesco and Serruya make private investments in the form of debt that turns into common stock there are usually some restrictions to when the stock can be traded. It’s called restricted stock. If they want to get out of the stock earlier than the deal documents or the law requires they would need a lawyer to write a false opinion letter or a broker dealer willing to trade their restricted stock for free trading stock. Both moves are illegal.

According to a group text message from April 26 2018 at 9:37pm, obtained by this reporter, Jimmy Christodoulis, allegedly does this for Defrancesco and Serruya.

Andy Defrancesco texted to Michael Serruya and Jim Christodoulis:

Mike-Jimmy here also
Announce increase from $10 to $20m raise
Clarus 100% manager
They swap FT for restricted for us

Jim Christodoulis texted back:

Understood

FT stands for free trading shares.

Christodoulis and Serruya were made aware of the content of the text messages I obtained yesterday and would not comment on if they colluded to work with Clarus as a broker dealer to raise money in return for swapping out stock. A move that would be viewed as a securities violation by regulators if they can prove the swap stock was made. The text chain doesn’t say which stock they planed to do this with.

I have obtained over a dozen text messages with conversations on separate dates between Michael Serruya and the men he alleged colludes with. A lot of the messages are Serruya complaining to Jimmy and Andy about the price of Aphria and Liberty Health Sciences. Serruya is on the board of Aphria ($APHA) and was an initial investor in Liberty Health Sciences ($LHS). The phone numbers are confirmed as belonging to each man.

On November 8th at 9:48am Serruya text Christodoulis:

If I could convince the aph Board to fire Vic, and get real bankers, the stock will hit $10 today

Christodoulis responds:

Why the fuck are you offering 110k of LHS put loud on the board well below where I’ve already traded 500k shares today
Moron

Defrancesco chimes in

Fucking retards

Serruya responds to Christodoulis and Defrancesco with more F-bombs and then writes:

Weeds up $1.10 and aph is up all of 21 pennies.
I hope the 2 of you, and Vic, get struck by Lightening

The foul mouth locker room talks is central in most of the text messages with the men calling each other faggots, pathetic and morons and then pat each other on the back when one of the stocks they invest does well. The Vic Serruya is referring to is Vic Neufeld, the former CEO of Aphria that was forced to step down this year. Serruya’s nickname for Defrancesco is “self absorbed 3 foot man” and for Christodoulis it’s “Greek angry bastard”. Defrancesco responded in an email to this reporter that he is also called “little man or five foot nothing” by Serruya. Defrancesco says he is 5 foot 4 1/2 inches tall (But apparently he has lied on his drivers licenses because a public records search for over a dozen Broward County, Fla. traffic infractions says he is 5 feet 6 inches).

On October 17 Serruya texted Christodoulis and Defrancesco:

I’m nominating you two faggots for bankers of the year award.
Aphria,
Kalytera,
bkd,
sythian,
Delavaco,
you guys are fucken legends.

The text message exchanges also show Christodoulis talking about a private raise for MedMen and estimating how well it will sell. Serruya also ask Christodoulis for information about a stock called MedReLeaf and Defrancesco chimes in that Serruya needs the info so he can short the stock. MedReLeaf was acquired by Aurora in May 2018.

On October 3rd Christodoulis writes Serruya with Defrancesco included in the text message chain:

Good Morning Michael,
I see you out there on the LHS this am. If it helps I can buy 1mm @ 85c.
Let me know. Thx

Serruya writes back that he is wrong it’s not him in the trade

Christodoulis responds:

I didn’t think it was you but wanted to make sure I let you know just in case
Hope you’re well

The language in this text could be construed as Christodoulis, the head of a large Canadian broker dealer, willing to effect a wash trade for Serruya to help create liquidity in the stock. Wash trades are a securities violation.

Jimmy Christodoulis and Michael Serruya did not respond to my emails for a request for comment on the content of the text message. Defrancesco would not answer questions sent in email except to respond with another disparaging personal message about this reporter and then sent a second email saying No Comment. According to more than one person who has worked with them on Bay St, the men have been calling in people who work with or have worked with them to have their communication equipment checked to see if they are communicating with this reporter.

Update 9.21.19: Andy Defrancesco says he is 5.4 1/2 inches I previously reported he is 4 foot 8 inches.

Editors Note: Given the understanding and past experience that Serruya or Defrancesco threatens people who speak with journalist I am not publishing the actual text messages I have obtained or disclosing sources that sent them. They have been verified with a third party consultant to confirm that are authentic communications. The investor who wrote the analysis quoted in this story has said publicly he did not end up buying Sol Global stock and was not paid to write the analysis. This is the second story in a series of reporting on the internal documents and communications I received. Teribuhl.com is funded by reader donations please consider supporting independent journalism with a donation today.

5 Comments
6 Sep

Canadian Regulator Demanded Michael Serruya turn over Defrancesco Communications: $SCU.TO

Cannabis Investor and mega Canadian millionaire Michael Serruya was hauled into the Ontario Securities Commission office last year after the Canadian regulator subpoenaed him for an on record interview and demand document production. The securities investigation centered on a Mississauga, Ontario-based coffee shop chain called Les cafés Second Cup. Michael and his brother Aaron Serruya are board members of the company which trades on the Toronto Stock Exchange under $SCU,TO and the OTC Markets. The subpoena demanded communications from Andy Defrancesco and his wife Catherine along with a broker Defrancesco worked with named Andrew Rudensky.

Second Cup saw two suspect spikes in volume and price in the first half of 2018 with the stock going up and down by at least a dollar in a short amount of time. The regulator’s order was issued on June 13, 2018 and was addressed to Michael Serruya at his Yogen Fruz Ontario, Canada address. The Serruya family made triple digit millions developing the frozen yogurt brand and is estimated to have a net worth of over half a billion. Serruya made news this year when he was tied to Defrancesco in self dealing cannabis farm acquisitions with Aphria ($APHA).

The subpoena issued, under section 11(1)(a) of the Securities Act, asked Serruya for: all of his brokerage accounts from 2017/2018 that he had control over, all email address, all make and models of his cell phones, and was told to not delete any text, emails, instant messages or other recorded communication with the Defrancesco and Andrew Rudensky. This publication has seen a copy of the official OSC demand letter.

The OSC letter says, Serruya had to show up to the OSC office with the documents on July 6th 2018 to give evidence under oath. The OSC investigator was Stuart Mills. According to a person familiar with the situation he also had to turn over his communication devices.

The regulator warned Serruya he had to keep the investigation confidential and not tell the people named in the subpoena.

The investigation is believed to have not led to any enforcement actions and it’s unclear if the focus of the investigation was on Serruya or Defrancesco or both. The OSC would not comment on the status of the investigation for this publication but people familiar with the situation say it is closed.

According to an email sent by former Stikeman Elliott attorney Curtis Cusinato sent to Michael Serruya on July 26, 2018 titled ‘Accounts for Menchie’s Frozen Yogurt & Second Cup‘, attorney Cusinato was asking for $50,000 to be paid in legal fees and wanted these accounts cleaned up before he took over as Managing Partner of the Toronto office of Stikeman. Cusinato, who is Andy Defrancsco’s brother in law, told Michael in the email:

“How about as a thank you for bailing you guys out of jail you see tonit that our bills are paid from a year ago please! 🙂 or send some bath oils”

It’s unclear what other information about deal flow and trading the OSC gathered from Serruya during the interview or a review of his communication devices.

Andrew Rudensky worked as a retail broker at Canadian brokerage house Richardson GMP Limited where Defrancesco was his client. Rudensky ran into some trouble the IIROC that involved an enforcement action with fines of $56,923 and he was suspended as a registered rep for two years according to a statement from the Canadian regulator IIROC on July 30, 2018. After the dust up it is believed he went to work for Defrancesco at his investment firm Delavaco.

Defrancesco’s South Florida Delavaco office

Last month Second Cup announced that they were amending their agreement with the Serruyas which allowed them to nominate people to the board based on how much stock they owned. The Serruyas have been invested via 4 holding companies. The amendment took away the Serruya’s option to nominate two board members.

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23 Aug

Liberty Health Science’s Chestnut Hill Pot farm sale Between Friends: $LHS $GGB

Cannabis company Liberty Healthy Science ($LHS) announced it sold a marijuana farm called Chestnut Hill Farm in Alachau, Florida last week in an arms length transaction for US $ 14.7 million. The sale also included dispensary license rights in Ohio under the name Mad River Remedies. A review of land transfer records in Florida shows the transaction appears to be more of a friendly party transaction between Michael Serruya and his investing partners the Schottensteins who are the original backers of another cannabis company called Green Growth Brands $GGB).

According to people familiar with the company Michael Serruya controls a company named DFMMJ Investments. DFMMJ Investments does business as Liberty Health Science. The quit claim deed filed August 19, 2019 shows the land was transferred from DFMMJ to Schottenstein Property for the price of $10. It’s possible the parties will update the land records in a few weeks with the real price consideration as we have seen in the past.

Liberty Health Science said in its Form 10 filed with the CSE that:

With respect to each of the Florida Property and the Ohio Assets, the Issuer considered additional offers for each, as well as conducting an internal analysis in respect of the Ohio Assets.

Why use an independent analysis when it’s just investing partners selling assets to each other right? Except $LHS main street shareholders might have wanted a 3rd party view on how much these cannabis assets are worth.

The Schottensteins partnered up with Serruya, Andy Defrancesco (via his wife Catherine’s name), and Barry Honig when they applied for and won dispensary licenses in Ohio. The Ohio application with investor’s names can be seen here.

Liberty Health science didn’t name who the marijuana farm was sold to in their press release.

Green Growth Brands also announced a large ticket price deal for a Florida medical marijuana license recently. They bought Spring Oaks Greenhouses for $54.65 million in a stock and cash. Apparently, the deal needs land to cultivate the marijuana thus making Chestnut Hill with 36-acres of land and a grow space of 21,600 square feet the perfect fit, according to a person familiar with the planned transaction. For now it will be a wait and see for how much the Schottenstein family sells or leases Green Growth Brands ($GGB) the land. Green Growth Brands hasn’t made any public announcements about a deal yet.

UPDATE 8-27-19: It appears someone who knows how Andy Defrancesco and the Serruya’s work behind the scenes to make money at the expense of retail investors has deiced to open the kimono. This is a good detailed analysis tracking how the group came up with $40 million to buy Chestnut hill in 2017. Along with an explanation of how Team Defrancesco got very cheap shares of Liberty Health Science.

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20 Aug

SEC looking at New Names in Barry Honig Pump and Dump Scheme: $MGTI $MBVXQ

The Securities and Exchange Commission is trying to force one of the remaining defendants in the Barry Honig pump and dump scheme to turn over communication or documents that could show others role in the long running scheme. Yesterday the regulator filed a motion to compel against MGT Capital CEO Robert Ladd who refused SEC enforcement attorney Nancy Brown’s demand for documents that relate to Harvey Kesner, Honig’s long time SEC transaction lawyer, and others who invested in the company or are suspected of promoting the company.

Ladd’s attorney Randall Lee of Cooley LLP said Ladd objects to having to produced continued communication with the requested individuals after the SEC filed their initial complaint on September 7, 2018 citing those documents would likely be attorney client privilege. Attorney Harvey Kesner was not named in the original subpoena sent to MGT Capital in September 2016 that sought documents showing Barry Honig and his team were trading as a group of undisclosed affiliates. The news of the SEC investigation into Team Honig was first reported by this journalist at trade publication Growth Capitalist. Kesner has made statements in other court filings and in press reports that he does not think he is under SEC investigation. The new court filing could show otherwise.

The motion also the states the SEC has already collected documents from over 100 individuals and corporations, a move that shows how far reaching the investigation has been. Additionally, the SEC wrote in a letter to Judge Ramos on August 8th that they are currently investigating conduct that is distinct from and occurred after the SEC filed their amended complaint in March 2019. This means more charges could be coming.

Individuals the SEC is currently seeking information about as discovery in the pump and dump ring include:

Tara Guarneri-Ferrara – a partner level attorney that worked with Harvey Kesner at New York-based Sichenzia Ross Ference LLP

Avital Even-Shoshan – an attorney who worked for Harvey Kesner at New York-based Sichenzia Ross Ference LLP. Kesner listed Avital as the managing director of the transfer agent he is believed to have funded called Equity Stock Transfer. She also goes by Avital Perlman.

Jay Kaplowitz – a partner at Sichenzia Ross Ference LLP who was MGT Capital’s deal transaction lawyer. MGT switched counsel after the SEC subpoena was delivered.

Richard Abbe and Josh Silverman of Iroquois Capital – Iroquois was an initial investor in MGT Capital and is believed to have held investments in the company during the alleged stock pump. Iroquois and Josh Silverman were named in the original SEC subpoena to MGT Capital.

Yova Roth, Richard Allison, and George Antonopolous of Hudson Bay Capital – Hudson Bay invested in MGT Capital and is alleged to be part of a scheme to force MabVax to reverse merge into a company Barry Honig controlled.

Drew Ciccarelli – a stock promoter that owned Global Marketing Media who has allegedly been part of paid promotions for Team Honig for years. He owned multiple stock promotion websites (such as www.smallcapleader.com and TSX Ventures LLC) and an investor email database business that was allegedly sold to another promoter Adam Garcia of awesomestocks.com after he saw too many of his clients get charged by the SEC or DOJ, according to a person familiar with Ciccarelli. SmallCapLeader.com and TSX Ventures LLC are named in the discovery request by the SEC. @alldaytrader is Ciccarelli’s current twitter account.

There are additional names the SEC wants info on that Ladd says he likely doesn’t know which you can see in this document. Ladd’s attorney argues that the SEC is actually abusing discovery with these request because they fall outside a statue of limitations.

I was first to report defendants in the Honig Pump and Dump case along with possible others are part of a microcap criminal investigation by the Northern California Department of Justice. Honig recently settled with the SEC and agreed to a bar on penny stock investing. It’s believed he is cooperating with the SEC now as they battle the remaining defendants. Honig could also likely turn evidence over on any of the people named in the recent SEC discovery request.

Update: 6.20.10 8:30pm: After my story ran Ladd’s attorney wrote Judge Ramos a letter calling out the SEC for more questionable tactics. While this publication agrees the SEC moves are questionable as a matter of law at least the SEC is making a rare move to inform the public about others that could be involved in the securities fraud case.

Editors Note: Harvey Kesner has sued me and Bill Alpert at Barron’s for our individual reporting on Kesner’s possible role in the Honig securities fraud scheme in Southern Florida district court. I will be fighting the suit pro se; meaning I will be representing myself. I firmly believe all of my reporting on Kesner is stated with accurate facts or opinion. I believe Kesner’s move is another attempt to get access to my sourcing in the government investigation of his clients or him.

1 Comment
7 Aug

Andy Defrancesco Secret Deals-Promoter Payoffs, Verano Shares pledged : $APHA $SOLCF $VRNO

This story has been updated with news on Sol Global’s Verano IPO shares

Cannabis company Sol Global Investments ($SOL.cn $SOLCF) posted positive net income in their year end financials but failed to discloses key details about one of their most valuable assets which is their shares of Verano. The Toronto based company is run by controversial investor Andy Defrancesco in the role of Chairman and Chief Investment Officer and his side kick a former Florida lobbyist, Brady Cobb, who serves as CEO.

On July 8th Sol Global announced it had received a $37.5 million U.S. dollars private placement investment made as a senior secured loan with 6% interest and a two year pay back. At the time of the announcement the stock was trading at $1.55. Over the past six months the stock has been on a decline after a one day high of $3.02 on March 21st. Sol Global said in filing with the Canadian Stock Exchange that the transaction was arms length, which means Andy and insiders of the company didn’t personally loan the money to company. There was a lot of market speculation on who would give a fledgling cannabis company who was short on cash that much money. According to a person familiar with the company who had direct knowledge of the investment the money came with a catch. Defrancesco had to pledge the Verano shares as secured collateral if Sol Global can’t payback the loan in two years. The firm lending the money is suspected to be a Canada based firm and there is market chatter that MM Capital is the lender.

On October 23 2018 Sol Global made a $88 million investment in Verano, a private cannabis company, in deal that was intended for Verano to buy Sol Global’s Florida medical cannabis farm called 3 Boys Farms. According to the Florida office of Medical Marijuana, 3 Boys Farm had not even secured its full license to sell and distribute the cannabis at the time of the announcement. That deal fell apart after Defrancesco was hit with negative press coverage in December challenging his business ethics and undisclosed insider dealings. Then on March 11, 2019, Harvest Health & Recreation Inc.(CSE: HARV) announced its intention to acquire Verano in an all share transaction for a purchase price approximating USD$850,000,000 which was based on a Harvest share price of CAD$8.79 per share. Sol Global’s class B private shares in Verano have a good chance of becoming very valuable once the Harvest deal closed. The company told investors they thought the book value per share of their Verano investment was $4 CAD.

In a series of text messages I obtained between Andy and an investor in Verano/Harvest Andy was worried the men running Harvest and Verano were going to try to cut him out of the merger shares. The texts show Andy was asked to stop tweeting that he had a role in the Harvest/Verano deal. In fact the Harvest/Verano leadership wasn’t communicating with him and wouldn’t let him issue a press release clarifying for investors that 3 Boys Farm couldn’t be sold to Verano now; because Florida’s medical marijuana rules only allow a company to own one cannabis farm license and Harvest already owned one. Eventually the investor helped Andy get permission to communicate how Sol Global was effected by the deal.

Sol Global’s year end 2018 income was negative $19,343,230 million. For the year ending March 31, 2019 Sol Global reported a positive net income of $71,245,897 million U.S. dollars, which was a significant improvement.The largest bucket of revenue came from Sol’s gain on the sale of the LatAM assets to Aphria with a whopping earn out of $150,616,833 million U.S. Dollars.

Defrancesco was caught up in controversy this winter when a short seller report detailed how he made undisclosed millions off leading the sale of LatAM cannabis licenses to Aphria ($APHA) for inflated values. He is being personally sued for securities fraud in the Southern District of New York in a class action lawsuit filed by main street shareholders of Aphria. Court filings show Andy has been avoiding service of the Aphria lawsuit at his Miami home and Florida office. Defrancesco is currently working in the U.S. off a green card and hasn’t traveled outside the US recently over concerns he would not be let back in. Sol Global’s year end financials also failed to disclose it’s chairman and chief investing officer is subject to a lawsuit that alleges he used his influence of Sol Global to make the questionable deal where Aphria paid around $200 million for the LatAM cannabis assets. A few months after the short seller report came out Aphria wrote down one of the assets in the report by $50 million. The stock tumbled on the news.

The Short Seller report written by Nate Anderson of Hindenburg Research and Gabe Grego Quintessential Capital Management caused Defrancesco to start personal attacks on the fund managers. Grego’s website was even hit was a DDOS attack causing it to crash. Defrancesco decided he need a black ops Public Relationship group to go to work drumming up counter press reports. That firm is called AWM Group. In their recent year end financials Sol Global admits it spent $3.6 million CAD on PR and consulting to “counter fraudulent short seller reports”. There were no lawsuits filed accusing the short sellers of fraud by the company and Aphria did not offer a point by point rebuttal to the report as publicly promised. Additionally, Defrancesco was working behind the scenes to get a cannabis analyst and a cannabis twitter stock jockey to write favorable coverage of Aphria and negative coverage on individuals who negatively reported on Defrancesco or companies he is involved in.

Twitter stock trader, that goes by the name Johnny Lambo, met with Defrancesco on King street in Toronto. According to how Lambo tells it Defrancesco wined and dinned him and offered to give him early insight into the company if he tweeted favorable news on Andy’s investment. When Lambo was out one night with another Bay street market player, interviewed by this reporter, Lambo said “Defrancesco also has this guy at Grizzle do coverage his way.” Lambo’s statement about Grizzle was made in justification of why he’s backing Defrancesco. His twitter handle is @lambojohnny and his real name is John Mastromattei. Lambo also told the Bay street market player he was given direction to tweet disparaging or fake news about this reporter.

Grizzle is a Canada based research firm that publishes reports on Tech and Cannabis with the mantra of “The language of new money”. The head of research is a man named Scott Willis who claims he is a certified financial analyst. Willis ran reports naming Aphria’s Vic Neufeld as the most trusted CEO. He published a multi-page report on November 1st 2018 giving Aphria a $200 price target and an individualized review of the LatAM assets with harvest production estimates and construction cost per gram. Grizzle immediately called the Hindenburg report a hit piece and tried to justify the Aphria share price the day after the short seller report became public.

The Grizzle stock price estimate helped prop up Aphria stock while Sol Global was selling their Aphria shares received from the LatAm sale. Sol Global booked profits in the triple digit millions off Aphria stock sales. The management review of Aphria’s CEO Vic Neufeld as a trusted public company executive was designed to counter a previous negative report about Neufeld’s role in a company Aphria was going to buy called Nuuvera. Nuuvera was another Defrancesco insider deal. A footnote to the report states Grizzle employees own Aphria shares. But no where in the Grizzle reports does it state Scott Willis was getting paid by Defrancesco or one of his many companies he controls to write the reports. Vic Neufeld was eventually removed from Aphria.

Andy Defrancesco celebrating with Vic Neufeld December 2017

Grizzle had also agreed to center their coverage on Aphria and turned down at least one other public cannabis company, according to an email sent by Scott Willis and seen by this reporter. Willis met the CEO of the company during a marijuana investor conference. When the CEO had a one on one sit down with Willis asking him if Grizzle could also cover his company the CEO was surprised by Scott’s demand that he get 50,000 shares of the company, according to an interview with this reporter. The 50,000 shares to pay for research was also written in an email between Willis and the CEO and seen by this reporter. Shortly after the meeting Willis wrote the CEO back saying he was going to have to pass on covering his company.

Willis wrote in August 2018, “I talked with my partner about your firm after our meeting and he agrees you guys have some great things going, but we will have to circle back with you in a month or two. We are currently working on a mandate for one of the big 3 producers..” The big 3 producer is believed to Aphria according to people familiar with the arrangement. The CEO says he never heard from Willis after that email and Grizzle never covered his company.

Companies can pay for research as long as the payment is disclosed by the company. In the U.S. SEC rules say a person writing and publishing a stock research report would have to disclose they were paid to write the report as a promoter. Grizzle adds a disclaimer to their website, that can be seen around the world, that their reports are only intended for Canada residents. It’s unclear if Scott Willis is a U.S. or Canadian resident.

Request for comment about the alleged Grizzle kickback sent to Andy’s Quinn Emanuel attorney was not returned for comment.

Yesterday David Milstead at the Globe & Mail was first to report that Defrancesco has hired a white collar criminal lawyer from big law Quinn Emanuel. He is a 36-year old Harvard grad named Alex Spiro who formerly worked in the Manhattan prosecutors office. Spiro admitted in the Globe & Mail story that he is working with the SEC on behalf of Defrancesco to respond to a recent subpoena in another non-cannabis company, Cool Holdings ($AWSM), that was an alleged pump and dump run by Barry Honig with the help of Defrancesco. I previous reported on how Defrancesco and Honig worked with broker dealer Laidlaw to allegedly off load $AWSM shares to Laidlaw’s main street clients.

I asked attorney Spiro today if he will also be representing Defrancesco in the Aphria lawsuit and he responded yes so it looks like Andy has finally stopped running from service.

Since Sol Global’s positive year end results have come out the stock has not traded above $2. The company will hold an earnings call on August 8th at 4pm to answer investor questions. The dial in number is: U.S. Toll-Free Number: (888) 390 0546

Update 2.17.21: Andy Defrancesco’s Sol Global Investment is set to clear millions off the sale of shares in Verano who went public today and closed three times its opening valuation at $30. Except a tough guy Canadian hedge fund called MMCap, who lent Sol Global $50 million CAD in the summer of 2019, says they now own 65% of those valuable Verano shares. The shares pledged as collateral for the loan was first reported by this publication two years ago. But Sol Global’s former CEO Brady Cobb and its current interim CEO Andy Defrancesco have been cagey about mentioning the pledged shares when discussing Sol Global’s valuation with investors. On February 7th Sol Global sued MMCap in an effort to stop the hedge fund from claiming the Verano shares. The lawsuit is filed in New York state court.

Update 2.27.21: I am reporting for Cannabis Law Report on new litigation that shines a light on possible stock fraud by Andy Defrancesco for making false and misleading statements about the ownership of the Verano shares in social media and in public financials with the CSE.

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31 Jul

Cannabis ETF Executives Questioned on MSO investing Workaround: $YOLO

Cannabis Exchange Traded Funds are finally getting the green-light from U.S. regulators after Big Law has stepped up to shelter the registration process with the Securities and Exchange Commission. Cannabis Law Report, a publication covering legal challenges and rule making for the cannabis industry, asked me to report on the first two marijuana ETFs who slugged through the SEC’s rigorous process to become effective. I analysed Innovation Shares Cannabis ETF $THCX and Advisorshares Pure Cannabis ETF $YOLO. What stood out was the fund manger and their lawyers view on investing in multi-state operators – one took a tone of caution the other a brazen work around around to skirt intended rules.

Matt Markiewicz runs $THCX and Dan Ahrens runs $YOLO. Both mangers have experience in ETFs and wanted to create an ETF focused only on the cannabis business. YOLO got a head start on grabbing investors money when it beat THCX to market nearly three months with a mid-April launch date. Its current AUM is $57.9 million. THCX, which launched July 8th, has $13.3 million in assets under management. THCX is a passively managed fund that follows an index which can make changes to its holdings monthly. YOLO acts more like a hedge fund with the ability to change holdings daily. It is the only ETF that uses derivatives
(called swaps) to invest in MSOs. Both funds list on the NYSE; an exchange that doesn’t allow multi state operators to trade.

My story at CLR dives into concerns from market players, like derivatives expert Jon Najarian and Matt Karens of Greenwave Advisors, on YOLO’s use of MSO/SWAPs. While researching the story last week I saw Lara Crigger, a seasoned jouranlist for ETF.com, report that the SEC and the NYSE have their legal counsel reviewing YOLO’s move to get MSOs into the fund via swaps. Crigger reported she heard that Dan Ahrens didn’t list the swap positions when he showed the NYSE what their holdings were before launch. Nate Geraci, an investment advisor who host a popular ETF podcast, also brought up the use of swaps in an interview with Ahrens that took place on Tuesday July 23rd and aired latter.

On Monday July 29th, after investors started to tweet out my story and other publications picked up the news Noah Hamman, CEO of Advisorshares (YOLO’s parent), went on a heavy defense on twitter.

Another journalist and an investment pro had taken public note of the MSO/SWAP thing one of Hamman’s funds was doing but Hamman appeared surprised I would question Ahrens answers in our interview. Hamman apparently wasn’t use to seeing a jouranlist covering the cannabis industry do more than rewrite a press release. I wanted Ahrens to explain why he didn’t tell the NYSE about the swaps. His response in our interview was almost verbatim to what he said in the podcast that aired Monday.

“This is just silly,” YOLO’s Ahrens told Nate Geraci. Ahrens said everyone one who worked with them on the offering was very aware of the structure of the holdings in YOLO.

Now I don’t think investors find it ‘silly’ that the fund’s exchange and the SEC are questioning the funds structure. Neither the SEC or NYSE would comment on the record about YOLO.

I also asked his custodial bank, US Bancorp, to go on the record saying they think YOLO’s offering docs following the letter of the law and they wouldn’t do it. I explained in my story Advisorshares scored a huge win when it was first to get a custodial bank to agree to work with its cannabis fund.

I also noticed that the big law firm YOLO used to file their offering with the SEC, Morgan Lewis, wouldn’t sign the needed third party opinion letter an ETF now needs to become effective and made available for trading. YOLO went and got Fox Rothchild, ranked as a 2nd tier law firm, to write the opinion letter. This was in contrast to THCX whose offering and opinion letter was done by big law firm Greenberg Traurig.

Ahrens keeps saying they got an opinion letter from an expert in cannabis law. Fox Rothcild had written one other opinion letter which I don’t think makes them an expert. While we are seeing some big law firms, like Duane Morris and Greenberg Traurig, build out a cannabis business via private M&A transactions I don’t think any US law firm is an expert yet. Given the lack of cannabis companies that have IPO’d with US regulators or done an ETF, compared to the number of cannabis companies listing on Canada exchanges, how could they be?

Because of YOLO’s reaction to a profile story on new ETFs, that I didn’t think would grab a ton of readers like my blockbuster investigative reports do, turned into driving even more attention to a new cannabis publication.

The reaction to my reporting highlights one of the problems with media coverage on the cannabis market. Lots of journalist are jumping into to cover the hot sector but few are asking tough questions, know how to read a balance sheet, or fact check executives statements in filings with regulators and press releases. Sean Hocking, the editor and publisher of Cannabis Law Report, hired me after he’d seen my original reporting on the abuse and alleged fraud by Andy DeFrancesco in cannabis stocks Aphria ($APHA) and Sol Global Investments ($SOLCF).

If you are an insider or whistleblower working in the Cannabis industry and see something you don’t think is right reach out. I’ve proven over and over I will protect confidential sources and investors need better warning than most reporting is offering now.

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