The US Securities and Exchange Commission (SEC) has issued a £12m fine on a California-based company which sold vending machines to dispense marijuana, for falsely touting ‘record’ revenue numbers to investors 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 legitimise itself as a viable commercial operation when in fact nearly 90% 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 area 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 regulator 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.
Michele Wein Layne, director of the SEC’s Los Angeles regional office, said: ‘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.’
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 £12m 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 SEC’s litigation continues against Bedrick, Legaspi, and New-Age.
