The Securities and Exchange Commission said late Tuesday it has charged CanaFarma Hemp Products Corp.
and its co-founders with fraudulently raising about $15 million from investors, and misappropriating a “significant portion” of the funds for personal use and other unrelated purposes. CanaFarma, a small Canadian cannabis company that trades on the Canadian Securities Exchange, merged with Vertical Wellness, a company specializing in cannabinoid-based wellness and health products, in July in a deal that made Vertical the first house of CBD brands to be publicly traded. Smoke Wallin, chairman and chief executive of Vertical, said he and his team were blindsided by the fraud charges. “Neither Vertical Wellness nor any of our advisors, attorneys, or those we work with every day, had any prior knowledge about this situation,” he said in a statement. “We hope that CanaFarma can work through these issues and the truth will subsequently come to light.” The SEC’s complaint alleges that CanaFarma co-Founders Vitaly Fargesen and Igor Palatnik made misrepresentations to investors, including claims that the company was processing hemp from its own farm, when it was actually using hemp provided by third parties. It also says that financial information given to investors misstated historical revenue and included baseless projections for future revenue. Fargesen and Palatnik misappropriated at least $4 million and used the funds for their personal use and purposes unrelated to CanaFarma, said the SEC. The SEC complaint was filed in the U.S. District Court for the Southern District of New York, and charges CanaFarma, Fargesen, and Palatnik with violating antifraud provisions of the federal securities laws. “The SEC seeks permanent injunctions, disgorgement and prejudgment interest, and civil penalties against the defendants, and also seeks officer-and-director and penny stock bars against them,” the SEC said in a statement. CanaFarma shares were last quoted at 8 cents.