SEC Charges Two for Allegedly Selling Fake Interests in Marijuana Firm

Alleged fraudsters used ill-gotten gains to buy luxury cars and a yacht.

The Securities and Exchange Commission charged two individuals and three companies they controlled for an alleged scheme that defrauded about $4.85 million from investors who thought they were buying interests in a recreational cannabis company. The two allegedly used investor funds on personal and unrelated business expenses, including luxury cars and a yacht.

The SEC’s legal complaint said Guy Griffithe, 40, and Robert Russell, 60, sold investors purported ownership interests in SMRB, a company based in Washington State. The company held a license to produce and process marijuana under Washington’s recreational cannabis laws. The two allegedly sold securities in SMRB to investors through Griffithe’s holding company, Renewable Technologies Solution, Inc. (RTSI), and later Green Acres Pharms, which allegedly owned a minority interest in SMRB.

The SEC’s complaint said that Griffithe and Russell told investors that their investment capital would be used to operate and to improve SMRB’s cannabis business. They claimed SMRB’s resulting profits would be distributed to them quarterly in proportion to the equity they purchased.

“Defendants sold securities interests to investors that were fictitious and essentially worthless,” said the complaint. “The investors did not actually acquire any bona fide ownership stake in SMRB.”

The SEC said Griffithe misappropriated over $1.8 million in investor money for personal uses and other inappropriate expenditures, including toward the purchase of luxury cars for him and others. It was also used to fund numerous other personal and unrelated business expenditures.

Russell and his wife, Sonja Marie Russell, who is named as a relief defendant, allegedly benefited from the misuse of investor money.

“Approximately $1.7 million was deposited into personal bank accounts Russell shared with his wife, and other money was spent for their personal benefit, including towards the purchase of a yacht,” said the complaint.

The complaint also alleges that the two men led investors to believe that SMRB was profitable and paying profit distributions.

“In reality, SMRB was never profitable and the money paid to investors was funded, in part, from other capital invested in the scheme in Ponzi-like fashion,” said the complaint.

Under Washington state law, SMRB was required to request and receive pre-approval from the Washington State Liquor and Cannabis Board before raising money from investors. Selling or conveying interests in SMRB to investors without the required vetting and prior approval of the Washington State Liquor and Cannabis Board also subjected SMRB to potential cancellation of its license.

“Russell knew that he could not transfer or sell any interest in SMRB to RTSI or to any third-party investor without pre-approval of the Washington State Liquor and Cannabis Board,” said the complaint. “Nevertheless, defendants never sought or obtained approval from the Washington State Liquor and Cannabis Board for RTSI to acquire any interest in SMRB, or for any third-party investors to acquire an interest in SMRB.”

The SEC charged Griffithe, Russell, RTSI, SMRB, and Green Acres Pharms with violating the antifraud provisions of the federal securities laws. It also charged Griffithe, RTSI, and Green Acres Pharms with violating the registration provisions of the federal securities laws. The SEC is seeking permanent injunctions, return of allegedly ill-gotten gains with prejudgment interest, and civil penalties.

“Griffithe and Russell exploited popular interest in the cannabis industry to obtain millions of dollars from investors who thought they were buying into a profitable business,” Melissa Hodgman, an associate director in the SEC’s Enforcement Division, said in a statement. “Instead, Griffithe and Russell deceived investors and used the money to enrich themselves.”

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