The Securities and Exchange Commission (SEC) has charged American Patriot Brands Inc. (APB), its chief executive officer, and five other entities with siphoning off millions of dollars in a long-running scheme that defrauded more than 100 investors across the country.
According to the SEC’s complaint, APB CEO Robert Y. Lee, along with current and former executives Brian L. Pallas and J. Bernard Rice, began making a series of “false and misleading statements to investors” in 2016 about the company’s financial position and operational scope, the value of its Oregon farm, and the security of investing in APB. The company raised more than $30 million from investors, then funneled millions of dollars into APB executives’ personal accounts and used tens of thousands for personal expenses, according to the complaint.
“As the SEC complaint alleges, American Patriot Brands Inc. and some of its senior executives fabricated business profits and prospects to entice investors with falsehoods that in the end left investors with essentially worthless securities,” said Carolyn M. Welshhans, associate director of the SEC’s Enforcement Division. “This action reflects the SEC’s ongoing commitment to holding accountable those who seek to profit through lies and deception.”
American Patriot Brands Inc., formerly The Grilled Cheese Truck Inc., is a Nevada corporation and vertically integrated cannabis company with headquarters in Newport Beach, California. The company primarily focuses on cultivating and distributing medicinal and recreational cannabis.
Federal prosecutors argue that APB promoted itself as one of the largest cannabis farms in the country, supported by inflated financial information and revenue projections, despite producing only a small amount of sellable cannabis a year. APB promised investments would be secured by a lien on APB’s Oregon farm, during a time in which the farm did not have enough equity to secure investments. APB urged investors to “act quickly” before the company made its securities widely available, an event APB claimed was imminent. APB also told investors it had multistate and worldwide operations, despite having no operations outside Oregon.
Defendants in the case include APB, the three named executives, and the company’s Oregon-based subsidiaries DJ&S Property #1 LLC, TSL Distribution LLC, and Urban Pharms LLC, all of whom are charged with violating antifraud provisions of federal securities laws. Puerto Rico One Corporation, Castro Business Enterprises LLC, and Legion Accounting Services Inc. are listed as relief defendants that received ill-gotten gains as a result of the illegal acts of the other named defendants. The SEC seeks permanent injunctive relief, disgorgement of allegedly illicit gains with prejudgment interest, civil penalties, and officer and director bars against Lee, Pallas, and Rice. The agency also seeks disgorgement from the relief defendants. (Full Story)