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SEC Charges Cannabis Investment Fund and Founder with Securities Fraud's picture
Commentary by Jodi Avergun

The SEC charged a cannabis investment fund and its founder with securities fraud for allegedly using misleading marketing materials and deceptive sales pitches to lure investors.

According to the SEC Complaint filed in the U.S. District Court for the Northern District of Texas, Michael E. Cone and Greenview Investment Partners, L.P. ("Greenview Investment Partners") (collectively, "Defendants") ran a systematic fraud and misappropriated more than $3.4 million of investor funds. The SEC alleged that Mr. Cone and Greenview Investment Partners lied about (i) a ten-year track record of operations and investment success, (ii) the fact that Greenview Investment Partners employed a retired agent of the Drug Enforcement Administration to ensure compliance and (iii) providing outsized returns to more than 200 investors. Mr. Cone purportedly used an alias to conceal his criminal background. The SEC asserted that Mr. Cone utilized boiler room sales staff who made cold calls to investors and promised them up to 24 percent annual returns from investments in Greenview Investment Partners. According to the SEC, Mr. Cone reportedly misused a substantial amount of investor proceeds for personal use and to pay prior investors in an effort to prolong the scheme.

Mr. Cone agreed to an officer-and-director bar. The SEC is seeking permanent injunctive relief, disgorgement of all ill-gotten gains resulting from Defendants' misconduct, accrued prejudgment interest on those gains and monetary penalties.

In addition, the SEC Office of Investor Education and Advocacy and the Retail Strategy Task Force issued an Investor Alert regarding marijuana-related investments. They specifically drew attention to the risks of investment fraud and market manipulation and the risk that companies with operations relating to the marijuana business industry could be prosecuted.


With a majority of states allowing some form of legal marijuana business, full legalization in Canada and predictions of a multi-billion dollar retail cannabis market, would-be cannabis investors are easy prey for fraudulent scams like the one perpetrated by Greenview. More interesting for would be-cannabis investors, however, is the investor alert that the SEC issued along with the complaint against Greenview. The SEC noted in the equivalent of a black box warning that "some marijuana-related companies may be at risk of criminal prosecution because of the business they are in," and that such criminal prosecution could negatively impact the value of an investment. The SEC did not mention that the investor herself was risking criminal prosecution for making a cannabis-related investment. While certainly subtle messaging, it can be seen as an indication that the Trump administration does not intend to pursue criminal charges against indirect participants in the financial aspects of cannabis-related businesses.

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