SEC Charges Hemp Company and Co-Founders with Fraud

October 6, 2021/US SEC

Image Credit: britannica.com

The Securities and Exchange Commission charged CanaFarma Hemp Products Corp. and its co-founders with fraudulently raising approximately $15 million from investors, and misappropriating a significant portion of the investor funds for personal use and other unrelated purposes.

The SEC’s complaint alleges that in 2019 and 2020, CanaFarma, a Canadian start-up hemp company with offices in Vancouver and New York City, and its co-founders Vitaly Fargesen and Igor Palatnik, raised millions of dollars from investors. According to the complaint, while raising these funds, the defendants made misrepresentations to investors, including claims that CanaFarma was a fully integrated company that was processing hemp from its own farm when in fact it had not processed any of this hemp and its products used hemp supplied by third parties. The complaint also alleges that financial information provided to investors misstated historical revenue numbers and included baseless projections about future revenues. In addition, according to the complaint, Fargesen and Palatnik misappropriated at least $4 million and used the funds either for their personal use or for purposes unrelated to CanaFarma.

The SEC’s complaint, which was filed in the Southern District of New York, charges CanaFarma, Fargesen, and Palatnik with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  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.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Fargesen and Palatnik.

The SEC’s investigation was conducted by John Lehmann, Lee A. Greenwood, and Thomas P. Smith, Jr., and was supervised by Sanjay Wadhwa.  The litigation will be led by Mr. Lehmann and Mr. Greenwood. The SEC appreciates the assistance of the United States Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

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