Six individuals and two companies have been charged with being involved in a scheme to fraudulently promote securities offerings, the Securities and Exchange Commission announced.
In a complaint filed in U.S. District Court in Los Angeles, Jonathan William Mikula was accused of promoting the securities of four issuers—Elegance Brands Inc., Emerald Health Pharmaceuticals Inc., Hightimes Holding Corp., and Cloudastructure Inc.—without disclosing that he had been compensated for the promotions.
The promotions were made through Mikula’s newsletter, Palm Beach Venture, and investors subsequently purchased $80 million in the securities he had touted. The SEC said he presented his recommendations as unbiased and not paid for, even though he was being compensated secretly with cash and lavish expenses.
It was further alleged that two of Mikula’s associates, Christian Fernandez and Raj Beri, were middlemen for the scheme. The SEC’s complaint stated that “Fernandez and Beri, CEO of Elegance Brands, arranged to receive a percentage of investor funds raised by the issuers, in exchange for arranging Mikula’s promotion, under the guise of consulting agreements with the issuers.” Fernandez and Beri allegedly attempted to conceal the payments they had received by submitting invoices for fake consulting services, and by funneling payments through offshore accounts.
Also named as defendants were Elegance Brands and Emerald Health, as well as their respective CEOs, Beri and James DeMesa. They were accused of making misrepresentations and omissions in their filings with the SEC and other investor materials concerning the promotion. Emerald Health’s co-founder, Avtar Dhillon, and Emerald Health’s CFO, Lisa Sanford, also were charged with taking part in the scheme.
“Payments for the promotion of securities—including securities offered pursuant to the Reg A exemption—must be fully and accurately disclosed,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “Such disclosures are necessary to permit investors to consider the personal motivations of the author so they can make informed investment decisions.”
With regards to Mikula and Fernandez, the SEC is seeking permanent injunctions from violations of the charged anti-fraud and anti-touting provisions, conduct-based injunctions, disgorgement, prejudgment interest, and civil monetary penalties.
The SEC said Elegance, Beri, Emerald Health, DeMesa, and Dhillon agreed to pay a combined $2.5 million to settle the fraud charges against them, while also agreeing to permanent injunctions from violations of the anti-fraud and other charged provisions.
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (844) 651-2641 or through our online contact form.