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SEC charges cannabis company, CEO and others in investment fraud case

On Behalf of | Mar 30, 2023 | Investment Loss

The Securities and Exchange Commission announced it has filed charges against a cannabis cultivation and distribution company accused of defrauding investors.

American Patriot Brands Inc. (APB), its CEO Robert Y. Lee and five other entities and individuals were named as defendants in the SEC’s complaint filed in federal court for the District of Puerto Rico.

The SEC said the defendants engaged in a long-running scheme in which they raised over $30 million from over 100 investors across the country since at least mid-2016, and diverted millions of those funds for their own benefit.

The SEC said APB, Lee, and current and former executives Brian L. Pallas and J. Bernard Rice made a series of false and misleading statements to investors about various aspects of the company. These statements involved the company’s financial condition, the scope of its operations, the value of its Oregon cannabis farm, Urban Pharms, and the safety and security of investing in APB. In addition it is alleged that APB transferred millions of dollars from investors to the personal accounts of company executives, and that tens of thousands were spent on the executives’ personal expenses.

“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.”

APB, Lee, Pallas, Rice, and APB subsidiaries DJ&S Property #1 LLC, TSL Distribution LLC, and Urban Pharms LLC were charged with violating the antifraud provisions of the federal securities laws. The SEC is seeking permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and officer and director bars against Lee, Pallas, and Rice.

The commission is also seeking disgorgement with prejudgment interest from three affiliated entities (Legion Accounting Services, Inc., Puerto Rico One Corp., and Castro Business Enterprises LLC.) that allegedly received millions in investor proceeds.

The attorneys at Lewitas Hyman have decades of experience dealing with securities fraud cases and have a deep understanding of how capital markets and financial service firms are intended to work to protect investors. Our team includes lawyers who have worked for large financial institutions, including Morgan Stanley and UBS Financial Services, and regulatory bodies such as the SEC. If you think your financial professional or firm engaged in misconduct that caused you investment losses, contact Lewitas Hyman at (888) 655-6002or through our online contact form for a no-cost evaluation of your matter.