Securities and Exchange Commission v. CannaVEST Corp. a/k/a CV Sciences, Inc. and Michael J. Mona, Jr., Civil Action No. 2:17-cv-01681 (D. Nev. filed June 15, 2017)
SEC Charges Hemp Oil Company and CEO with Fraud
The Securities and Exchange Commission filed fraud charges against a Las Vegas-based hemp oil company and its CEO for inflating the company's assets on its balance sheet.
The SEC complaint filed in federal court in Nevada alleges that CannaVEST Corp. (now known as CV Sciences, Inc.) and CEO Michael Mona Jr. materially overstated the company's total assets in quarterly reports for the first and second quarters of 2013. According to the complaint, CannaVEST reported purchasing a company called PhytoSphere Systems LLC, including its existing rights under contracts with hemp production and processing facilities, for $35 million, even though Mona knew that the purported purchase price was substantially inflated. The complaint alleges that CannaVEST agreed to the purported purchase price only because CannaVEST could pay for the acquisition primarily with CannaVEST shares which Mona believed had little value at the time.
The SEC complaint further alleges that in the third quarter of 2013, CannaVEST obtained a third-party valuation of PhytoSphere for $8 million as of the date CannaVest acquired PhytoSphere. CannaVEST and Mona wrote down the value of the acquisition to $8 million in the company's third quarter Form 10-Q but failed to disclose that the original value was inflated and that the first and second quarter balance sheets were materially overstated. According to the complaint, in April 2014, at the request of its new auditors, CannaVEST restated the three quarterly filings for 2013 in order to report PhytoSphere's $8 million value, not the $35 million it had previously reported.
The SEC's complaint charges CannaVEST with fraud, filing false financial reports, and other federal securities law violations, and seeks a permanent injunction and civil money penalties. The complaint charges Mona with fraud and other violations, including the deceit of auditors, and seeks a permanent injunction, civil money penalties, an officer and director bar, and reimbursement of his $10,000 cash bonus for 2013, as provided for under Section 304(a) of the Sarbanes-Oxley Act.
The SEC's investigation was conducted by Jennifer T. Purpero and Christopher Conte and supervised by Victoria A. Levin and Rhoda Chang of the Los Angeles Regional Office. The SEC's litigation will be led by David VanHavermaat.