An Offering Built on Marijuana
Offering fraud actions have long been one of the Commission’s staples. Indeed, one of the largest groups of cases brought during many time periods is offering frauds. Many are fairly straight forward, promising investors outsized returns, little to no risk, guarantees and virtually any sort of inducement that can be imagined. The latest Commission case in this area utilized a different inducement – an international marijuana business called Pure Organic. SEC v.Swaffer, Civil Action No. 1:22-cv-1554 (N.D.OH. Filed September 1, 2022).
Named as defendants are: Kris Swaffer; Sean Williams and POHIH, Inc. Respectively, they are the owner and majority shareholder of POHIH, the COO of a related entity; and the majority owner of a firm that cultivates cannabis for commercial purposes.
Pure Organic Entities raised about $14 million from 75 investors in 14 states over a period of 4 years, beginning in 2016. Mr. Williams began with Pure Organic as an investor. By 2016 he was soliciting investors. Defendant Williams began paying Mr. Swaffer off payroll through a special account. By 2018 Mr. Williams was aware that Mr. Swaffer was misappropriating portions of the funds.
Misrepresentations were used to induce investors to entrust their investment funds to Defendants. The central claim, however, may have been one that asserted all issues regarding the legality of marijuana had been answered. The claim is incorrect. The point is reflected by the that many financial institutions closed accounts associated with Swaffer and the Pure Organic Entities.
No distributions were ever made to investors. The Pure Organic group of firms also failed to generate revenues. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(2) and (3). and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25496 (Sept. 2, 2022).