SEC Charges Company, CEO With Illegal Stock Sales to Three Investors

Companies that put “blockchain” or a similar word in their name often attract significant attention from the investing public as well as regulators. The phenomenon is so well established that Chairman Clayton included a warning to firms that add such words to their name in remarks delivered earlier this year. A similar, although lesser phenomenon, involves firms in the plant extract business, including marijuana. While the plants may not draw quite the attention of virtual currency, in many instances the firm and its shares will be carefully scrutinized by all. Such in the Commission’s latest case in the area – a plant extraction firm charged with Securities Act section 5 violations and filing and internal control violations. SEC v. Duffield, Civil Action No. 18-cv-6984 (S.D.N.Y. Filed August 2, 2018).

Defendant Roger Duffield is a British citizen residing in South Africa. He is also the President and CEO of Defendant Plandai Biotechnology, Inc., a London based firm whose shares are quoted on OTC Link. The firm states it is in the business of producing botanical extracts from live plant material which includes green tea leaves, tomatoes and marijuana. Much of the firm’s plant material grows on a 7,400 acre estate in South Africa.

Beginning in late 2013, Defendants directly offered to sell Plandai shares to three investors. Eventually the transactions were consummated. First, in November 2013 Investor A agreed to purchase 20,000 shares of Plandai stock for $10,000. Mr. Duffield directed that the payment be wired to an account for CRS Technologies, another firm he controlled. Investor A is not accredited or sophisticated. Defendants did not forward the payment to the company.

Second, Defendants offered to sell Plandai stock to Investors B and C, brothers who were neighbors of a firm employee in Seattle. Following a number of telephone calls the brothers agreed to purchase a total of 528,100 shares for $115,000 between November 2013 and August 2014 in three transactions: 1) Investor B purchased 86,8000 shares for $40,000; the funds were for the most part sent to CRS Technologies, although$1,600 in cash was given to a third party; 2) the brothers agreed to purchase additional shares; the transaction was documented and the funds sent to CRS Technologies; and 3) the brothers agreed to purchase another block of shares, documented in an agreement; the payments were sent to CRS Technologies. When one of the brothers asked the reason for sending payment to CRS Technologies, Mr. Duffield claimed that the shares were from a block owned by that firm – a false statement. All the payments by the two brothers for the stock were sent to Plandai.

Investors A and B were not accredited or sophisticated. None of the shares sold were registered. There was no valid exemption for the transactions, according to the complaint.

Subsequently, Plandai filed its annual report on Form 10-K on June 30, 2014. A section of the report recounted the firm’s stock transactions. The sale to Investor A was omitted. A portion of the transactions with Investor B were incorrect. The money from the investor purchases listed above was not properly accounted for in the books and records of the firm. The complaint alleges violations of Securities Act sections 5(a) and 5(c) and Exchange Act sections 13(a) and 13(b)(2)(A) and (B). The case is pending. See Lit. Rel. No. 24232 (August 10, 2018).

Tagged with: ,