Ganajapreneur reports…
The Securities and Exchange Commission (SEC) is accusing the co-founders of C3, a company that makes cannabis pill Idrasil, of $2 million in securities fraud, Law360 reports.
According to the complaint filed in California federal court, Steele Smith and his wife, Theresa Smith, made false statements to investors from 2014 to 2019 about Idrasil’s patent status, that insurance companies would cover the drug, and investor funds would be used for business purposes.
The SEC alleges that Steele Smith and C3 told investors that Idrasil was “patented” or “patent pending” despite the fact that Idrasil’s first provisions application for a patent had expired and a subsequent nonprovisional application was never filed and, therefore, no patent was ever issued.
“Idrasil was not an approved pharmaceutical by the insurance companies. In fact, it should not have been reimbursed under their guidelines, and in those situations where it was reimbursed, it was either an outlier situation or an outright mistake.”—the SEC in the complaint
The Smiths also allegedly used more than $1 million of investor funds to pay for their personal expenses, including $40,000 for a down payment for a Jeep SUV.
The SEC also accuses Steele Smith of making misrepresentations about how investors would make money on their investments, telling them that they would be cashed out once C3 was acquired by a large pharmaceutical company. The complaint states that Steele told investors that C3 “would achieve a minimum of $4.6 million in gross revenue in the next year and valued C3’s total equity at over $685 million upon acquisition by a big pharma company.”
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SEC Accuses Married Cannabis Co-Founders of Securities Fraud
THE SEC RELEASE
SEC Charges California Cannabis Company, CEO and President with Fraud
Litigation Release No. 25231 / September 28, 2021
Securities and Exchange Commission v. C3 International, Inc., Steele Clarke Smith III and Theresa Smith, No. 21-civ-1586 (C.D. CA filed September 28, 2021)
The SEC today charged a California-based cannabis company, along with its CEO and President, with scamming at least 40 investors out of approximately $2 million.
According to the SEC’s complaint, from October 2011 through November 2019, C3 International, Inc. (C3), based in Garden Grove, California, and its CEO, Steele Clarke Smith III, deceived investors through numerous material misrepresentations and omissions regarding the company’s business and its cannabis pill called Idrasil. Specifically, the complaint alleges that on C3’s and Idrasil’s websites, in investor offering materials, on social media, and in investor communications, C3 through Mr. Smith misrepresented, among other things, that Idrasil was patented or patent-pending or trademarked, that most insurance companies reimbursed for Idrasil, and that investor funds would be used for business purposes. C3 and Mr. Smith also allegedly made statements about Mr. Smith’s background, education and legal history, but omitted the material fact of his prior criminal conviction for conspiracy to manufacture marijuana plants. The complaint further alleges that Mr. Smith’s wife and C3’s President, Theresa Smith, aided and abetted Mr. Smith’s and C3’s securities fraud violations. The Smiths allegedly misappropriated over $1 million of investor funds to pay for their personal living expenses.
The SEC’s complaint, filed in the United States District Court for the Central District of California, charges Steele Clarke Smith III and C3 with violating the registration and antifraud provisions of Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. It also charges Theresa Smith with violating the registration provisions of Section 5 of the Securities Act and aiding and abetting Mr. Smith’s and C3’s securities fraud violations. The SEC’s complaint seeks permanent injunctions, disgorgement with prejudgment interest, civil penalties, and officer and director bars against the Smiths.
The SEC’s investigation was conducted by Stephen T. Kaiser and Elizabeth Marshall Anderson, with assistance from Derek Bentsen, Greg Lill, and Margaret Vizzi. Mr. Bentsen will lead the SEC’s litigation. The case was supervised by Tim England, Fred Block, and Melissa Hodgman.
