CANN Settles Lawsuit Against Stephen Calandrella
On September 25, 2014, Advanced Cannabis Solutions, Inc. (“CANN”) sued Stephen G. Calandrella, one of the company’s biggest investors. Though that may seem paradoxical, CANN alleges in a lawsuit that Calandrella critically damaged the company. Last spring, on March 27, the Securities and Exchange Commission (“SEC”) suspended trading in CANN’s stock, citing “questions regarding whether certain undisclosed affiliates and shareholders of Advanced Cannabis common stock engaged in an unlawful public distribution of securities.”
The SEC has made no public statement about the matter since then, but CANN’s management concluded that the affiliate in question was Calandrella, saying that “in attempting to get relisted, the Company learned that Calandrella’s conduct was a subject of the regulatory action that led to the temporary suspension and subsequent delisting.”
In August 2013, CANN laid the ground for going public by effecting a reverse merger transaction with a company called Promap Corp. A few months before the transaction was completed, CANN sold 600,000 shares of its own stock to Calandrella and another 600,000 to The Rockies Fund, an entity he controlled. CANN describes The Rockies Fund as “Calandrella’s personal investment vehicle,” and says he owns approximately one third of its shares. When the reverse merger with Promap closed, and CANN’s securities became publicly traded, Calandrella and The Rockies exchanged their stock for newly-issued Promap stock. That meant Calandrella controlled 1.2 million shares of the new company’s stock, and was an 8.7% beneficial owner.
CANN’s complaint alleges that within days, Calandrella began to purchase more stock in the company, then still trading as Promap. And during the same period, according to CANN, Calandrella also sold stock on more than one occasion. According to CANN, at most times, Calandrella was a greater-than-10% owner who failed to report his transactions to management and the SEC.
According to CANN, Calandrella had violated Section 16(b) of the Securities Exchange Act of 1934 (“Exchange Act”), which governs “short swing” profits. Under the rule, beneficial owners must hold their stock for six months before selling, and CANN contends that Calandrella failed to do so.
In his brief answer to the complaint, Calandrella denied violating Section 16(b), and most of the other allegations as well. In the early 2000s, The Rockies Fund, Calandrella, and several partners were sanctioned by the SEC for manipulating the stock of a company called Premiere Concepts. The regulator alleged that he had engaged in matched orders and wash trading through nominee accounts. He originally received a permanent officer/director ban, but for reasons that are unclear, the lifetime ban was reduced to five years.
On December 9, CANN issued a press release announcing that it had settled its litigation with Calandrella. According to CANN, Calandrella has agreed to transfer to CANN 525,000 shares of stock held by him personally, and an additional 600,000 shares held by The Rockies Fund. According to Cann, it plans to retire the stock immediately, lowering the shares outstanding to 12,578,903. CANN will ask that its suit be dismissed with prejudice, ending the matter.
It remains to be seen whether this action has answered all of the SEC’s questions about CANN.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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