Medbox Charged by the SEC
On March 9, 2017, the Securities and Exchange Commission (“SEC”) charged Medbox, a California-based company, and its founder with falsely touting “record” revenue numbers to investors and claiming to be a leader in the marijuana industry while some of its earnings came from sham transactions with a secret affiliate.
According to the SEC’s complaint, Medbox provided marijuana consulting services and claimed to sell vending machines known as “Medbox” devices capable of dispensing marijuana on the basis of biometric identification. The SEC alleges that Vincent Mehdizadeh created a shell company called New-Age Investment Consulting to carry out illegal stock sales and used the proceeds from those sales to boost Medbox’s revenue. Medbox allegedly issued press releases headlining the phony revenues as record earnings to legitimize itself as a viable commercial operation when in fact nearly 90 percent of the company’s revenue in the first quarter of 2014 stemmed from sham transactions with New-Age. Mehdizadeh allegedly acknowledged in a text message that “the only thing we are really good at is public company publicity and stock awareness. We get an A+ for creating revenue off sheer will but that won’t continue.”
Meanwhile, according to the SEC’s complaint, Mehdizadeh funded the purchase of a luxury home in the Pacific Palisades with proceeds from New-Age’s illicit stock sales.
The SEC’s complaint additionally charges Medbox’s then-CEO Bruce Bedrick with being complicit in the scheme and personally profiting. The SEC also charged New-Age and Mehdizadeh’s then-fiancée Yocelin Legaspi with unlawfully selling unregistered securities. Mehdizadeh installed Legaspi as the supposed CEO of New-Age when he created the company.
“As alleged in our complaint, investors were misled into believing that Medbox was a leader in the burgeoning marijuana industry when the company was just round-tripping money from illegal stock sales to boost revenue,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.
Mehdizadeh and Medbox, which has since changed its name to Notis Global, have agreed to settle the SEC’s charges. Mehdizadeh agreed to pay more than $12 million in disgorgement and penalties and agreed to be barred from serving as an officer or director of a public company or participating in any penny stock offerings. The settlements are subject to court approval. The SEC’s litigation continues against Bedrick, Legaspi, and New-Age.
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, or [email protected]. 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.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855