On June 15, 2017, the United States Securities and Exchange Commission called hemp oil fraud on a public company, filing a complaint in federal court that claims CV Sciences (OTCQB:CVSI), formerly known as CannaVEST, and its CEO, Michael Mona, Jr., intentionally overstated the company’s total assets.
The inflated assets are related to CannaVEST’s acquisition of PhytoSphere Systems, including its facilities for hemp oil production and processing, from Medical Marijuana, Inc. (OTC Pink: MJNA), recording a supposed purchase price of $35 million in the first quarter of 2013 on its Form 10-Q as well as restating the $35 million in its Form 10-Q for the second quarter of 2013.
According to the complaint, “In its Form 10-Q for the third quarter of 2013, CannaVEST and Mona wrote down the value of the assets related to the PhytoSphere acquisition to $8 million after obtaining a valuation of PhytoSphere’s assets. CannaVEST, however, failed to disclose that it had never paid $35 million for those assets, that the assets were never worth $35 million, and that the balance sheets for the first and second quarters of 2013 were materially overstated.”
By April 2014, CannaVEST had restated all three quarters in 2013 to show that the PhytoSphere acquisition was actually valued at $8 million, not $35 million, but CannaVest and Mona had already violated federal securities laws and internal accounting control provisions. As the control person for CannaVest, Mona violated the Sarbanes-Oxley Act by falsifying books and records, lying to accountants, filing false certifications and accepting a $10,000 company bonus in 2013 while violating federal securities laws.
The SEC wants Mona to return the $10,000 bonus to CannaVEST and it wants Mona and CannaVEST to pay civil penalties for the hemp oil fraud. The SEC also seeks to bar Mona from being a public company officer or director.