SEC Calls Marijuana Business Just Smoke

SAN DIEGO (CN) - A former attorney who served prison time for a real estate conspiracy duped investors into believing he owns a "revenue-generating marijuana cultivation facility" in Colorado, the SEC claims in court.

The SEC sued Strategic Global Investments and its CEO Andrew T. Fellner in Federal Court on Monday.

Fellner, who has a law degree from Thomas Jefferson School of Law, had a tax practice in San Diego before he acquired controlling interest in Strategic in 2010.

"In July 1982, Fellner pleaded guilty to conspiracy and federal mail fraud for his role in a multimillion-dollar real estate and forgery fraud scheme. He served approximately three years in prison," the SEC says in the complaint.

After Colorado legalized recreational marijuana in January 2014, Fellner claimed in several new releases that he and Strategic owned a profitable marijuana cultivation facility, though "at the time, [Strategic] was involved in industries wholly unrelated to marijuana," the 13-page complaint states.

"In reality, at no time did Strategic have the ability to operate in the marijuana business space or legally generate revenue from the sale of marijuana generated from its purported cultivation facility in Teller County, Colorado. In fact, Strategic lacked the requisite licensure, funding, and other corporate infrastructure needed to run a successful marijuana-related business," the SEC says.

Strategic, which presented itself as a video production company, announced its intent to enter the marijuana business in April 2013 in a news release that said it would work with GrowLife Inc. to provide a "multichannel media network for the marijuana industry," according to the complaint.

The company went radio silent on the matter until February 2014, when it issued a series of news releases and a shareholder letter stating that Strategic had bought Bearpot Inc., a marijuana growing facility in Teller County, which would start cultivation in March and yield product by the third quarter of 2014, according to the SEC.

Several ensuing news releases indicated that Strategic's stock trading had increased, and that Bearpot had received structural and electrical upgrades to cultivate marijuana. But these statements "were false and misleading," because Bearpot's "cultivation facility" was a two-story house in a residential area, not licensed to grow marijuana commercially, and in a zoning area where the business was illegal, the SEC says.

"(T)he fact that neither Bearpot nor Strategic had or legally could have a functioning marijuana cultivation facility rendered baseless Strategic's revenue and growth projections," the complaint states.

As the CEO, secretary and sole director, Fellner knew this, but issued the misleading news releases anyway, the SEC says.

It claims he also misused $50,000 in investors' money to buy the Bearpot place, knowing it could not be used to grow marijuana commercially.

But due to the misleading news releases and stock registration forms, Strategic's trading volume mushroomed from 5.13 million shares in the 10 months before Feb. 10, 2014 to 849 million shares in the 6½ weeks after Feb. 10, 2014 the SEC says.

The defendants did not return emailed requests for comment Tuesday.

SEC attorney James Carlson told Courthouse News that this is a case of "microcap fraud."

Strategic's share price rose from $0.0032 on Feb. 7, 2014 to $0.055 three days later, to $0.0001 on April 16 that year, the SEC says.

It seeks an injunction, civil penalties, and wants Fellner barred from participating in penny stock offerings and from acting as an officer and director of publicly traded companies.

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