Federal securities regulators charged a California company peddling marijuana vending machines and its founder with issuing bogus news releases that bragged about phony “record” sales and touted the business as an MJ industry leader.
Much of Medbox’s revenue, however, came from “sham transactions with a secret affiliate,” according to a news release from the Securities and Exchange Commission.
According to the SEC’s complaint, Medbox provided marijuana consulting services and claimed to sell vending machines called “Medbox” devices that dispensed marijuana using biometric identification.
The SEC said Medbox founder Vincent 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.”
Mehdizadeh and Medbox, which changed its name to Notis Global, agreed to settle the SEC’s charges.
Mehdizadeh agreed to pay more than $12 million in disgorgement and penalties, and to be barred from serving as an officer or director of a public company or participating in penny stock offerings, the SEC said. The settlements are subject to court approval.
Mehdizadeh also co-founded Pineapple Express, a cannabis consulting and investment company headquartered in Los Angeles. Last spring, the SEC temporarily suspended trading in Pineapple Express’ stock “because of recent, unusual and unexplained market activity in the company’s stock that raises concerns.”
In the case of Medbox, Mehdizadeh created New-Age Investment Consulting, which the SEC described as a “shell company” whose purpose was to execute illegal stock sales and use the proceeds to inflate Medbox’s revenue.
In its complaint, the SEC alleged that nearly 90 percent of Medbox’s revenue in the first quarter of 2014 stemmed from sham transactions with New-Age. Mehdizadeh, who reportedly faced criminal charges before Medbox’s problems, also used the money to buy a luxury home in the Pacific Palisades, according to the SEC.
The SEC also charged former Medbox CEO Bruce Bedrick with being complicit in and profiting from the scheme, as well as Mehdizadeh’s then-fiancée Yocelin Legaspi, who was accused of selling unregistered securities.