Risk & Compliance

Pot Entrepreneur Fined $12M in Fraud Case

Vincent Mehdizadeh allegedly used the proceeds from illegal stock sales to inflate the revenue of his marijuana vending machine company.
Matthew HellerMarch 10, 2017
Pot Entrepreneur Fined $12M in Fraud Case

A former cannabis entrepreneur has agreed to pay $12 million to settle charges that he inflated the reported revenues of his marijuana vending machine company through sham transactions with an undisclosed affiliate.

The U.S. Securities and Exchange Commission said Vincent Mehdizadeh created a shell company to carry out illegal stock sales and used the proceeds from those sales to boost the revenue of MedBox, now known as Notis Global, and mislead investors into believing the company was a viable commercial operation.

Mehdizadeh’s fiancée, Yocelin Legaspi, was allegedly the putative CEO of the shell company, New-Age Investment Consulting. In the period of time New Age artificially inflated Medbox’s revenue, he and Medbox CEO Bruce Bedrick made $6 million and $6.5 million, respectively, on sales of their Medbox shares, according to the SEC.

Medhizadeh, Legaspi and Bedrick were all charged with securities fraud in a civil complaint, with Mehdizadeh agreeing to pay more than $12 million in disgorgement and penalties to settle the charges against him.

“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,” Michele Wein Layne, director of the SEC’s Los Angeles Regional Office, said in a news release.

California-based Medbox was founded to make point-of-sale vending machines to distribute marijuana in medical dispensaries. Mehdizadeh gained control of the company through stock transactions in November 2011 and August 2012.

According to the SEC, the transactions between Medbox and New-Age — including $1.37 million that New-Age paid for “questionable” accounts receivable — “enabled Medbox to report revenues that were far rosier than its operational reality.”

Revenues from the accounts receivable deal accounted for 22% and 65% of Medbox’s reported revenue in 2012 and the first quarter of 2013, respectively.

In one text message, Mehdizadeh allegedly told Bedrick 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.’”