Risk & Compliance

Hemp Startup Founders Accused of Stock Fraud

The SEC says the two founders of CanaFarma Hemp Products raised $15 million by making false statements about the "farm to table" company.
Matthew HellerOctober 6, 2021

The two co-founders of CanaFarma Hemp Products have been charged with fraudulently raising $15 million from investors by making false statements about the “farm to table” hemp startup and its management.

The U.S. Securities and Exchange Commission said Vitaly Fargesen and Igor Palatnik misrepresented CanaFarma as a “fully integrated” hemp company and inflated its revenue in materials for two private offerings of shares while pocketing $4 million of the investor funds for their personal use and purposes unrelated to CanaFarma.

They also touted the quality of CanaFarma’s management team, which was purportedly led by CEO David Lonsdale when, in reality, he “was CEO in name only, making no substantive decisions and taking direction from Fargesen and Palatnik,” the SEC said in a civil complaint.

Fargesen and Palatnik have also been indicted on related criminal fraud charges.

“Fargesen and Palatnik were just using the trappings of a startup to run an old-time scam: lying to investors to take money for themselves,” Manhattan U.S. Attorney Audrey Strauss said in a news release.

According to the SEC, CanaFarma’s stated business plan was grow hemp at two farms in New York and process it into hemp products such as “Yooforic” chewing gum that it would market directly to consumers. Lonsdale, the president of boutique finance firm Lonsdale Group, was hired in March 2019.

Fargesen and Palatnik, who were vice presidents of the company on paper, “told [Lonsdale] and others at CanaFarma that [he] would act as a mere figurehead CEO and would not make any actual decisions,” the SEC said.

CanaFarma, however, allegedly did not manufacture Yooforic itself, licensing production to a third party and leaving the hemp it grew in storage, unused. “Fargesen told an individual … that CanaFarma was making payments to the first hemp farm ‘just for the story,’” according to the SEC.

For its second offering, the company claimed that in March 2020, it was “achieving nearly $1,000,000 per month revenue” but achieved “only approximately $44,000 in revenue in March 2020” and “never reached $1 million in monthly revenue” while it was conducting the fund raises.

Tafadzwa Ufumeli via Getty Images