Feds sue cannabis investor over ‘Ponzi-like’ dealings

cannabis investor ponzi scheme

The giddiness of the predicted Green Rush is wearing off quickly. Companies are struggling to stay afloat and lawsuits are hitting even the celeb players. U.S. Securities and Exchange Commission (SEC) named cannabis investor Robert Newell and his former fund, Black Hawk Funding Inc., in a freshly filed lawsuit. The SEC claims that Newell misused funds, going as far as calling the dealings “Ponzi-like.” Newell also faces the charge of distributing misleading documents to investors across three private cannabis funds.

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Over 200 U.S. investors contributed to the $37M fund earmarked for legal weed. Instead, the SEC believes that the longtime financier paid off new investors’ 10 percent with previous down payments rather than true cannabis investment returns. He is also alleged to have moved cannabis-specific funds into his other enterprises.

The SEC believes he acted to benefit himself and goes as far as to claim he aided and abetted Black Hawk Funding in its illegal dealings. The lawsuit lists $668,000 in funds misappropriated from November 2016. The private firm agreed to settle charges in response to the lawsuit, meaning they will pay back the funds without admitting or denying the charges.

The lawsuit calls for an officer and director bar on Newell. This would prohibit him from serving as director or officer of a public company. It also asks the court to enforce disgorgement with interest that allows for funds to return to investors where possible. The feds are also seeking civil penalties against him.

This is not the first time Newell has faced repercussions of financial misdealing. The National Association of Securities Dealers (NASD) censured him in 1999 for work with his former company, Empire Securities, Inc. NASD charged the investment advisor with giving poor investment advice to pad customer accounts. This ended with NASD barring Newell from holding a NASDAQ license.

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In 2015, Newell served as a defendant in a lawsuit claiming he preyed on a $180M lottery winner. This suit alleges the advisor served as a father figure to the plaintiff before convincing him to invest millions of dollars in his and a friend’s businesses. The lottery winner sought four million for breach of contract, fiduciary duty, malpractice, negligence, consumer law violations, and securities fraud.

Cannabis investing was once an exciting space ripe with opportunity. Over time, the nascent industry has proven less fertile than predicted, which has cast a darker shadow over the finance and investment sectors. These clouds will likely lift as more bad actors are pulled from the shadows. This SEC lawsuit may spark light into the dark for those seeking weed funds.

Cara Wietstock is senior content producer of GreenState.com and has been working in the cannabis space since 2011. She has covered the cannabis business beat for Ganjapreneur and The Spokesman Review. You can find her living in Bellingham, Washington with her husband, son, and a small zoo of pets.