In A Text Message Released By The Sec, Mehdizadeh Seems To Concede That Misrepresenting The Company’s Revenue To Investors Was Part Of His Business Strategy.

At its height, the company, which traded on the unregulated over-the-counter stock market, saw its shares soarfrom $1 per share to as high as $200. Unfortunately, much of that run-up was due to investor enthusiasm sparked by revenue growth that the SEC alleges wasn’t revenue at all. According to the SEC, Medbox was “falsely touting ‘record’ revenue numbers” and “claiming to be a leader in the marijuana industry while some of its earnings came from sham transactions with a secret affiliate.” Specifically, Medbox founderVincent Mehdizadeh formed a shell company — New-Age Investment Consulting — and installed his then-fiancee as its CEO. Afterwards, he reportedly transferred stock in Medbox to New Age that New Age later sold. “As alleged in our complaint, investors were misled into believing that Medbox was medical marijuana business a leader in the burgeoning marijuana industry when the company was just round-tripping money from illegal stock sales to boost revenue,” said Michele Wein Layne, director of the SEC’s Los Angeles regional office. The SEC argues that proceeds from those illegal stock sales accounted for “nearly 90%” of Medbox’s revenue in the first quarter of 2014. In a text message released by the SEC, Mehdizadeh seems to concede that misrepresenting the company’s revenue to investors was part of his business strategy. In that text, he wrote: 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 is settling the charges against him for $12 million, plus a promise never to serve as officer or director of a public company or participate in any penny-stock offerings in the future, but that’s probably little comfort to investors who bought Medbox shares because of revenue reported in those press releases. Spotting marijuana-stock manipulators Like Medbox, most marijuana stocks trade over the counter (OTC) because they can’t meet the financial and reporting requirements of major stock exchanges, like the New York Stock Exchange.

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