Regulator accuses Canada Cannabis Corporation of fraud

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Net Patrol International Inc.  Data Investigation and Forensic Services
Bankruptcy and Insolvency Trustees

Toronto (September 16, 2019) – The provincial regulator – Ontario Securities Commission (OSC) – accuses Canada Cannabis Corporation (CCC) and Benjamin Ward (chief executive and director), Peter Strang and Silvio Serrano (vice-presidents, either directors or de facto directors) of fraudulent conduct in an eight-page statement of allegations published on September 13. CCC’s investors are supposed to be defrauded of several million.

In Canada’s growing cannabis sector, the OSC accused a pot company of fraud for the first time, according to BNN Bloomberg. On September 13, the provincial regulator published a statement of allegations against CCC and its chief executive and director Benjamin Ward as well as its vice-presidents and directors or de facto directors Peter Strange and Silvio Serrano. They are alleged to have ‘raised millions of dollars using the Investor Brief, which contained untrue statements, and then placed investors’ capital at risk by diverting investor funds away from CCC for their own personal gain’, states the OSC. None of the allegations have yet been proven.

CCC was incorporated in January 2014. Prior, the trio held an ‘investor brief’ to canvass for financiers. During the meeting, the OSC alleges that the three accused made numerous false and misleading statements such as CCC purchased 45 percent of Growlite Canada, a horticultural lighting company, owned by Serrano which was not yet the case. Between January 2014 and August 2016, CCC raised about $3.2 million and US$8.8 million from approximately 125 investors. 60 of the financiers were located in Ontario. The regulator alleges that the trio conducted a scheme since the raised funds for CCC were not used as issued. Instead they ‘would use investor funds to purchase an interest in and make a loan to Growlite’, the OSC states in their report.

In February or March 2014, $4 million of CCC’s received investments were transferred to Growlite based on a ‘handshake’ agreement. $1 million of investor funds were used to purchase 45 percent of the lighting company and the other $3 million were used to provide a loan to Growlite, the OSC reports. ‘At no point […] did [they] hire a valuator to determine the value of Growlite, address the conflict arising from investing in Serrano’s company, or conduct meaningful negotiations on the price,’ stated the OSC.

The transfer of the funds from CCC to Growlite followed the distribution of the money to Strang, Serrano, and Serrano’s family members and their companies. Even though Growlite has never made any of the required interest payments according to the OSC, ‘at no point did [they] take any steps to protect CCC’s investment in Growlite’ and they ‘made no attempt to recover the Loan.’ Eventually, the loan was written off in April 2016.

Additionally, in the second half of 2015, inventory of Growlite which is described by the OSC as ‘one of its only remaining assets’ – roughly worth $800,000 – ‘disappeared under suspicious circumstances’. The police were never informed about the issue, nor their insurance company. Consequently, the lost value of the inventory was never recovered, according to the regulator.

Finally, CCC’s business plan contained growing and selling medical cannabis products in Canada. In April 2014, CCC has applied for a license. However, Ward withdrew the application on May 2016 and did not inform investors. ‘By the fall of 2016, Ward, Strang and Serrano had resigned from CCC, leaving behind a company depleted of all investor funds without ever having engaged in the cultivation or distribution of cannabis’, the OSC concludes.

The regulator’s staff requests in the document multiple enforcement actions for defrauding CCC’s investors. Among others, cease-trade orders and financial penalties are demanded for Ward, Strang, and Serrano. The trio is supposed to be barred from pursuing a director or any executive position for registered issuers.