American Patriot Brands, Inc.; Urban Pharms, LLC; DJ&S Property #1; TSL Distribution; Robert Y. Lee; Brian L. Pallas; J. Bernard Rice

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 26335 / June 26, 2025

Securities and Exchange Commission v. American Patriot Brands, Inc., et al., No. 2:23-cv-05379 (C.D. Cal.) (filed Mar. 16, 2023)

Court Grants Partial Summary Judgment in Fraudulent Offering Case Against Cannabis Company, CEO, and Others

On June 16, 2025, the U.S. District Court for the Central District of California granted the SEC partial summary judgment against American Patriot Brands, Inc. (“APB”), a cannabis cultivation and distribution company; CEO Robert Y. Lee; COO Brian F. Pallas; alleged former executive J. Bernard Rice; and APB subsidiaries Urban Pharms, LLC, DJ&S Property #1, LLC, and TSL Distribution, LLC (collectively, the “Defendants”). The SEC previously charged these Defendants for their alleged participation in a long-running scheme in which they raised more than $30 million from more than 100 investors and siphoned off millions of those funds to enrich themselves.

The SEC’s complaint, originally filed in the U.S. District Court for the District of Puerto Rico and subsequently transferred to the Central District of California, alleged that these Defendants defrauded investors through a series of false and misleading statements about various aspects of the company. The complaint charged the Defendants with violating the antifraud provisions of the securities statutes. Following the close of discovery, the SEC moved for partial summary judgment as to the liability of these Defendants for certain allegedly false and misleading statements and omissions concerning (1) APB’s assets; (2) security and collateral for investment funds; (3) the financial and business performance of APB; (4) the involvement of a prominent individual as part of APB’s executive team; and (5) APB’s use of investors’ funds. In granting the SEC’s motion, the Court found that these false and misleading statements and omissions were material, and that each of the Defendants acted at least recklessly in making these false and misleading statements, finding Defendants liable for violating Section 17(a) of the Securities Act of 1933, as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The Court will determine remedies at a later time.

The SEC’s litigation is led by Eugene Hansen and Samantha Williams and supervised by James Carlson.