U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23730 / January 27, 2017
Securities and Exchange Commission v. Christopher R. Esposito, et al., Civil Action No. 16-CV-10960 (D. Mass. filed May 26, 2016)
SEC Obtains Final Judgments Against Medical Marijuana Industry Company and CEO for Involvement in Fraudulent Scheme
On January 27, 2017, the federal court in Boston, Massachusetts, entered final judgments against Cannabiz Mobile, a publicly traded company purportedly servicing businesses in the medical marijuana industry, and its sole officer and director, James Gondolfe. Among other things, the judgments order Gondolfe to pay a total of $266,681, and Cannabiz to pay a total of $786,694, and bar Gandolfe from serving as an officer or director of certain public companies or from participating in an offering of a penny stock.
In May 2016, the SEC charged Gondolfe and Cannabiz, both of Cambridge, Massachusetts, along with two other individual defendants and one other company defendant, for their roles in a scheme to defraud investors by concealing the ownership and control of Cannabiz by defendant Christopher Esposito of Topsfield, Massachusetts, in order to enrich themselves by facilitating the sale of hundreds of millions of shares of Cannabiz stock into the public market, in violation of SEC statutes and regulations. According to the SEC's complaint, between early 2014 and August 2015, Esposito, with Anthony Jay Pignatello of Manhattan Beach, California, concealed Esposito's de facto control of Cannabiz and a large percentage of Cannabiz's securities in order to profit by evading SEC Rule 144, which limits securities sales by affiliates, such as control persons. Esposito did this by, among other things, installing Gondolfe, as the sole officer and director of Cannabiz - even though Esposito secretly controlled the company - to make false statements in Cannabiz's public filings and other documents. Gondolfe's actions allowed Esposito to pay third-party stock promoters to tout Cannabiz stock in order to increase its stock price and trading volume, sell significant amounts of Cannabiz convertible debt to others for almost $304,000, and with Pignatello and Renee Galizio of Loxahatchee, Florida, sell millions of shares of Cannabiz stock directly into the public market.
The final judgments, which were entered by default by the Honorable Allison D. Burroughs of the United State District Court for the District of Massachusetts, enjoin Gondolfe and Cannabiz from future violations of Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgments also order Gondolfe to pay disgorgement and pre-judgment interest in the total amount of $106,681 plus a $160,000 civil penalty and Cannabiz to pay disgorgement and pre-judgment interest in the total amount of $11,694 plus a $775,000 civil penalty. Additionally, the final judgment against Gondolfe bars him from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, and permanently bars him from participating in an offering of a penny stock.
The SEC's litigation in this matter continues against Esposito, Lionshare Ventures, LLC, Pignatello and Galizio.
The SEC's investigation was conducted by Scott R. Stanley, J. Lauchlan Wash, Mark Albers, Amy Gwiazda, and Michele Perillo of the SEC's Boston Regional Office. The SEC's litigation is being led by David London. The SEC appreciates the assistance of the Financial Industry Regulatory Authority (FINRA).
For further information, see Litigation Release No. 23545 (May 26, 2016).