SEC Charges Marijuana Company and its CEO With Fraud

Litigation Release No. 24148 / May 22, 2018

Securities and Exchange Commission v. Bud Genius, Inc. and Aaron "Angel" Stanz, Civil Action No. 18-cv-01005 (S.D. Cal.) (filed May 21, 2018)

Securities and Exchange Commission v. Taylor Moffitt, Carlos Febles, and U.S. CoProducts, LLC, Civil Action No. 18-cv-03034 (N.D. Iowa) (filed May 22, 2018)

On May 21, 2018, the Securities and Exchange Commission charged Bud Genius Inc. and its CEO with defrauding investors by making exaggerated and misleading claims about the medical marijuana company's business operations and financial condition.

The SEC's complaint, filed in federal district court in the Southern District of California, alleges that Bud Genius and Aaron "Angel" Stanz issued false and misleading press releases about a purported licensing agreement with comedian Tommy Chong. In one press release, Stanz allegedly described Chong as a "partner," and in a subsequent blog post, he described the purported licensing agreement as a "crowning achievement." The agreement never materialized, and the defendants allegedly knew at the time that, in light of Bud Genius's weak financial position, it was extremely unlikely that an agreement would ever be reached. The defendants' false and misleading claims about the purported agreement were picked up by multiple media outlets. The defendants also are alleged to have published fraudulent financial statements and to have facilitated an unregistered offering of Bud Genius securities.

The unregistered offering is the subject of a separate action filed by the SEC in the Northern District of Iowa against Taylor Moffitt, Carlos Febles, and U.S. CoProducts LLC. The SEC alleges that the defendants acquired, offered, and sold billions of shares of unregistered Bud Genius stock for a total profit of more than $540,000, approximately $140,000 of which was paid to Bud Genius and Stanz.

Without admitting or denying the Commission's allegations, Stanz agreed to a judgment enjoining him from violating Sections 5(a), 5(c), 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, imposing five-year officer-director and penny stock bars, and ordering disgorgement and prejudgment interest of $158,829. Without admitting or denying the Commission's allegations, Bud Genius agreed to a judgment enjoining it from violating Sections 5(a), 5(c), 17(a)(1) and 17(a)(3) of the Securities Act, and Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. The settlements are subject to court approval.

Without admitting or denying the Commission's allegations, Moffitt, Febles, and U.S. CoProducts agreed to a judgment enjoining them from violating Sections 5(a) and 5(c) of the Securities Act and all three will be jointly and severally liable for $435,595 in disgorgement and prejudgment interest. In addition, Moffitt and Febles agreed to penny stock bars of three years and one year respectively, and to pay civil penalties of $35,000 and $20,000 respectively. These settlements also are subject to court approval.

The SEC's investigation was conducted by Timothy Stockwell and supervised by C.J. Kerstetter.