SEC Files Charges in $25 Million Cannabis-Related Offering Fraud

Litigation Release No. 24857 / July 29, 2020

Securities and Exchange Commission v. Anthony Todd Johnson et al., No. 5:20-cv-01493 (C.D. Cal. filed July 28, 2020).

The Securities and Exchange Commission today announced charges against six individuals and their companies for defrauding investors in connection with unregistered securities offerings that raised over $25 million.

The SEC's complaint alleges that, between September 2017 and February 2019, California residents Anthony Todd Johnson (a/k/a Todd Johnson), Jeremy T. Johnson, Richard A. Portillo, and Michael R. Gregory, and Arizona residents Charles Lloyd and Mark W. Heckele, raised funds from more than 400 individuals to invest in two separate cannabis-related businesses in California, a marijuana farm and a cannabidiol (CBD) extraction facility. As alleged in the complaint, the six individual defendants allegedly conducted the scheme through nine issuers and three marketing companies, Smart Initiatives, LLC, Valley View Enterprises LLC, Target Equity LLC, Zabala Farms Group, LLC, GPA Enterprises LLC, C-Quadrant LLC, Green Bud Initiatives LLC, RJ Holdings Group, LLC, CIS Marketing, LLC, Green Growth Ventures, LLC, Extraction Capital Tier 1, LLC, and Lloyd Marketing, LLC.

According to the complaint, brothers Todd and Jeremy Johnson, Portillo, Lloyd, and Heckele led investors to believe they would receive a guaranteed annual return on their investments of 100% or more. The complaint alleges that the Johnsons misappropriated more than $2.7 million of investor money and, with Gregory, deceived investors about a purported "business loan" secured by real property to develop the CBD extraction facility that in fact was used to pay back investors in an unrelated entity. The complaint further alleges that certain defendants misrepresented the principals' backgrounds, their capital contributions, and a purported relationship with a California university.

The SEC's complaint, filed in federal court in the Central District of California, charges the defendants (with the exception of Lloyd Marketing) with violating the antifraud provisions of Section 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 complaint further charges all defendants with violating the registration provisions of Section 5 of the Securities Act and charges the Johnsons, Portillo, Lloyd, Heckele, Green Bud Initiatives, CIS Marketing, and Lloyd Marketing with violating the broker-dealer registration requirements of Section 15(a) of the Exchange Act. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.

The SEC's investigation was conducted by Colleen M. Keating and Carol Kim and supervised by Victoria A. Levin of the SEC's Los Angeles Regional Office. The litigation will be led by Donald Searles and supervised by Amy Longo.