SEC Charges Cannabis Company American Patriot Brands, CEO, and Others with Fraud

Litigation Release No. 25675/ March 24, 2023

Securities and Exchange Commission v. American Patriot Brands, Inc., Urban Pharms, LLC, DJ & S Property #1, LLC, TSL Distribution, LLC, Robert Y. Lee, Brian L. Pallas, and J. Bernard Rice, Defendants, and Puerto Rico One Corporation, Castro Business Enterprises, LLC, and Legion Accounting Services, Inc., Relief Defendants, No. 3:23-cv-01124 (D.P.R. filed March 16, 2023)

The Securities and Exchange Commission today charged American Patriot Brands Inc. (APB), a cannabis cultivation and distribution company, its CEO, and five other entities and individuals for their participation in a long-running scheme in which they raised more than $30 million from more than one hundred investors across the country and siphoned off millions of those funds to enrich themselves.

According to the SEC's complaint, filed in the United States District Court for the District of Puerto Rico, since at least mid-2016, APB, its CEO Robert Y. Lee, and current and former executives Brian L. Pallas and J. Bernard Rice made a series of false and misleading statements to investors about various aspects of the company, including its financial condition, the scope of its operations, the value of its Oregon cannabis farm, and the safety and security of investing in APB. The complaint alleges that APB funneled millions in investor proceeds to the APB executives' personal accounts and spent tens of thousands on the executives' personal expenses.

The complaint charges APB, Lee, Pallas, Rice, and APB subsidiaries DJ&S Property #1, LLC, TSL Distribution, LLC, and Urban Pharms, LLC 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 seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and officer and director bars against Lee, Pallas, and Rice. The complaint names as relief defendants, and seeks disgorgement with prejudgment interest from, three affiliated entities (Legion Accounting Services, Inc., Puerto Rico One Corp., and Castro Business Enterprises, LLC) that allegedly received millions in investor proceeds.

The SEC's investigation was conducted by Andrew Elliott and Brianna Ripa, with assistance from accountant Jamie Wohlert, and it was supervised by Ms. Welshhans and Amy L. Friedman. The litigation will be led by Samantha Williams and supervised by James Carlson.