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Saturday, 09/13/2014 3:53:02 PM

Saturday, September 13, 2014 3:53:02 PM

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Smoke screen? Pot company backer accused of manipulating stock price of Cannabis-Rx

Marc Stiles Staff Writer- Puget Sound Business Journal
Sep 10, 2014, 2:38pm PDT Updated: Sep 10, 2014, 3:13pm PDT
http://www.bizjournals.com/seattle/blog/2014/09/smoke-screen-pot-company-backer-accused-of.html?ana=synd_fc&page=all

This spring a real estate executive arrived in Seattle to talk about how his company, Cannabis-Rx, was seeking to help purveyors of legal pot set up shop by providing them with commercial space, capital and advice.

It turns out that the company may be part of what federal authorities allege is a $500 million offshore asset protection, securities fraud and money laundering scheme. It's the latest case involving the fast-growing legal cannabis business, and has authorities warning investors to be careful to avoid fraud involving marijuana-related stocks.

Last month, a group of stock promoters with roots in Washington and Oregon were charged in federal court in Tacoma with securities fraud after manipulating stocks of several companies, including marijuana-related GrowLife Inc. and Hemp Inc.

On Tuesday, a multi-count indictment was unsealed in federal court in Brooklyn, N.Y., against six individual defendants and six corporate defendants. Loretta E. Lynch, U.S. Attorney for the Eastern District of New York, said the defendants set up "sham companies with figureheads at the helm in an attempt to deceive U.S. law enforcement and regulators and bragged about their scheme to their clients.”

One defendant is accused of manipulating the stock of Cannabis-Rx, a penny stock company that trades under the ticker symbol CANA, through a series of orchestrated transactions between March 27 and April 16. During this time, when CANA's stock price plummeted from $13.77 per share to 50 cents a share, Cannabis-Rx CEO Llorn Kylo was in Seattle and talked about his Arizona-based company in an interview with the Business Journal. CANA was trading at 29 cents a share Wednesday.

Cannabis-Rx had sent a press release to the Business Journal about a week before the interview, during which Kylo was articulate in spelling out the vision of his business, which he said had raised $30 million to invest in properties suited for the needs of dispensaries, medical clinics, growers and businesses that might supply products and services to the cannabis industry. At the time, he said his company didn't have any clients, but Kylo said he had a lot of interest.

“I could show you my inbox that has essentially exploded,” said Kylo, who said he was underwriting scores of deals. “I’ve probably got 100 deals on my desk,” he said, estimating that fewer than half are from Washington, where medical and recreational marijuana are legal.

Kylo, who was not among those indicted in New York, did not return a voice message that the Business Journal left for him Wednesday morning.

The indicted individuals are Robert Bandfield, a 70-year-old U.S. citizen; Andrew Godfrey, 51 and a citizen of Belize; Kelvin Leach, 34 and a citizen of the Bahamas; Rohn Knowles, 29 and a citizen of the Bahamas; Brian De Wit, 45 and a citizen of Canada; and Cem Can, also known as Jim Can, 44 and a citizen of Canada. Six corporate defendants were indicted: IPC Management Services, LLC; IPC Corporate Services Inc.; IPC Corporate Services LLC (collectively, IPC Corp); Titan International Securities, Inc. (Titan); Legacy Global Markets S.A. (Legacy); and Unicorn International Securities LLC (Unicorn).

The charges include conspiracy to commit securities fraud, tax fraud, and money laundering. Bandfield’s initial appearance for removal proceedings to the Eastern District of New York was scheduled for today in Miami. Authorities said they would seek extradition for the other individual defendants.

Authorities said that to facilitate their alleged interrelated schemes, the defendants created shell companies in Belize and Nevis, West Indies for the corrupt clients and placed nominees at the helm of these companies. This structure was designed to conceal the corrupt clients’ ownership interest in the stock of U.S. public companies, in violation of U.S. securities laws, and enable the corrupt investors to engage in trading under the nominees' names through brokerage firms also set up in Belize.

Authorities also said the defendants’ scheme enabled the U.S. corrupt clients to evade reporting requirements to the IRS by concealing the proceeds generated by the manipulated stock transactions through the shell companies and their nominees. Authorities added that at one point during the government’s investigation, Bandfield boasted to an undercover law enforcement agent that he had specifically designed this “slick” corporate structure to counter new federal laws.


Marc Stiles covers commercial real estate and government for the Puget Sound Business Journal.

Related links: Marijuana, Entrepreneurs, Public Companies

http://www.bizjournals.com/seattle/blog/2014/09/smoke-screen-pot-company-backer-accused-of.html?ana=synd_fc&page=all