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http://nypost.com/2014/10/29/smelling-smoke-and-pulling-the-alarm-in-sec-pot-probe/

Smelling smoke and pulling the alarm in SEC pot probe
By James CovertOctober 29, 2014 | 10:20pm

These guys were texting while high — on a marijuana-focused penny stock, that is.
A pair of investing tycoons traded giddy text messages this spring as they planned to unload a massive haul of hyped-up shares in GrowLife, a supplier to pot farmers that has come under regulatory scrutiny.
“April 10 is your day! Buy two houses in Miami!” David Weiner, a Los Angeles-based penny-stock financier texted to fellow investor Fred Knoll, according to messages obtained by The Post.
“Lol you are my hero,” replied Knoll, an MIT-educated Wall Street veteran.
The duo were licking their chops over the April 10 expiration of a restriction against selling a massive chunk of GrowLife shares they’d acquired after giving the company a cash infusion, Knoll admitted in a brief interview Wednesday.
“There was a restriction on the shares that was expiring,” Knoll said, declining to elaborate.
The plan for a big payday was thwarted at the last minute, however, when the Securities and Exchange Commission halted trading of GrowLife stock at 50 cents a share before the stock opened for trading on April 10.
At the time, the SEC cited “potentially manipulative transactions” in the stock. The specific reason for the SEC’s halt on GrowLife shares had been a mystery up to now — but a source confirmed that the SEC made its move after reviewing the lock-up expiration data and the text exchange.
The information supplied to the SEC and the seriousness with which it was handled back up the SEC’s position that — as more and more states decriminalize marijuana — the opportunities for investors to be victimized by pot-related scams increased.
“This was material evidence that gave the SEC grounds to halt the stock,” according to the source. “The urgency was to prevent the sale of shares that could have been worth tens of millions of dollars.”
Weiner and GrowLife didn’t respond to requests for comment. Neither has been accused of any wrongdoing, nor has Knoll.
The SEC’s concern, according to sources, has been that GrowLife, along with other pot companies, was pumping its business prospects in press releases even as it issued millions of shares at below-market prices in exchange for loans from financiers, including Weiner and Knoll.
When GrowLife shares resumed trading two weeks after the halt, they opened 60 percent lower, at 21 cents. They’ve steadily tumbled since, closing at 5.2 cents on Wednesday.
Four unidentified investors last Oct. 11, with GrowLife shares trading at 6 cents, lent the company $850,000 in exchange for the right to buy 34 million shares. Those rights were priced at less than 2.5 cents each — giving them a value of more than $2 million.
By April 9, the day before a restriction on selling those shares was to expire, GrowLife’s share price had risen to 50 cents. The lucky investors shares were then worth $17.5 million.
Weiner and Knoll’s participation in that investment wasn’t disclosed specifically in filings, and couldn’t be confirmed. But their respective investing vehicles, W-Net and Europa International, have been allotted millions of shares elsewhere through convertible loans, often at fractions of a penny.
The SEC’s probe is focused on whether GrowLife and other companies were pumping their stocks to take advantage of an investing fad in marijuana stocks, according to a source close to the investigation.
The SEC refused to comment on the existence of any probe.
Weiner and Knoll appeared to delight in the buzz that had gripped pot stocks this spring. In a March 31 exchange, Weiner told Knoll that GrowLife shares “should shoot tomorrow revenue doubled,” referring to news in the recently released 10-K.
“We need to re up this is a giant social shift like the iternet [sic],” Weiner texted to Knoll in the days leading up to April 10, according to the alleged texts.
“I agree,” Knoll replied.


http://nypost.com/2014/10/29/smelling-smoke-and-pulling-the-alarm-in-sec-pot-probe/


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older article
http://www.bloomberg.com/news/2014-06-18/legal-pot-sets-off-penny-stock-frenzy.html