don't people read? this was just about as fraudulent as it gets.
Rapid and Schmidt Made Numerous False and
Misleading Statements Regarding the Company’s Business
Industrywide Certification
9. In an April 16, 2020 press release, an SEC Form 10-K filed on June 29, 2020, and
an SEC Form 10-K/A filed on August 27, 2020, all authored and/or approved by Schmidt, Rapid
stated, “RTSL is certified by the Cannabinoid MDI Certification Board (CMDICB) with respect
to manufacturing of its MDI.” In November 2020, Schmidt disseminated a “Corporate
Overview” to investors, stating, “RTSL is certified by CMDICB (http://cmdicb.com/) for product
safety.”
10. Rapid subsequently elaborated on and defined CMDICB in its SEC filings. In its
March 16, 2021 Form 10-KT filed with the SEC, Rapid stated, “‘CMDICB’ means the
Cannabinoid MDI Certification Board, which was established to ensure manufacturers producing
cannabinoid based metered dose products understand the potential public health and safety risks
associated with delivering a medication in an aerosolized, inhalable format.” Rapid repeated the
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same or similar claims in Forms S-1 and S-1/A filed with the SEC in 2021 and 2022, Forms 10-
K filed with the SEC in 2022 and 2023, and multiple Forms 10-Q filed with the SEC from May
2022 through August 2023. Schmidt signed Rapid’s Forms S-1 and S-1/A and certified Rapid’s
Forms 10-K, 10-K/A, 10-KT, and 10-Q as the Company’s principal executive officer.
11. Rapid’s statements (discussed in paragraphs 9 and 10 above) conveyed the false
impression that an industrywide organization had certified the Company’s compliance with
manufacturing standards relating to public health and safety. But, in fact, a Schmidt business
associate—who owned Rapid shares—simply invented the CMDICB and unilaterally conferred
the so-called certification upon Rapid. Rapid never applied for any such certification, and
Schmidt conducted no due diligence on the business associate, the CMDICB, or its certification
process. Schmidt admitted, in sworn testimony taken in the SEC investigation that preceded the
filing of this lawsuit, that “early on” he began to suspect that the CMDICB’s founder was not
credible and later concluded that he was a “pretty big con man.” According to Schmidt, this
individual, who claimed to be a physician holding a Ph.D. degree, never attended college.
Despite these red flags, Rapid and Schmidt repeatedly touted the CMDICB certification to
investors. Rapid and Schmidt knew, or were severely reckless in not knowing, that the claimed
certification was bogus.
Major Sales Contracts
12. On June 23, 2020, before market opening, Rapid issued a press release, drafted
and approved by Schmidt, stating that the Company had “received an order for a 100,000 unit
wholesale order” of its inhalers. Rapid’s share price closed that day at $0.40, five cents lower
than the day before, but its trading volume increased 2,565% over the previous day’s activity.
The following day, Rapid’s share price closed at $0.69, on even greater volume. This 72.5%
price increase occurred even though the Company had issued no additional news.
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13. On July 9, 2020, before market opening, Rapid issued another press release, also
drafted and approved by Schmidt, with the headline, “Rapid Therapeutic Announces Major
Contract is Increased by 150% to 250,000 Metered Dose Inhalers.” The press release claimed
that the Company had “received an additional commitment of 150,000 units under a 100,000 unit
wholesale order.” Rapid’s share price closed that day at $1.25, a 37% increase over the previous
day’s closing price, and its trading volume increased 1,501%.
14. Both the June 23, 2020 and the July 9, 2020 press releases were false. The
purported purchaser, an online retailer that had previously bought only 9,000 inhalers from
Rapid, never ordered or entered into a contract to purchase any additional inhalers. Rapid and
Schmidt knew, or were severely reckless in not knowing, that both press releases were false.
World-Class Laboratory
15. On June 22, 2020, Rapid issued a press release, drafted and/or approved by
Schmidt, attaching a Rapid-funded analyst report that highlighted the market advantages for
companies that manufacture their products according to ISO 13485—the international standard
containing a comprehensive quality management system for the design and manufacture of
medical devices. According to the analyst report, Rapid would need ISO 13485 certification to
execute its plan “to target big box retailers such as Wal-Mart, CVS, Walgreens, Target, and
Boots,” which required the certification.
16. Less than two months later, on August 18, 2020, Rapid issued another press
release with the headline “Rapid Therapeutic Announces Completion of New ISO 13485
Laboratory.” Schmidt admitted, in sworn testimony taken in the SEC investigation that preceded
the filing of this lawsuit, that Rapid never had an ISO 13485 laboratory and that the press
release’s claim was “an untrue statement, straight up.” Schmidt stated that he must have had a
“brain fart” when he drafted the press release. On August 18, 2020, Rapid’s stock price rose
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40%, increasing from $0.81 at the previous day’s close to $1.14, and its trading volume tripled.
Rapid and Schmidt knew, or were severely reckless in not knowing, that the August 18, 2020
press release—particularly when read against the backdrop of the June 22, 2020 press release
and analyst report—was false and misleading.
Chief Science Officer
17. In its Forms S-1 and S-1/A filed with the SEC in 2021 and 2022, its Form 10-KT
filed with the SEC in 2021, and its Forms 10-K filed with the SEC in 2022 and 2023, all signed
or certified by Schmidt, the Company referred to Rapid’s CSO as a “significant employee” and
the person “in charge of laboratory operations.” Rapid’s SEC filings further claimed that its CSO
had “received a Bachelor’s degree in Electrical Engineering Technology from Pacific University
in 1997 and a Ph.D. degree in Electrical Engineering Technology from Ashbourne University in
2004.” Moreover, on January 26, 2021, Rapid issued a press release stating that its CSO had
worked for the last five years as a “consulting engineer for multiple laboratory equipment
manufacturers in both ‘Big Pharma’ and the hemp industry.”
18. However, Rapid’s CSO never held an engineering degree or license and never
received a bachelor’s degree in any academic discipline; and he received his “Ph.D.” from an
unaccredited diploma mill. Schmidt admitted, in sworn testimony taken in the SEC investigation
that preceded the filing of this lawsuit, that the CSO “was clearly more of a salesman” and that it
was Schmidt’s decision to refer to him as a consulting engineer. Schmidt selected this title based
on the CSO’s purported product knowledge as a salesman, and not due to any academic
credentials or licenses. Rapid and Schmidt knew, or were severely reckless in not knowing, that
the CSO’s background and qualifications, as described in Rapid’s SEC filings and press release,
were false and misleading.
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FDA Warning Letter
19. In September 2021, Schmidt stated in a “Corporate Overview” disseminated to
Rapid’s investors that “RTSL’s MDI are a safe replacement for vape pens and delivers [sic] a
98% bioavailable dose of CBD directly to the systemic blood stream.” Schmidt added that “[a]ll
of our product lines focus on safe, legal, and effective active pharmaceutical ingredients.” But
the document omitted to state that the U.S. Food and Drug Administration (“FDA”) had issued a
December 2020 warning letter to an online retailer—the same retailer referred to above in
paragraphs 12 through 14 in connection with Rapid’s false purchase order press releases—
concerning the legality and safety of Rapid’s inhalers.
20. The FDA letter warned that “introducing or delivering [Rapid’s inhalers] for
introduction into interstate commerce violates the FD&C Act.” The FDA letter further stated:
This product is particularly concerning to the agency because the ingredients and
potential impurities in oral inhalation sprays may trigger laryngospasm and
bronchospasm and may be toxic to the tissues in the upper or lower airways.
Inhalation products that are intended to act locally in the respiratory system also
may be absorbed and exert undesirable systemic effects, such as increased heart
rate or elevated blood pressure.
21. In or around December 2020, Schmidt learned of the FDA’s concerns when
Rapid’s vice president informed him of the letter’s existence and its warnings. Rapid and
Schmidt knew, or were severely reckless in not knowing, that the Company’s September 2021
claims regarding the safety and legality of its inhalers—particularly when read against the
backdrop of the FDA’s December 2020 warning letter—were false and misleading.
Nasdaq Listing
22. On September 27, 2021, Rapid submitted a stock listing application to the Nasdaq
Stock Market. On March 4, 2022, Schmidt emailed to Rapid’s investors a “Corporate Overview”
stating, “[A]ll requirements met to ‘uplist’ to Nasdaq except pricing as of 3/4/2022.” By
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November 21, 2022, Rapid’s website also claimed that the Company had been “approved for up
list to Nasdaq pending pricing requirements being met.”
23. However, Nasdaq never approved, even conditionally, the listing of Rapid’s
shares. According to Nasdaq, Rapid “did not fully respond to Nasdaq’s first and only comment
letter, and as such the listing application remains pending.” Schmidt admitted, in sworn
testimony taken in the SEC investigation that preceded the filing of this lawsuit, that he knew
that Rapid had not received approval from Nasdaq. Rapid and Schmidt knew, or were severely
reckless in not knowing, that the Company’s claims regarding the Nasdaq listing—which
Schmidt drafted and disseminated to investors—were false.
Rapid Sold Securities in Unregistered Transactions
24. From at least February 2020 through May 2021, Rapid engaged in unregistered
stock offerings, raising at least $2.1 million from 51 investors in 15 states. During this period,
Rapid filed three notices of exempt offering on SEC Form D, claiming that the transactions were
exempt from registration pursuant to Securities Act Regulation D, Rule 506(b). The Securities
Act Rule 506(b) safe harbor is available only if an offering does not involve general solicitation
or advertising.
25. In at least the first offering, in which the Company raised $1,270,000 from 42
individuals, Schmidt solicited investors in live and virtual presentations and at an in-person
industry trade show in Nevada. Rapid’s vice president also solicited trade show attendees and
other individuals, with whom he had no substantive relationship, in chance public encounters.
Many of the investors who bought shares of Rapid stock in the unregistered offering were
unaccredited; and Rapid took no steps to verify that the investors who claimed to be accredited
were, in fact, so.
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Schmidt Sold Rapid Stock in a Private Transaction
26. In a private transaction in December 2020, Schmidt sold Rapid stock to an entity
controlled by a client of his law firm. Schmidt offered his own personal shares and received
$1.15 million in exchange for them. By the time of this sale, Rapid and Schmidt had publicly
disseminated several false and misleading statements (discussed in paragraph 9 and paragraphs
11 through 16 above) concerning Rapid’s business.
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