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SEC Complaint:

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LongTermGiggler   Friday, 12/07/18 07:14:24 AM
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SEC Complaint:

This was filed earlier this year.

To Whom It May Concern,

As a shareholder (multiple purchases over last two years, no sales) of Giggles N Hugs, Inc. (ticker: GIGL) I am requesting the SEC to open an investigation into possible stock price manipulation, insider trading, providing false and misleading information, failure to disclose material information, and a breach of fiduciary responsibility by management. I have outlined below a timeline of events that raises questions of the legality of GIGL management’s actions.

Prior to Jan. 23, 2017: GIGL management released multiple press releases (PRs) and webcasts (via RedChip) stating goals of expansion that never materialized. In addition, multiple PRs were released announcing the additions of multiple “advisory” board members and management personnel. It is believed that these “advisory” board members were announced in order to deceive investors into thinking they were official members of the Board of Directors. It is also believed that these management personnel announcements were made in an attempt to deceive investors into thinking that the persons named in the announcement worked for GIGL and spent considerable time and effort trying to advance GIGL’s business, when in actuality they were simply consultants whose main role was to provide use of their names in order to deceive.

In regards to the expansion goals, in presentation after presentation (both before Jan. 23, 2017 and after), management continuously claimed that malls were “rolling out the red carpet” for GIGL and offering incentives of up to 100% buildout costs. It is believed that management knowingly withheld the fact that malls would not work with them because of fear regarding GIGL’s financial position. It is only recently (within the last year) that GIGL has publicly acknowledged that malls are hesitant to do business with them because of their financial condition.

Jan. 23, 2017: GIGL share price traded for .038.

Jan. 26, 2017: GIGL issued a PR stating an LOI had been signed for the construction of a new store at the Shops at Tanforan in San Francisco where the mall will pay for 100% buildout. Several months later it is announced that the deal has fallen apart due to mall renovations. It is believed that there was never any likelihood of this deal materializing and the announcement was made to increase share price.

March 8, 2017: GIGL announced a partnership with Jilian Michaels. Michaels signed a contract to become a “brand ambassador” and was compensated with stock warrants. In multiple interviews and presentations thereafter, management referred to Michaels as an investor in the company. In interviews, Michaels refers to herself as an investor and states multiple new locations will be opening in 2017. It is believed that Michaels never invested any money and was merely granted warrants. This brought further attention to GIGL and increased the share price. It is unclear how much Michaels knew about the business-side of GIGL.

March 23, 2017: Creditor, St. George Investments served an arbitration demand regarding an outstanding convertible note. More on this later.

March 27, 2017: Share price reached a multi-year high of 0.26.

March 29, 2017: GIGL announced a partnership with Tia Mowry. Same story as Jilian Michaels listed above, however Mowry is not known to have made public comments regarding herself being an investor or expansion.

May 31, 2017: GIGL announced a signed LOI to open two franchises in Bahrain. Several months later it is announced that this deal has also fallen apart, even after management states in interviews immediately preceding the cancelation that the deal was expected to close “soon” and was delayed due to “Ramadan”. It is believed this also was used to increase the share price and was never expected to materialize.

June 20-28, 2017: GIGL management conducts multiple insider sales of stock. Sales are done at approx. .11 per share.

August 14, 2017: GIGL entered a settlement agreement with St. George Investments over the previously mentioned convertible note. As part of the agreement, St. George agreed to purchase $110k of GIGL stock. More on this later.

Sept. 7, 2017: GIGL filed an S-1 rights offering with the stated intent of raising $5mm. The stated intent is “for general corporate purposes, to supplement operating cash flows, to fund new company and franchise location expansion and to support its acquisition growth plan and new product launches. The Company also plans to use a portion of the proceeds to further strengthen the company's balance sheet by repaying certain outstanding indebtedness”.

Nov. 01, 2017: GIGL issued a press release stating their belief that St. George had flooded the market with shares and driven the price dramatically lower. GIGL share price closes at .032. It is believed that GIGL management was aware of St. George’s intent to drive down the share price and that previous insider sales were done in order to avoid the share price decline or to repurchase stock at the lower price.

Jan. 3, 2018: GIGL issues press release stating they now accept Bitcoin as payment. It is believed this may have been done to increase share price at a time when Bitcoin prices were experiencing considerable price appreciation and companies associated with Bitcoin were seeing their share prices increase. After placing multiple calls to GIGL stores, employees answering the phone had no knowledge of Bitcoin payment capability. In addition, Bitcoin may be being used to hide transactions - more on this later.

Feb. 28, 2018: GIGL founder and acting CEO, Joey Parsi put out a press release stating Philip Gay will become CEO of the company after the pending S-1 offering and Joey will become Chairman of the Board. An 8-K is filed on 3/20 stating Mr. Gay will assume the CEO position and Mr. Parsi will resign. It is believed these moves were done to increase the share price and generate interest in the pending S-1 offering and was meant to deceive investors as to who was running the company (message boards were very hostile to Mr. Parsi and did not trust his leadership). Subsequent presentations and press releases by Mr. Parsi further stated this arrangement, however all presentations were given by Mr. Parsi only.

March 1, 2018: GIGL S-1 rights offering began. All language around the intended use of funds being used toward expansion are removed from the formal prospectus filed with the SEC despite stating in multiple presentations leading up to the offering that funds would be used for expansion and that there was a chance the expansion would come within “weeks” of the offering closing (which was subsequently extended two weeks). It is believed that expansion was never a realistic goal and management knew it.

March. 27th, 2018: GIGL issued a press release again confirming Mr. Gay as CEO after the closing of the on-going S-1 offering. In the press release Mr. Gay referenced plans for specific franchising deals after the offering closes. He also stated that an official Board of Directors will be constructed. At the time of this press release, Joey Parsi was, and always had been, the sole member of the Board of Directors and had sole authority over compensation.

March. 29th, 2018: GIGL announced Rand Ferris as a new addition to its “advisory” board. Again, it is believed this was done to deceive investors into thinking Mr. Ferris was a member of the Board of Directors and to convince shareholders to participate in the ongoing offering, when in reality Mr. Ferris has nothing to do with the operations or strategic vision of GIGL.

April 03, 2018: GIGL extended the rights offering by two weeks citing “requests from current shareholders” among other reasons.

April 11, 2018: GIGL issued a press release announcing the participation in the offering from Joey Parsi. There is no mention of the dollar value of Mr. Parsi’s participation. The press release goes on to state “strong interest” in the offering. We believe this statement was specifically constructed to deceive investors into thinking there was strong participation. In addition, no Form-4 was subsequently filed for the insider purchase (it may be exempt).

April 24, 2018: GIGL issued a press release announcing Philip Gay as the new CEO and “The Company’s founder, Joey Parsi, will still be actively involved but will now focus his efforts as Chairman of the Board, while Mr. Gay will assume the day-to-day operations.” In addition, the press release stated that Mr. Parsi “has agreed to lower his base salary”. It is believed that Mr. Parsi’s salary was draining the company of significant resources and was grossly inflated. It is also believed this statement was carefully constructed to allow for spot bonuses and arbitrary compensation payouts.

May 23, 2018: GIGL filed first quarter 10-q (late). The 10-q is signed by both Joey Parsi and Philip Gay, both with the title of Co-CEO. In addition, salary payable increased $95k in the first thirteen weeks of the year. It is believed Mr. Parsi is trying to deceive investors regarding who is running the company and how much Mr. Parsi is taking in compensation. In addition, sales dropped by $48k (7%) in the first thirteen weeks of the year with no proportionate drop in cost of goods sold. It is feared that sales are being funneled off the books, possibly via Bitcoin.

This is a general timeline of what has happened. There have been many investor presentations given by Mr. Parsi that I did not list where potentially misleading and deceptive claims were made. These presentations were available on the company website and RedChip.com.

In addition, shareholders have reason to believe there might be material information that the company has not disclosed regarding business relationships, specifically an outside catering business that Mr. Parsi is also involved in that goes by the name Fresh N Healthy (FNH). It is feared that revenues from GIGL are being redirected to FNH, while FNH expenses are being booked to GIGL.

Lastly, shareholders are unsure of management’s intent in their most recent S-1 offering. Although management stated they were trying to raise $5mm, there is reason to believe they were trying to raise far less. Possible reasons include allowing management to increase their ownership percentage and/or in order to allow an undisclosed strategic investor to purchase a pre-determined percentage of the company in a way that would be minimally dilutive. It has been almost two months since the initial close date of the offering, and six weeks since the final close date with no update to shareholders as to how the money that was raised will be used, despite management’s public statements that specific franchising deals would be announced soon after the offering closing. It is feared that the money will be used to pay management salaries and not outside accounts payable.

The lack of a true independent Board of Directors, failure of management to hold shareholder meetings and/or investor conference calls with Q&A, and lack of responsiveness to direct shareholder inquiries have left shareholders no choice other than turning to the SEC to get answers to their questions. We ask that you investigate in order for us to determine if we are being deceived. Due to the complete lack of Board oversight, we believe time is of the essence and fear that management may accelerate their pace of draining resources from the company for their own personal benefit.

In the event you should find wrongdoing, we humbly ask that you consider the shareholders of the company when assessing penalties. Many, if not most, are already facing large losses. Assessing penalties that put GIGL out of business will ensure we never recoup any of our investment.

Thank you for your time and consideration.

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