Avtar Dhillon is accused of having created shell companies in order to conceal sales of shares of two of his companies.
Vancouver-based marijuana stock promoter has been charged with securities fraud, conspiracy and obstruction by the United States Department of Justice in Boston, following an investigation into two of its companies .
Avtar Dhillon previously established and operated marijuana grow operations in Richmond and Delta with Emerald Health Therapeutics Inc., of which he chairs the board of directors.
However, while setting up greenhouses in Canada, between 2017 and 2020, the United States Securities and Exchange Commission was investigating Dhillon for suspected fraudulent transactions.
Dhillon was arrested on Wednesday while residing in Long Beach, California, according to the Massachusetts District Attorney’s Office (USAO). He is presumed innocent until a court rules on the allegations.
Dhillon “allegedly concealed his ownership of millions of shares in two companies for which he served as chairman of the board of directors, and then secretly led the sale of the shares, generating proceeds of around $ 2.19 million,” according to the USAO.
Dhillon allegedly used a lawyer – not named by the USAO – to conceal ownership of shares of Boston-based Arch Therapeutics and New Jersey-based OncoSec Medical Inc., two micro-capitalized biotechnology companies he was Chairman of the Board of Directors between March 2011 and April 2020.
Directors are expected to disclose all the shares they own and have restrictions on their sale. Hiding insider sales may have the effect of not having a negative impact on the share price.
Federal Bureau of Investigation (FBI) investigators allege that Dhillon and his attorney made false statements for millions of shares.
The lawyer placed these shares in two LLCs, then asked another law firm to provide legal advice (based on alleged misrepresentation) to a broker that the shares could be deposited into a brokerage account without restrictions. On their subsequent sale, the attorney transferred the money to Dhillon’s alleged beneficiaries.
âThe timing and manner of the sales, as well as the recipients of the product, reflect that Dhillon was closely involved in the sales and that the product was distributed primarily for the benefit of Dhillon.
âBrokerage records, telephone records and emails indicate that [the lawyer] was subsequently in frequent and close contact with Dhillon just prior to placing sell orders for Arch Therapeutics shares, âthe FBI affidavit states.
From its allegedly hidden Arch Therapeutics stock sales, Dhillon is said to have generated $ 1.3 million.
The biggest beneficiary of the proceeds was someone who helps manage Dhillon’s rental portfolio, the affidavit said. This recipient took $ 645,000 and distributed the money to another company of which Dhillon is the managing member.
From its allegedly hidden sales of OncoSec shares, Dhillon is said to have generated a total of $ 1.3 million. A similar process took place, generating $ 821,000 for Dhillon.
The FBI also alleges that Dhillon interfered with the SEC investigation.
Further, “Based on the evidence described here, I have probable reason to believe that … Dhillon obstructed the SEC investigation in Boston by providing false and incomplete information regarding his beneficial interest in the shares sold.” says the investigator.
Additionally, Dhillon told investigators in July 2020 that he understood the insider disclosures, although he did not file with the SEC to reflect LLC sales.
Notably, Dhillon was a member of the Securities Practice Advisory Committee of the BC Securities Commission from July 1998 to September 2001. Since then, he has headed over a dozen small public companies (primarily in the health sciences).
One of them is Vitality Biopharma Inc., an over-the-counter list that Dhillon co-founded and managed. Viality was shut down by the SEC in November 2018 after being linked to Roger “Rocket” Knox, a financier and promoter who pleaded guilty to a $ 164 million pump and dump program in September 2020.
âKnox helped facilitate pump-and-dump and other market manipulation programs, selling massive amounts of microcap securities on behalf of ‘control groups’ who secretly held the shares through ‘nominee shareholders, and who simultaneously orchestrated promotional campaigns and other efforts to artificially inflate the price and trading volume of these shares,’ said a press release from the DOJ.
Dhillon was not personally involved in the Knox affair and resigned from Vitality’s board of directors in April 2019.
Dhillon is best known in Vancouver for his most recent promotion, Emerald Health Therapeutics Inc.
In September 2019, Emerald successfully sued the city of Richmond in the British Columbia Supreme Court after the city tried to stop Emerald from building a marijuana greenhouse on the farmland reserve in east Richmond. .
Dhillon then described himself to the Richmond News as a farmer, from a family that owns about 2,000 acres of land in British Columbia and California.
Emerald also had a stake in a greenhouse in Delta, but it sold the facility last year, while last March it sold its greenhouse in Richmond.
Emerald is now trading at $ 0.17 per share, following a speculative boom in the Canadian pot stock market between 2017 and 2019, when the stock hit $ 8.45.
In 2020, the company recorded $ 14.3 million in revenue but recorded a net loss of $ 43.5 million (after recording a net loss of $ 113 million in 2019).
Emerald began trading on the Canadian Securities Exchange, after delisting its shares from the TSX Venture Exchange on April 26, according to its annual audited financial statements. “Emerald expects listing its common shares on the Canadian Securities Exchange to reduce filing, compliance, legal and other costs, and provide the company with greater flexibility to operate in the United States.” and in other jurisdictions outside of Canada. “
Emerald has yet to release a statement on Dhillon. Its board of directors also includes pharmacist Bobby Sukhwinder Rai, Dhillon’s nephew and founder of OncoSec, Punit Dhillon, and securities attorney Jim Heppell, who spent time with the BC Securities Commission.