Marijuana consulting services company Medbox and its founder, Vincent Mehdizadeh, have settled Securities and Exchange Commission charges that they promoted false revenue records to investors.

The SEC complaint alleged that Mehdizadeh created a shell company called New-Age Investment Consulting to illegally sell Medbox stock, with the sales proceeds being used to falsely boost Medbox’s revenues. The company then allegedly promoted the “record” revenues in press releases to investors, even as the New-Age transactions accounted for nearly 90 percent of Medbox’s revenues in the first quarter of 2014.

“Investors were misled into believing that Medbox was a leader in the burgeoning marijuana industry when the company was just round-tripping money from illegal stock sales to boost revenue,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office, in a statement.

The SEC headquarters
Bloomberg News

The commission also alleged that Mehdizadeh used the results of the New-Age sales to help pay for an expensive home, and that he wrote in text message, “The only thing we are really good at is public company publicity and stock awareness. We get an A+ for creating revenue off sheer will but that won’t continue.”

The SEC also charged then-CEO Bruce Bedrick with complicity in the scheme, and Mehdizadeh’s then-fiancee, Yocelin Legaspi, with unlawfully selling unregistered securities. Legaspi had been named CEO of New-Age.

Mehdizadeh and Medbox, which has since changed its name to Notis Global, have agreed to settle the charges, with Mehdizadeh agreeing to disgorge $12 million and be barred from serving as an officer or director of a public company, or participating in penny stock offerings.

The cases against Bedrick, Legaspi and New-Age are ongoing.

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Daniel Hood

Daniel Hood

Daniel Hood is editor-in-chief of Accounting Today and Tax Pro Today, and has covered the tax and accounting field for over 20 years.