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engaging into fraudulent schemes to inflate its revenues and manipulating its stocks.
Medbox described itself as a “leader in the marijuana consulting industry,” and purported
identification. The company attracted some investors through its press releases saying
“We are the leader and one of only a few legitimate companies catering to the medical
marijuana ancillary service industry. We are light years ahead in all phases on being a
transparent company, and the standard for all companies operating in the medical
loss and according to the company’s latest earnings statement filed in October, Notis
Global’s financial position had stabilized somewhat from 2015 when the company
reported a loss of $50.5 million. In the sixths months ending June 30, 2016, the company
had revenue of roughly $474,000 and a net loss of about $6.3 million.
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COMPANY PROFILE AND BRIEF HISTORY
1977. Medbox provides specialized services to the marijuana industry and sells
associated patented products, including its medical vaporization devices. The Company
works with clients who currently operate or seek to enter into the retail, cultivation and
dispensary marijuana markets in those states where approved. They seek to obtain
operators to manage the day-to-day operations of these facilities and assign them the right
to manage and operate the facilities in exchange for a percentage of operating income or
a fixed fee based on applicable state law. They also provide ongoing consulting services
Vaporfection International, Inc. (“VII”), the Company sells a line of vaporizer and
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THE PERPETRATORS
Medbox is now known as Notis Global, Inc., is a Nevada Corporation with its
principal place of business in Los Angeles, California. In January 2014, Medbox filed a
Form 10 with the SEC in order to register its common stock under Section 12(g) of the
Exchange Act.
Vincent Mehdizadeh
held a succession of positions at Medbox: senior consultant, from December 2012 to May
10, 2013; chairman of the board and chief operating officer, from May 10, 2013 to April
10, 2014; acting principal financial officer, from October 1, 2013 to February 13, 2014;
senior strategist and founder, from April 10, 2014 to October 13, 2014; and founder and
Bruce Bedrick
Bruce Bedrick, age 48, resides in Delray Beach, Florida. Bedrick was Medbox’s
chief executive officer from December 2011 through July 2014, and a member of the
company’s board of directors from December 2011 through August 2014. He continued
Yocelin Legaspi, age 37, is a resident of Los Angeles, California. Legaspi was
Mehdizadeh’s fiancée.
New-Age
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THE FRAUDULENT ACTIVITIES
ranged from $2.50 to $205 per share. In August 2011 Medbox acquired Prescription
2011 and August 2012 Mr. Mehdizadeh gained control of Medbox by acquiring the
majority of its outstanding shares, a total of 10.8 million shares of common stock
Mindfuleye, Inc. In August 2011, Mindfuleye, Inc. changed its name to Medbox. In
in November 2011, the other in August 2012 – Mehdizadeh gained control of Medbox by
buying the majority of its outstanding shares from one of its prior directors, who departed
from the company in August 2012. In all, Mehdizadeh purchased more than 10.8 million
shares of Medbox’s common stock and 3 million shares of Medbox’s preferred stock.
Medbox hired Bedrick as its chief executive officer in December 2011. Bedrick was a
trained chiropractor. He had also partnered with Mehdizadeh, in the past, to obtain
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Medbox’s and Mehdizadeh’s Scheme to Inflate Revenue through New-Age’s
From July 2012 to May 2015, defendants Medbox and Mehdizadeh engaged in a
scheme to inflate Medbox’s reported revenues through sham transactions with a shell
company formed by Mehdizadeh, all financed by the undisclosed and improper sale of
restricted Medbox shares. Mehdizadeh knew that this was all a fraudulent scheme to
installed Legaspi – his fiancée at the time – as the company’s chief executive officer,
corporate secretary, and chief financial officer. Mehdizadeh took no official title with the
pursuant to a stock purchase agreement. Instead of transferring the shares to his own
drafted by Mr. Mehdizadeh created the false impression that New-Age had either
paid $552,000, or provided the equivalent value in services, in exchange for the
stock. At the end of 2012 Medbox's stock was trading at approximately $61.00 per
share, "making the 226,000 shares that Mehdizadeh transferred to New-Age, for no
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New-Age sells its Medbox shares
Between February and April 2013 New-Age sold all 226,000 Medbox shares
that it owned at a significant discount to the market price ($11.50-$22.80 per share).
The proceeds of these sales exceeded $3.1 million. Mr. Mehdizadeh made numerous
Mr. Bedrick knew, or was reckless or negligent in not knowing, of Mr. Mehdizadeh's
The proceeds of New-Age's sale of Medbox stock were then transferred back
Medbox stock,
April 2013.
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More bogus transactions between New-Age and Medbox
On January 17, 2013 New-Age agreed to two share purchase transactions with
Medbox: (1) the 100,000 shares noted above ($10/share), and (2) a purchase of
71,429 shares at $70 per share. Mr. Bedrick authorized the issuance of 171,429
Medbox shares to New-Age. Although the net value of these transactions was over
$6 million, New-Age only paid Medbox $1 million for its stock purchase. Despite
this discrepancy, Medbox issued a press release in February 2013 touting a "$6
million equity transaction" with a "private investment firm." This press release was
pleaded in the Complaint, demonstrated that Mr. Bedrick was aware that the
receivables generally arose from Medbox’s contracts with customers to secure dispensary
licenses, to build out dispensaries, and for the sale of Medbox machines. Contrary to what
paid Medbox full value for every one of the accounts receivable, rather than at a discount.
New-Age’s $1.37 million purchase of accounts receivable from Medbox was never
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documented in a written contract. New-Age performed no due diligence on the accounts
receivable. Further, New-Age’s decision to purchase these accounts receivable made little
sense from New-Age’s standpoint. Many of the receivables were either subject to
contracts expressly prohibiting their assignment. Or they arose from contract rights that
had expired as of the time that New-Age purchased them in March and April 2013
because the contracts contained terms stating that they lapsed after one year. Medbox
credit to each of the accounts receivable sold. These false entries were recorded as if the
$1.37 million in payments on accounts receivable had been made by the customers
associated with the receivables, rather than New-Age, a shell entity controlled and
GAAP for any of the customer contracts underlying the accounts receivable that had
been assigned to New-Age. For each of the 13 customer contracts underlying the
GAAP for at least one of the following reasons: (i) Medbox had entered into a
settlement agreement cancelling the customer’s obligation to pay; (ii) having not
received a dispensary license, the customer was entitled to a refund and its contract with
Medbox was cancelled; (iii) Medbox never delivered the Medbox machines called for by
the customer’s sales contract; (iv) with the customer having ceased operations, the
customer’s contract entitled it to a full refund; and/or (v) Medbox never built out the
dispensary called for by the customer’s contract Mehdizadeh knew, or was reckless in not
knowing, that the receivables sold to New-Age were in fact uncollectible. He drafted or
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signed the contracts that gave rise to each of the purported receivables and also
communicated with each of the Medbox customers about problems with the contract.
Medbox issued press releases touting the money it received from New-Age as
"revenue.
The pattern repeats: New-Age buys Medbox shares, sells them, funnels the proceeds
In early 2014 Mr. Mehdizadeh and Mr. Bedrick repeated the pattern of
selling Medbox stock to New-Age, and then selling it again and funneling the
for a facility in Benson, Arizona (Benson Deal) from Medbox for $650,000, which
Medbox recognized as revenue for the first quarter of 2014. The problem with this
transaction was that Medbox did not have the rights it purported to sell to New-Age.
Similarly, New-Age agreed to pay Medbox $500,000 up front for exclusive rights to
place Medbox machines in the Denver, Colorado market, plus $100,000 per machine
the Complaint, this deal "made little economic sense. It required New -Age to pay a
substantial upfront sum for the supposedly exclusive right to install Medbox
Denver, had no license to operate a dispensary in Denver, and had no guarantee that
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it would ever be able to break into the Denver market." As with the Benson, Arizona
deal, Medbox recognized $500,000 from this deal as 2014 first-quarter revenue.
and first quarter 2014 audit or quarterly review work when he signed January and March
2014 management representation letters falsely representing that: (i) Medbox’s financial
statements were fairly presented in conformity with GAAP; (ii) there were no material
transactions that had not been properly recorded in the books and records underlying the
financial statements; (iii) he had no knowledge of any fraud or suspected fraud involving
Medbox’s management that would have a material effect on the company’s financial
statements; and (iv) related-party transactions and related accounts receivable or payable
had been properly recorded or disclosed in the financial statements. Mehdizadeh knew
that the foregoing statements and omissions to Medbox’s auditors were false and did not
make those false statements and omissions through ignorance, mistake, or accident.
Mehdizadeh further acted unreasonably in making those false statements and omissions
to Medbox’s auditors. Bedrick misled Medbox’s auditor in connection with his audit of
the financial statements filed with Medbox’s January 21, 2014 Form 10, March 31, 2014
Form 10/A, May 13, 2014 Form 10/A, May 15, 2014 Form 10-Q, and June 27, 2014
Form 10-Q/A when he signed March and May 2014 management representations letters
falsely representing that he had no knowledge of any fraud or suspected fraud involving
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knew, or was reckless in not knowing, that the foregoing statements and omissions to
Medbox’s auditors were false and did not make those false statements and omissions
In accordance with Section 302 of SOX and Exchange Act Rule 13a-14,
Bedrick signed certifications which Medbox attached to its May 15, 2014 Form 10-Q and
June 27, 2014 Form 10-Q/A for the first quarter of 2014. In his certification, Bedrick
falsely represented that the report did not contain any untrue statement or omission of a
material fact and that the financial statements in the report fairly presented in all material
respects the financial condition and results of the operation of the issuer. Bedrick knew,
or was reckless in not knowing, that his SOX certifications were materially false and
the time he signed those SOX certifications, Bedrick not only knew of potential fraud
involving Mehdizadeh, but was also aware of clear and repeated red flags indicating that
Medbox’s New-Age-related transactions were a sham. Bedrick knew that the Benson and
Denver deals were included in the revenue reported in the first quarter 2014 filings that
Medbox revenues for the first quarter would look like without a deal for the Benson
dispensary.
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Bedrick’s Stock Sales During the SOX Section 304 Period
and its first quarter 10-Q as a result of Bedrick’s and/or Mehdizadeh’s misconduct, as
alleged above. Bedrick realized profits from the sale of Medbox’s stock during the
statutory time periods set forth in SOX Section 304(a), which are the 12-month periods
following Medbox’s filing of the reports for which a restatement was required as a result
of misconduct: here, (i) January 21, 2014 to January 21, 2015 (corresponding to
Medbox’s restatement of its January 21, 2014 Form 10); and (ii) May 15, 2014 to May
15, 2015 (corresponding to Medbox’s restatement of its May 6-15, 2014 Form 10-Q).
During the statutory time periods established by SOX Section 304(a), Bedrick sold
1,353,692 shares of Medbox for a total profit of $4,475,924.73. Bedrick has not
reimbursed Medbox for the profits realized from the sale of Medbox’s stock that he
received or obtained during the statutory time periods established by SOX Section 304(a).
The SEC has not exempted Bedrick, under SOX Section 304(b), from the application of
Private placements
at Medbox’s headquarters from July 2012 through late December 2012 which sold
Medbox shares over the phone to investors that Mehdizadeh had identified by buying lead
lists, and with whom the company had no pre-existing relationship. In the course of
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operating the boiler room, Mehdizadeh: hired Sales people to conduct cold calls out of
the boiler room; approved the script that his salesmen used during their cold call
campaign; purchased and distributed lead lists to the sale personnel; set the price at which
the salespeople sold Medbox shares; paid the sales staff a salary and commissions based
on how much Medbox stock they sold; and directly communicated with some of the
investors about their investment in Medbox. Mehdizadeh also sought to hide Medbox’s
connection to the boiler room by having New-Age nominally employ one of his
salesmen. Medbox took no apparent steps to determine whether its investors were
stated in SEC and OTC filings that it did not engage in general solicitation or advertising
to sell securities. Even after these boiler room operations ended, Medbox continued to sell
its shares in private placements through February 2014. Between July 2012 and February
2014, Medbox sold over 3 million shares in private placements for stock sales proceeds
of over $8.9 million. These stock sales were made through interstate commerce because
they involved the solicitation of investors over the phone, the use of email, and the wiring
of funds to Medbox’s bank account. Medbox did not register with the SEC any of the
securities that Medbox and Mehdizadeh offered or sold in the foregoing private
placements. Medbox and Mehdizadeh accordingly engaged in the offer and sale of
investments without Medbox registering those securities with the SEC, and the offers and
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Material misrepresentations, sales of unregistered securities, and un-authorized
broker-dealer activity
misleading statements in both press releases and SEC filings. Similarly, records
related to these transactions were presented to an auditor along with a letter from Mr.
were fairly presented in conformity with GAAP." These same misleading statements
the SEC alleged that each of the named Defendants offered and sold securities
without registration or exemption. Lastly, the SEC alleged that Mehdizadeh acted as
Mehdizadeh ran a sales force directed at actively soliciting investors to purchase Medbox
stock. He set the price at which the sales force sold the stock, and paid them
commissions. Mehdizadeh also controlled the issuance of the Medbox shares to investors
draft board resolutions approving the issuances, and communicating with the transfer
offer and sale of securities at key points in the chain of distribution. Mehdizadeh was not
associated with a registered broker or dealer at the time of the foregoing misconduct.
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By engaging in this conduct: (i) Medbox, Mehdizadeh and Bedrick
violated the antifraud provisions of the Securities Act and the Exchange Act; Bedrick
and Mehdizadeh misled the company’s auditors in violation of Rule 13b2-2 of the
Exchange Act; Bedrick falsely certified Medbox’s SEC filings in violation of Rule
13a-14 of the Exchange Act; Medbox violated the reporting provisions of the
Exchange Act, with Mehdizadeh and Bedrick aiding and abetting those violations;
Medbox violated the books and records and internal controls provisions of Sections
13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, with Mehdizadeh aiding and
abetting those violations; Medbox, Mehdizadeh, New-Age and Legaspi violated the
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AFTERMATH
marijuana consulting company Medbox and its founder with "falsely touting “record”
revenue numbers to investors and claiming to be a leader in the marijuana industry while
some of its earnings came from sham transactions with a secret affiliate".
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. The Medbox stock price ranged from a low of $2.50
Medbox’s then-CEO Bruce Bedrick is also charged in going along with the
scheme and personally profiting noting within the complaint that even though Bedrick
was made aware of the financial shenanigans he chose to stay with the company and not
correct the course of events. New-Age and Mehdizadeh’s then-fiancée Yocelin Legaspi is
Mehdizadeh had settled its charges by just paying a fine of $12M while the
litigation with the others still continues. Mehdizadeh and Medbox, which has since
changed its name to Notis Global, have agreed to settle the SEC’s charges. Notis Global
has installed new management and continues to operate. The new Chief Executive
Officer Jeffrey Goh addressed the issue back in May of 2016 writing, “I am very aware
of the outstanding issues and shareholder concerns regarding possible securities law
violations, which arose under the Company's prior management.” Goh went on to say,
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“While I cannot change the past, I and our entire team are fully committed to moving the
Company forward toward higher revenue generation, and in pursuing positive EBITDA
as a long-term goal.”
machines to distribute marijuana in medical dispensaries. The company has since moved
According to the company’s latest earnings statement filed in October, Notis Global’s
financial position had stabilized somewhat from 2015 when the company reported a loss
of $50.5 million. In the sixths months ending June 30, 2016, the company had revenue of
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CONCLUSION
business aims to be successful that others are even willing to do anything that what it
takes in order for them to stay on top and inferior among others. Some people are even
blinded by money and other luxurious thing that they are willing to do anything just to
get what they want. One of the best examples is Mehdizadeh, the former founder of
Medbox. Reporting false revenues, deceiving its shareholders and investors and even
forming a shell company to perform his fraudulent plans for the sake of money shows
what kind of person he really is. It is a bit unfair that after all of those activities, he just
paid a fine of 12 million dollars and didn’t even go to jail. He should’ve suffered more.
He didn’t even pay for his wrong doings. I was a bit disappointed and thought maybe
because that man have connections that’s why he was able to avoid going to jail. Indeed,
For me, Bedrick, the CEO even made a bigger mistake compared to
Mehdizadeh. He was the first one to discover what Mehdizadeh has been doing but he
kept a blind eye. He is the only one who can report Mehdizadeh to the authorities, he
should’ve stopped it but he didn’t say anything and the worst part is he even connived
with Mehdizadeh to commit those fraudulent activities. What a tandem right? What a
perfect match! Now, Bedrick is still on investigation but for me, Bedrick should be liable
for the things that he has done. He needs to be punished; he needs to go to jail. He should
be ready for the consequences of the things that he has done. They caused a lot of damage
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not just to the business but also to the investors and shareholders who just want to invest
and earn. Mehdizadeh, Bedrick, and Legaspi should pay the price.
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RECOMMENDATION
The company is partially at fault in giving their full trust to those people who
committed the fraudulent activities. This fraud case only happened because the firm
trusted so much to a single person. They thought the firm is doing well because of the
manipulated documents but without even confirming and knowing what really is
No one should fully trust a person especially when money is involved. The
company trusted Mehdizadeh so much that they didn’t even thoroughly checked the
It would be better for the Medbox Company (Notis Global) to have a stronger
internal control in the company. Check every transaction that takes place and do not fully
trust one another. It is the only way to avoid the fraud that happened in the firm.
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REFERENCES
https://www.lexcannabis.net/news/2017/11/12/summary-of-complaint-in-sec-v-notis-
global-et-al
https://www.forbes.com/sites/debraborchardt/2017/03/10/sec-charges-marijuana-
company-medbox-and-founder-in-pot-stock-scam/#5bbad0b667bd
https://seekingalpha.com/filing/2804629
http://labusinessjournal.com/news/2017/mar/10/former-billionaire-cannabis-
entrepreneur-settles-s/
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