“Vitaly Fargesen and Igor Palatnik were just using the trappings of a start-up to run an old-time scam: lying to investors to take money for themselves.”

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Two men are facing charges of securities fraud, wire fraud and related offences in connection with a scheme to defraud investors in Canadian company CanaFarma Corp. and later CanaFarma Hemp Products Corp., the U.S. Attorney’s Office for the Southern District of New York has announced.

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It is alleged that co-founders Vitaly Fargesen, 52, and Igor Palatnik, 47, both of New Jersey, fraudulently raised approximately US$15 million ($18.6 million) from investors, failed to invest investor’s funds as promised, manipulated the public stock price of CanaFarma and secretly misappropriated millions of dollars of CanaFarma funds for personal use.

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“Vitaly Fargesen and Igor Palatnik presented themselves as entrepreneurs developing a new business for an emerging industry. But, as alleged, Fargesen and Palatnik were just using the trappings of a start-up to run an old-time scam: lying to investors to take money for themselves,” said Manhattan U.S. Attorney Audrey Strauss.

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The unsealed indictment alleges that CanaFarma, which was listed on the Canadian Stock Exchange in March 2019, marketed itself to the investors as a “fully integrated cannabis company addressing the entire cannabis spectrum from seed to delivery of consumer products” but Fargesen and Palatnik exercised full control of the company and hid that power from the investors.

According to the indictment, Fargesen and Palatnik convinced an unnamed businessman to falsely present himself to the market as the CEO of the company.

It is further alleged that Fargesen and Palatnik raised funds from investors with false and misleading representations concerning the company’s management, products, and financials, manipulated the public stock price and pocketed at least US$4 million ($4.9 million) of CanaFarma funds for their own benefit.

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The duo purchased a Canadian shell company through a straw purchaser, directed the reverse merger of the shell company and CanaFarma to exercise secret control of the resulting publicly-traded company, elected a nominal CEO who reported directly to Fargesen and Palatnik and made false statements to CanaFarma’s auditors, according to the indictment.

In a parallel action, the U.S. Securities and Exchange Commission is also charging Fargesen and Palatnik with fraud. Filed in U.S. District Court for the Southern District of New York, the SEC’s complaint charge CanaFarma, Fargesen, and Palatnik with violating antifraud provisions of the federal securities laws.

The SEC is seeking permanent injunctions, disgorgement and prejudgment interest, and civil penalties against the defendants, as well as officer-and-director and penny stock bars against them.

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In June, Vertical Wellness, a U.S. company specializing in cannabinoid-based wellness and health products, announced it would be merging with CanaFarma, making Vertical Wellness the first house of CBD brands to go public.

Smoke Wallin, chairman and chief executive of Vertical, told Market Watch that he and his team were “blindsided by the fraud charges.” The merger has not been finalized.

“Neither Vertical Wellness nor any of our advisers, attorneys, or those we work with every day, had any prior knowledge about this situation,” Wallin told Market Watch in a statement. “We hope that CanaFarma can work through these issues and the truth will subsequently come to light.”

CanaFarma shares were trading at 6 cents on Friday morning, down from a high of $1.23 a share in May 2020.

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SOURCE: https://www.thegrowthop.com/cannabis-news/canafarma-co-founders-charged-with-securities-fraud-in-scheme-to-defraud-investors