A 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 of two of his companies.
Avtar Dhillon previously established and operated marijuana-growing facilities in Richmond and Delta with Emerald Health Therapeutics Inc., whose board he chairs.
However, while he was establishing greenhouses in Canada, between 2017 and 2020, the U.S. Securities and Exchange Commission was investigating Dhillon for alleged fraudulent transactions.
On Wednesday, Dhillon was arrested while residing in Long Beach, California, according to the U.S. Attorney’s Office (USAO) of the District of Massachusetts. 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 the chairman of the board of directors and then secretly directed the shares’ sale, generating approximately $2.19 million in proceeds,” according to the USAO.
Dhillon is alleged to have used a lawyer – not named by the USAO – to conceal ownership of shares for Boston-based Arch Therapeutics and New Jersey-based OncoSec Medical Inc., two microcap biotechnology companies he was chairman of the board for between March 2011 and April 2020.
Directors are supposed to disclose all the shares they own and have restrictions on their sale. Concealing the insider sales could have the effect of not negatively impacting the share price.
Investigators with the Federal Bureau of Investigation (FBI) allege Dhillon and his lawyer made false representations for millions of shares.
The lawyer put those shares into two LLCs then had another law firm provide a legal opinion (based on alleged misrepresentations) to a broker that the shares could be deposited into a brokerage account without restrictions. Upon their subsequent sale, the lawyer transferred the cash to suspected beneficiaries of Dhillon.
“The timing and manner of the sales, along with the beneficiaries of the proceeds, reflect that Dhillon was closely involved with the sales and that the proceeds were distributed primarily for Dhillon’s benefit.
“Brokerage records, phone records, and emails indicate that [the lawyer] was thereafter in frequent and close contact with Dhillon immediately before placing sale orders for Arch Therapeutics shares,” states the FBI’s affidavit.
From his allegedly hidden Arch Therapeutics share sales, Dhillon allegedly generated $1.3 million.
The largest recipient of the proceeds was an individual who helps manage Dhillon’s rental portfolio, stated the affidavit. That recipient took $645,000 and distributed the money to another company for which Dhillon is the managing member.
From his allegedly hidden OncoSec share sales, Dhillon allegedly generated $821,000 with a similar process.
The FBI also alleges Dhillon interfered with the SEC investigation.
Furthermore, “based on the evidence described herein, I have probable cause to believe that … Dhillon obstructed the SEC’s Boston investigation by providing false and incomplete information regarding his beneficial interest in the shares sold,” states the investigator.
Also, Dhillon told investigators in July 2020 that he understood insider disclosures, although he didn’t file with the SEC to reflect the LLC sales.
Notably, Dhillon was a member of the Securities Practice Advisory Committee to the B.C. Securities Commission from July 1998 to September 2001. Since then he has directed over a dozen small, public companies (mostly in health sciences).
One of those is Vitality Biopharma Inc., an over-the-counter listing Dhillon co-founded and directed. Viality was halted by the SEC in November 2018 after being tied to Roger “Rocket” Knox, a financier and promoter who pleaded guilty to a $164 million pump and dump scheme in September 2020.
“Knox helped facilitate pump-and-dump, and other market manipulation schemes, by selling massive quantities of microcap securities on behalf of ‘control groups’ who secretly owned the stock through nominee shareholders, and who simultaneously orchestrated promotional campaigns and other efforts to artificially inflate the price and trading volume of those shares,” stated a DOJ press release.
Dhillon was not personally implicated in the Knox case and resigned from Vitality’s board in April 2019.
Dhillon is best known in Vancouver for his most recent stock promotion, Emerald Health Therapuetics Inc.
In September 2019, Emerald successfully sued the City of Richmond in B.C. Supreme Court after the city attempted to stop Emerald from building a marijuana greenhouse on the Agricultural Land Reserve in east Richmond.
Dhillon described himself then to the Richmond News as a farmer, coming from a family that owns about 2,000 acres of land in B.C. 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 Richmond greenhouse.
Emerald now trades for $0.17 per share, in the wake of a speculative, market-wide Canadian pot stock boom between 2017 and 2019, when the stock reached $8.45.
In 2020 the company recorded $14.3 million in revenue but recorded a net loss of $43.5 million (afer 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 statement. “Emerald expects that the listing of its common shares on the Canadian Securities Exchange will result in lower filing, compliance, legal and other fees, and provide the Company with increased flexibility to conduct business in the United States and other jurisdictions outside of Canada.”
Emerald has yet to issue a disclosure statement on Dhillon. Its board also includes pharmacist Bobby Sukhwinder Rai, Dhillon’s nephew and OncoSec founder Punit Dhillon and securities lawyer Jim Heppell, who has spent time with the B.C. Securities Commission.