SEC Alleges Pyramid Scheme Run by Fraudulent Cannabis Business Executives in California, Washington
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SEC Alleges Pyramid Scheme Run by Fraudulent Cannabis Business Executives in California, Washington

All told, $4.85 million was tied up in Green Acre Pharms, a licensed cannabis business that never generated returns for investors.

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January 31, 2020

The U.S. Securities and Exchange Commission has filed a lawsuit against two apparent business owners, Guy Scott Griffithe of California and Robert William Russell of Washington, both of whom stand accused of running a pyramid scheme on at least 25 investors across more than two years. All told, the pair raked in $4.85 million to support a licensed Washington cannabis business that, somehow, never existed in the first place.

According to the SEC’s Jan. 21 complaint, hatched a plan in 2013 to raise funds for a cannabis business in Washington’s soon-to-be legal adult-use cannabis market. By August 2015, they had secured a license for a company called SMRB (doing business as Green Acre Pharms). “Investors were told that their investment capital would be used to operate and improve SMRB’s cannabis business and that SMRB’s resulting profits would be distributed to them quarterly in proportion to the equity they purchased,” the SEC complaint states. “[Griffithe and Russell] sold securities interests to investors that were fictitious and essentially worthless. The investors did not actually acquire any bona fide ownership stake in SMRB.”

Read the full civil complaint below.

Over the period from August 2015 to December 2017, Griffithe routinely placated investors with email updates and in-person meetings. Occasionally, the two defendants would set up tours of the Green Acre Pharms facility in Anacortes, Wash., pointing out “obsolete or surplus equipment and fixtures that [Russell] falsely said were going to be installed when he received money from their investors.”

All along, though, the money was going into Griffithe and Russell’s pockets. Reported personal purchases include: a 2008 Bentley Continental, a 2012 Mercedez Benz C Class, a 2013 Ford Mustang, a 2015 Porsche Panamera, a $250,000 payment toward a 65-ft. Pacific Mariner yacht and a $25,000 payment toward a 42-ft. Hydrasport custom power boat.

To continue the ruse, Griffithe cut checks to his investors from his own bank account—“just money that I’ve come up with in closing other deals,” he told Russell. More often than not, this was money “obtained from selling SMRB securities to investors” in the first place, according to the complaint.

"As alleged in our complaint, Griffithe and Russell exploited popular interest in the cannabis industry to obtain millions of dollars from investors who thought they were buying into a profitable business," SEC Associate Director Melissa R. Hodgman, said in a public statement. "Instead, Griffithe and Russell deceived investors and used the money to enrich themselves." 

In late 2018, the SEC issued a warning about investment fraud and the rising interest in the “hot” cannabis industry. “If someone promises you a guaranteed high rate of return on your investment, especially along with a claim of no risk, it likely is a fraudulent scheme,” according to the commission. 

At one point in Griffithe and Russell’s scheme, in November 2017, Griffithe wrote in an email update to investors: “We are working with a 40% profit margin about (sic) acquisition, packaging and distribution to the retailers. This along with the flower will move us into the gross revenue range of 1.3-1.4M per month with profits at 40-42%. WE ARE HERE!!!!!!”

SEC v. Griffithe et al. by sandydocs on Scribd