Two executives from CanaFarma – a North American entry into the cannabis industry traded on the Canadian and Frankfurt stock exchanges – were charged with securities and wire fraud in a US federal grand jury indictment unsealed this week.

The company is now the subject of civil action by the Securities and Exchange Commission as well.

Misappropriation of investor funds for personal use, manipulation of share prices, inflated reported financials and the use of a puppet CEO were alleged in the federal district court documents and an SEC complaint.

The company’s senior vice presidents Vitaly Fargesen and Igor Palatnik, both from New Jersey, are alleged to have appropriated at least $4m (£2.9m) for personal use, of the more than $14m (£10.3m) they received in investor funds, and to have “exercised secret control” while the company was ostensibly run by CEO David Lonsdale.

“Vitaly Fargesen and Igor Palatnik presented themselves as entrepreneurs developing a new business for an emerging industry,” said US Attorney Audrey Strauss. “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.”

String of alleged misdeeds

Fargesen and Palatnik are accused of misrepresenting the nature of the business, which marketed itself as having control of its product “from seed to counter,” as they used third-party ingredients and products rather than being vertically integrated…

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