Cannabis Investors Defrauded in Offering

Actions centered on offering frauds are one of the most prevalent types of enforcement cases brought by the Commission. They come in all forms and types. The interests being sold to investors range from securities to tickets to hard to get Broadway plays. The common denominator, of course, is that there is something about the solicitation that draws the investor in, appealing to them in a way that makes the offer “to good to be true” in a manner that makes it a “got to have” item. The Commission’s most recent case in this area is not difficult to understand – it offers the opportunity to invest in the cannabis industry. SEC v. Newell, Civil Action No. 5:24-cv-01524 (C.D.Ca. Filed July 22, 2024).

Named as defendants in the case are Robert Newell and Black Hawk Funding, Inc. Mr. Newell is the founder of Black Hawk and served as its CEO during the time period here. The company had a dual headquarters in Coeur d’Alene, Idaho and La Quinta, California. The firm managed various private funds and assets.

Defendants began business operations in 2011. They made loans for real estate transactions. Black Hawk, controlled by Mr. Newell, managed, or had an ownership interest in, dozens of affiliated entities. The firm served as an investment adviser. The business struggled.

In 2016 Mr. Newell decided to shift the business approach for Black Hawk. Moving forward the firm and some of its entities would invest in cannabis and sell shares to investors. Over the next three years, investors were offered interests in three private funds invested in the cannabis industry. There was the potential for 10% returns.

During the period over $37 million was raised from over 200 investors who understood their money would be used for the benefit of the funds. Not so. Much of the money was diverted to the personal use of Mr. Newell. Portions were diverted to make Ponzi type payments. Other segments were diverted to the personal interests of Mr. Newell who misappropriated part of the investor funds while comingling other segments with other funds. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) as well as Advisers Act Sections 206(1), 206(2) and 206(4).

Black Hawk settled with the Commission. The firm consented to the entry of permanent injunctions based on the Sections cited in the complaint. The firm also agreed not to participate in the issuance, purchase, offer, or sale of any security. See Lit. Rel. No. 26053 (July 23, 2024).