The maturation of the Oregon cannabis industry in the past few years has been accompanied by a tremendous increase in mergers and acquisitions and a flood of investment capital into the marketplace.  Not surprisingly our commercial litigators have seen a marked increase in the number of securities lawsuits both here in Oregon and elsewhere.  As we’ve written about extensively, there is a right way and wrong way to raise capital – whether for marijuana or hemp – and all too frequently we see businesses issue “securities” without taking the appropriate steps to ensure compliance with securities laws or investors get fleeced.

An investor lawsuit recently filed in Multnomah County alleging causes of action under Oregon Securities Laws highlights risks to companies, their owners, and investors. The case is Chung v. Martin et al. (Feel free to email me if you’d like a copy of the complaint). Plaintiff David Chung and his company Elevated Society LLC (together “Plaintiffs”) contend that Defendants Martin, Woodruff, We Clone LLC, and We Close Prospect LLC (together “Defendants”) sold unregistered securities in violation of Oregon law and made untrue statements in connection with the sale of securities in violation of Oregon law. According to Plaintiffs, Defendants invited investors to purchase up to 40 units of We Clone LLC at an issue price of $50,000 per unit to raise up to $2,000,000 and promoted the investment through advertisements on, videos posted on the internet, and communications with Plaintiffs.

Defendants represented that We Clone LLC would be growing and selling high-quality hemp clones and flowers. Plaintiffs allege Defendants “urged” Plaintiffs to “hurry and invest” as only a limited number of units were available, though in fact no units had been purchased. Defendants promised quarterly payments of profits and issued a private placement memorandum (“PPM”) that included boilerplate securities disclosures. Chung made a $200,000 investment and signed a subscription agreement but received no other documentation of his ownership of the LLC units. He later received a Certificate of Ownership – but for the wrong company.

The Complaint offers a litany of alleged untrue statements and omissions of material fact related to the offer and sale of membership units. These include that We Clone was actually growing hemp outdoors, not indoors as represented; that Plaintiffs needed to act quickly to purchase the units; that other investors had purchased units when no such units had been purchased; that Defendants needed to raise $2 million to make their “scheme” viable; that Plaintiffs would be investing in a “fully operational business” when in fact We Close was not fully operational; that We Clone would be paid for consulting, when in fact only Martin’s other companies were paid for such consulting; that We Clone had a functioning e-commerce platform, when no such platform existed . . . and many other alleged misrepresentations and omissions.

The lawsuit pleads three claims under Oregon securities laws and seeks to hold the individual defendants personally liable along with the defendant companies. Our readers who own or operate companies seeking investment should take note of this: liability for fraud under the Oregon Securities Laws extends very broadly!  For our investor-readers, you may have more power than you think. As always, we are here to help.

For more reading on cannabis securities and the latest on SEC rule updates and cannabis, see:

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