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Former CannTrust Officials Charged with Securities Act Offenses

Former CannTrust officials have been charged for making efforts to conceal the illegal growing of cannabis at CannTrust facilities over a 10-month period—the investigation ultimately forced the company to destroy $65 million worth of inventory.

Full story after the jump.

The former CEO, vice chairman, and a member of the board of directors for Canadian licensed producer CannTrust Holdings have been charged with fraud, making false statements to authorities, and authorizing, permitting, or acquiescing in the commission of an offense, the Ontario Securities Commission (OSC) announced on Tuesday.

Former Chairman Eric Paul and former Vice Chairman Mark Litwin were also charged with insider trading. The charge was not applied to former CEO Peter Aceto.

The allegations relate to efforts to conceal the illegal growing of cannabis at CannTrust facilities over a 10-month period in 2018 and 2019. The investigation ultimately forced the company to destroy $65 million worth of inventory, the suspension of sales and shipments by the company, a quarantine of the company’s products by a Danish company, and a license suspension that was lifted for one of the firm’s facilities last year.

The OSC said that in press releases, corporate disclosures, analyst calls, and prospectuses, the company officials asserted that CannTrust was compliant with regulatory requirements, and they included all cannabis production in the company’s financial statements, without stating that half was grown without a license.

Additionally, Litwin and Aceto are accused of signing off on prospectuses used to raise capital in the U.S. which stated that CannTrust was fully licensed and compliant with regulatory requirements in Canada. Litwin and Paul also allegedly traded shares of CannTrust while in possession of the otherwise undisclosed information regarding the unlicensed cultivation.

Jeff Kehoe, director of enforcement at the OSC, said the case “demonstrates how the OSC’s quasi-criminal team, working closely with policing partners, is evolving to focus on more complex cases involving senior-level market participants, in addition to fraudsters and repeat offenders.”

The attorneys for all three men told Bloomberg that they would fight the charges.

Aceto’s lawyer, Frank Addario of Addario Law Group LLP, told Bloomberg that the former CEO would plead not guilty and that “the evidence will show that he acted with integrity at all times.”

Litwin’s lawyer, Scott Fenton of Fenton, Smith Barristers, told Bloomberg that his client “intends to vigorously dispute the charges that have been made against him.”

Paul’s lawyer, Paul Le Vay of Stockwoods Barristers, said he and his client “look forward to vigorously defending … the charges and answering the allegations,” in an interview with Bloomberg.

The men are scheduled to appear in court for the charges on July 26.

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