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MedBox Officers Charged with Fraud by SEC

Cannabis vending machine company MedBox have been charged by the Securities and Exchange Commission for misleading investors by creating a shell company to report “bogus” sales, according to the complaint, filed Mar. 11 in the U.S. Central District Court of California.

The SEC alleges that Medbox founder Vincent Mehdizadeh formed a shell company called New-Age Investment Consultant in 2012 and proceeded to transfer 226,000 Medbox shares he controlled to the company, drafting false documents to “paper up the transaction and create the false appearance that New-Age had paid or provided services valued at $522,000 when in truth, New-Age had paid nothing for those shares.”

Mehdizadeh then sold those shares through transactions that led the shares – which were restricted securities not eligible for public sale – to being sold in the public market. Mehdizadeh is accused of selling New-Ages remaining 50,000 Medbox shares for $1.1 million in 2014, which he funneled back through Medbox in exchange for services and equipment that never occurred and he never owned, the complaint alleges.

“Bogus revenues from these transactions, which Medbox falsely described in SEC filings as transactions with a ‘non-affiliated shareholder,’ amounted to nearly 90 [percent] of Medbox’s reported revenue in the first quarter of 2014,” the complaint says.

“As alleged in our complaint, investors were misled into believing that Medbox was a leader in the burgeoning marijuana industry when the company was just round-tripping money from illegal stock sales to boost revenue,” Michele Wein Layne, director of the SEC’s Los Angeles Regional Office said in a Fresh Toast report.  

The complaint also includes Yocelin Legaspi, Mehdizadeh’s former fiancé and New-Age CEO, and Bruce Bedrick, former MedBox CEO, who the SEC claims were both complicit in the scheme. Bedrick is accused of profiting from the scheme by selling 710,000 shares of Medbox for $6,483,180.

Subject to court approval, Mehdizadeh has agreed to pay more than $12 million in a settlement with the government and is barred from serving as a director or officer of a public company or participating in penny stock offerings.

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