Securities fraud and hemp: two Russian-speaking immigrants arrested in New Jersey

Igor Palatnik and Vitaly Fargesen misappropriated about $ 4 million of investors' funds, reports Attorney's Office for the Southern District of New York.

The disclosure of the indictment has also been announced, in which Fargesen and Palatnik are accused of fraud securities, electronic fraud and related crimes in connection with their fraudulent scheme defrauding investors at CanaFarma Corp. and later CanaFarma Hemp Products Corp... (together "CanaFarma"). Both are accused of fundraising based on false and misleading claims, failing to invest the investor's funds as promised. Allegations also include manipulating the public price of CanaFarma shares and secret misappropriation of millions of dollars in CanaFarma funds. The case is assigned to US District Judge Loretta A. Presca.

Manhattan Attorney Audrey Strauss said: “Vitaly Fargesen and Igor Palatnik presented themselves as entrepreneurs developing new businesses for a growing industry. But Fargesen and Palatnik allegedly simply used startup attributes to conduct a long-standing scam. They lied to investors to get their money. "

FBI Deputy Acting Director Michael J. Driscoll said: “The defendants allegedly lured investors into CanaFarma by falsely presenting the company's financial results. According to Driscoll, they manipulated the stock price and misappropriated millions.

According to the charges in the indictment:

From approximately March 2019 to March 2020, CanaFarma was a privately held corporation in Delaware with offices in Manhattan, New York. Since approximately March 19, 2020, CanaFarma has been listed on the Canadian Stock Exchange. And since March 23, 2020, CanaFarma has been listed on the Frankfurt Stock Exchange.

CanaFarma has positioned itself among investors as "a fully integrated cannabis company that deals with the entire spectrum of cannabis, from seeds to consumer goods delivery."

Fargesen and Palatnik, who positioned themselves as senior vice presidents at CanaFarma, effectively controlled the company. But they hid their control from investors and convinced the experienced businessman to introduce himself as CanaFarma's CEO, even though he was not.

Using their control over CanaFarma, Fargesen and Palatnik devised and implemented a scheme to defraud CanaFarma investors. They extorted more than $ 14 million in cash, including an investment in private equity in CanaFarma. They made false and misleading statements about the company's management, products and finances.

The defendants did not fulfill their promise to make a profitable investment of the investor's funds in accordance with the agreement. They manipulated the public price of CanaFarma shares in order to promote schemes to deceive investors and enrich themselves. They secretly embezzled at least $ 4 million from CanaFarma funds for their own benefit.

Fraud scheme

Fargesen and Palatnik implemented this scheme by: (a) buying a Canadian shell company through a phony buyer; (b) directing the reverse merger of the shell company and CanaFarma to exercise covert control of the newly formed publicly traded company; (c) control of CanaFarma through a nominee CEO who reports to Fargessen and Palatnik; (d) maintaining the price of CanaFarma shares through manipulative trading; (e) attempts to artificially inflate CanaFarma's reported earnings; (f) false statements to CanaFarma auditors.

Fargesen, 52, and Palatnik, 47, both from New Jersey, face one count of conspiracy to commit securities fraud. This clause carries a maximum penalty of five years in prison. One count of securities fraud. The charge carries a maximum sentence of 20 years in prison. One charge of conspiracy to commit electronic fraud. The maximum sentence on this charge is 20 years in prison.

The latest charge of electronic fraud carries a maximum sentence of up to 20 years in prison. The maximum possible sentence in this case is set by Congress and is provided here for informational purposes only, because any sentence to the defendant will be determined by the judge.

Ms. Strauss praised the FBI's investigative work. She thanked the Securities and Exchange Commission, which filed a civil suit against the defendants, for helping with the investigation.

The case is overseen by the Securities and Commodity Fraud Office Task Force. The prosecution is led by Assistant US Attorneys Gina Castellano and Andrew Thomas.

But the charges contained in the indictment are just charges, and the defendants are presumed innocent until proven guilty.