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Two men indicted for fraud linked to public hemp CBD companyTwo men indicted for fraud linked to public hemp CBD company

CanaFarma billed itself as a vertically integrated company that produced hemp-based products from seed to sale. A federal grand jury charged the operation was more of a shell game using third-party vendors.

October 14, 2021

3 Min Read
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A hemp CBD company listed on both the Canadian and Frankfurt stock exchanges was a vehicle for securities and wire fraud, according to an indictment recently returned by a federal grand jury in New York.

Vitaly Fargesen and Igor Palatnik, both of New Jersey, are accused of soliciting funds based upon false and misleading representations of their company, CanaFarma. The two also are charged with failing to invest solicited funds as promised and manipulating the public stock price of the company, according to a now-unsealed indictment handed down by a grand jury in the Southern District of New York.

According to the indictment, the men raised more than $14 million, including investments in private shares of CanaFarma, and used at least $4 million of that company money for their own personal benefit and to further the alleged scheme.

CanaFarma initially sold a hemp-infused chewing gum under the brand name Yooforic, and later added hemp-based tinctures and skin creams. While the company marketed itself as a “fully integrated cannabis company addressing the entire cannabis spectrum from seed to delivery of consumer product,” in reality, all of the products came from third-party vendors, the indictment alleges.

Through a New York hemp grower, the company harvested 128,000 pounds of hemp in 2019, but didn’t process or sell any of it, or use it in any product, prosecutors alleged. The company never built a hemp processing plant, despite claims to investors that the business plan included having a “Fully Certified Clean Processing Facility.”

The execution of complex financial transactions and improper reporting to cover their tracks allegedly was carried out by Fargesen and Palatnik, as well as two co-conspirators not named as defendants. The cooperation of the co-conspirators is key to many of the charges laid out in the indictment; both defendants face charges of conspiracy to commit securities and wire fraud, which carry long potential prison sentences.

An attorney for Fargesen, Jeffrey Lichtman, wrote in an email: “We were greatly disappointed to see charges brought here despite cooperating with the government’s many information requests over the past year or so.”

He continued, “As will be revealed at trial, the government’s indictment relies almost exclusively on two rogue employees who managed to loot the company before running into the arms of the government and admitting their own fraud.”

An attorney for Palatnik did not respond to a request for comment.

In a press release detailing the indictment and arrests of the CanaFarma principals, FBI Assistant Director-in-Charge Michael J. Driscoll is quoted as saying, “Just as a reminder to anyone who thinks they can manipulate people’s investments in this way—that’s simply not the case.”

Recent public deals

Just last month, CanaFarma announced that it intended to make an acquisition in the dietary supplement and functional foods space, agreeing to purchase Avitas Bio Corp., a company with proprietary nutraceuticals and healthy snacks in the branded health and wellness arena. Avitas Bio created the VitaWin Healthy Snacks line—premium chocolate candies, confectionery and other food products infused with CBD.

And in June, high-profile health and wellness company Vertical Wellness—backed by former Sports Illustrated swimsuit model-turned-entrepreneur Kathy Ireland—agreed to merge with CanaFarma, creating a company that would be managed by Vertical Wellness CEO J. Smoke Wallin. The merger was pitched as making Vertical Wellness “the first house of CBD brands to go public,” due to CanaFarma’s position on the Canadian Securities Exchange.

Vertical Wellness did not respond to an email seeking information about the status of the proposed merger.

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