SEC Requests Injunction Against Participant in the Marijuana Business

On February 29, 2016 the Securities and Exchange Commission (“SEC”) filed a complaint in the U.S. District Court for the Western District of Pennsylvania against Fortitude Group, Inc. and CEO Thomas Parilla (“Defendants”), regarding alleged false and misleading public press releases regarding the company’s efforts and performance as a successful marijuana-related business. The SEC requested an injunction from further misrepresentation and the payment of penalties by the defendants, as well as a penny stock and officer and director bar against Parilla.

According to the allegations in the Complaint, Defendants between February 2014 and May 2014 circulated several press releases on portraying the company as active in the legalized marijuana business. Via press releases, Fortitude announced the formation of three new subsidiaries, described two separate plans to issue various pre-paid debit cards that could be used for marijuana transactions, and announced the distribution of a marijuana vaporizer. For the first quarter of 2014, Fortitude reported $412,162 in revenue.  The day Fortitude disclosed its plans for three new subsidiaries, the company’s stock price increased 4900% to $0.01 per share and the volume increased three-fold to over 132 million shares. The price of shares continued to increase, peaking at $0.08 per share on April 4, 2014, two days after the press release regarding Fortitude’s plan to distribute vaporizers.

The SEC alleged that Defendants violated Rule 10b-5 and aided and abetted violations of the rule.  The SEC contended that none of the business pursuits reported in the Defendants’ press releases were executed and Fortitude lacked the requisite licensure, funding, or infrastructure to realize them. Also, that the revenues reflected in Fortitude’s first quarter report were false.  Additionally, that Fortitude’s stock price and trading volume between February 2014 and May 2014 were materially impacted by the public dissemination of the aforementioned misrepresentations. 

To prevent continued violation by the defendants, the SEC requested the court issue an injunction from violation of the federal securities laws alleged and an order for the defendants to pay civil money penalties pursuant to Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3).  The SEC also requested Parilla be barred from future offering of a penny stock as well as from acting as an officer or director of any issuer of registered securities.

The primary materials for this case can be found on the DU Corporate Governance website.

Elaine Nolen