First defendant in $14 million CBD scam sentenced to 6½ years in prison and fined $1.7 million
On January 16, 2024, Igor Palatnik, the first defendant in a $14 million CBD scam, was sentenced to 6½ years in prison and fined $1.7 million after pleading guilty to securities fraud conspiracy and wire fraud conspiracy. This marks the end of a case that has rocked the CBD industry and sent shockwaves through the investment community.
The Scam
Palatnik and his co-founder, Vitaly Fargesen of CanaFarma Hemp Products Corp., Vancouver, were accused of misappropriating funds and using a fraudulent business plan and marketing budget to solicit investments in the penny stock company. Prosecutors said the pair swindled investors out of about $14 million, “failing to invest investors’ funds as promised; and secretly misappropriating at least $4 million of CanaFarma funds for their own benefit.”
Guilty Pleas
Both Palatnik and Fargesen pled guilty and faced legal consequences for their actions. Palatnik, 49, from Morganville, New Jersey, received his sentence last week, while Fargesen, 54, from Manalapan, New Jersey, is scheduled to be sentenced on January 30.
Penny Stock Scam
Two other defendants, Frank Barone and Kirill Chumenko, senior vice presidents of sales and marketing at CanaFarma, were charged separately and have been barred from serving as an officer or director of a public company and from participating in penny stock offerings, pending sentencing. CanaFarma, which sells CBD and other hemp-based products, was on the Canadian Securities Exchange, and trading in the company’s shares was halted shortly after the company officials were arrested in Autumn 2021.
Prosecutors’ Statements
According to prosecutors, Palatnik and Fargesen “orchestrated a sophisticated scheme to obtain millions of dollars from investors with the promise that their money would be spent on building a legitimate company” but instead used the funds to manipulate CanaFarma’s stock price and for personal purposes. This led to their guilty pleas and subsequent legal consequences.
Obstruction and Intimidation
Prosecutors revealed that following their arrests, Palatnik and Fargesen twice confronted a confidential government source at a New Jersey Starbucks, using Russian slang to threaten him. Palatnik attempted to obstruct the federal prosecution by intimidating a witness and suborning perjury, leading to a clear demonstration of obstruction of justice.
Truth in Advertising
The case also shed light on how the company executives misrepresented CanaFarma as a fully integrated company that was processing hemp from a company-held farm, when in fact it had not processed any hemp and depended on third-party suppliers. This raised questions about the truthfulness of their business operations and the misleading nature of their investment pitch.
Overall, the CanaFarma case serves as a cautionary tale, highlighting the repercussions of fraudulent activities within the CBD and hemp industry. It also underscores the importance of transparency, honesty, and ethical business practices in the rapidly evolving landscape of cannabis-based products and investments.
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