• March 6, 2024
• WeedGenics

Ponzi schemes are one of the most common kinds of financial fraud. The number of Ponzi schemes worldwide suggests that this kind of scam is seeing a powerful uptick as well. In 2023, 66 Ponzi schemes were discovered, costing investors nearly $2 billion in losses, according to Ponzitracker.com. This total is nearly double the amount of Ponzi schemes in 2021, and represents a 20% increase from the 58 scams uncovered in 2022.

The WeedGenics Ponzi scheme fraud is just one of the many kinds of scams represented by these numbers. If you need help reporting, prosecuting, and recovering from financial fraud, then you should consider speaking to an investment fraud lawyer at Wolper Law Firm today.

Securities and Exchange Commission vs. WeedGenics: Case Background

The Weedgenics case was heard at the US District Court in the Central District of California (Southern Division). The case resulted in emergency relief to stop the flow of cash into the $60 million cannabis scam.

Integrated National Resources Inc (INR), doing business as WeedGenics, raised funds from a slew of investors by promising them shares in cannabis facilities cultivated across multiple states. The investors were promised high returns on their funds; however, their money was instead spent on personal projects by the company’s owners, Rolf Max Hirschmann and Patrick Earl Williams. Both Hirschmann and Williams (i.e. the defendants) have been accused of funneling investor funds into jewelry, clothes, cars, adult entertainment, and real estate through multiple disguised accounts. In actuality, they never owned or operated any cannabis facility.

Hirschmann, the face of the company, used an alias of “Max Bergmann” while communicating with investors. Meanwhile, Williams, the Vice President of WeedGenics, spent investors’ funds on supporting his burgeoning rap career, where he is known online as “BigRigBaby.” After Williams and Hirschmann received investor money, the defendants transferred the funds to multiple accounts in order to obfuscate the trail of expenses. Approximately $16 million of the investors’ money was spent to pay off other shareholders as sham dividends.

Together, both defendants were able to raise around $61.7 million from 350 investors in the US by claiming that the funds would be used for a cannabis cultivation facility in Adelanto, CA and Las Vegas, Nevada. The investors received falsified proof that showcased how the company was supposedly generating millions in revenue each year, and operating under all proper permits and licensing.

Who Are the Relief Defendants?

One of the most difficult components of SEC enforcement from a Ponzi or pyramid scheme is the recovery of defrauded funds. Many Ponzi scheme perpetrators are no longer in possession of the total sum that they have stolen, as it often gets spent on personal items, or partly paid out to disguise the scam from other investors.

A relief defendant is someone who is named as the recipient of stolen money, and can be ordered to make repayment to the court. Relief defendants are often third parties to the actual fraud. They may be agents, trustees, business partners, employees, spouses, and friends, as well as investors who received sham dividends. They can also be shadow businesses owned by scam artists to shield themselves from any liability. If a relief defendant can illustrate that they have a legitimate ownership claim to the funds, they cannot be ordered to repay them.

Relief defendants named in the Weedgenics case include:

• West Coast Development LLC (“WCD”): WCD is a Wyoming limited liability company (LLC) formed in April 2019, and solely managed by Williams.
• INR Consulting LLC (Wyoming Entity) (“INR Consulting/Williams”): Another Wyoming LLC, INR Consulting is also solely managed and operated by Williams.
• Oceans 19 Inc. (“Oceans 19”): Oceans 19 is an internet marketing and consulting corporation, with Hirschmann as the sole owner.
• Autobahn Performance LLC (“Autobahn”): A Wyoming LLC, with Hirschmann and his wife as signatories on Autobahn accounts.
• One Click General Media Inc. (“One Click”): A since-dissolved Nevada corporation with Hirschmann as the president.
• Opus Collective (“Opus”): Opus is a Wyoming corporation that was formed in July 2020. Hirschmann is the sole owner and president/director of Opus, and he and his wife are signatories to the company’s bank accounts.
• John Eric Francom (“Francom”): A resident of Forney, Texas, age 40.
• INR-CA Investment Holdings, LLC (“INR-CA”): A Delaware LLC formed in 2022, with Francom as the sole authorized signatory to the account.
• Michael Delgado (“Delgado”): A resident of Orange, California, age 41.
• Total Solution Construction LLC (“Total Solution”): A California construction company, Delgado is the sole manager of Total Solution and sole signer on the company’s bank accounts.
• Bagpipe Holdings LLC (“Bagpipe Holdings”): A Wyoming LLC, also managed by Delgado.
• Bagpipe Multimedia LLC (“Bagpipe Multimedia”): A California LLC, also entirely operated by Delgado.
• Tyler Campbell (“Campbell”): A resident of Norwalk, California, age 35.
• INR Consulting LLC (California Entity) (“INR Consulting/Campbell”): Campbell is the sole manager and chief executive officer of this California LLC.
• Hidden Springs Holdings Group LLC (“Hidden Springs”): A California LLC, solely managed by Tyler Campbell.
• Alexandria Porter Bovee, also known as “Aia Montgomery” (“Bovee”): A resident of Las Vegas, Nevada or Dalzell, South Carolina, aged 31.

Alexandria Bovee: FINRA Findings

One of the relief defendants Alexandria Porter Bovee (also known as Aia Montgomery) began communicating with INR investors in 2022 about major changes coming up in the company. She was a general securities representative, registered with FINRA through member firm Edward Jones. Ms. Bovee alerted investors that due to an upcoming public offering, their funds would be necessarily restructured. She communicated that withdrawal of their funds from INR would not be possible, and instead, they would be eligible to receive “preferred stock,” or a gradual return of their principal investment over the years.

In return, Ms. Bovee received around $715,000 of investors’ funds. She has since filed for termination and forfeited her FINRA license after the SEC’s investigation into Weedgenics found that her role was in violation of FINRA rules and federal securities laws.

Edwards Jones’ Role in the Weedgenics Ponzi Scheme

Edward Jones is the former employer of Alexandria Bovee, implicated in the Weedgenics Ponzi scheme. Edward Jones is a registered FINRA member firm (CRD No. 250).

In order to file a lawsuit to recover funds stolen by Williams and Hirschmann, a firm would likely name Edward Jones, the brokerage firm, as a defendant, and may be held liable for Ms. Bovee’s actions as her employer.

How Were the Weedgenics Investments Made?

The Weedgenics investments were backed up with false information in order to lure backers into the Ponzi scheme. The defendants used fake licenses, financial records, and photographs of their supposedly profitable cannabis farm locations. Hirschmann also used the fake persona of Max Bergmann to communicate with investors in order to try to create the illusion of legitimacy and show there were more employees involved with the company.

How Did the Weedgenics Defendants Misrepresent to Investors?

The Weedgenics defendants made material misrepresentations to the investors about both the success as well as the lawful status of INR’s cannabis facilities. The investors’ funds were put into multiple accounts controlled by the defendants, while telling investors that their money would be used to expand their cannabis facility.

What Relief Did the Court Grant in this Case?

Rule 10b-5 created under the Securities Exchange Act of 1934 prohibits the employment of manipulative and deceptive devices in connection with the purchase or sale of any security. Accordingly, the defendants Williams and Hirschmann have been enjoined from directly or indirectly participating in the issuance, purchase, offer, or sale of any security in an unregistered offering by any issuer.

Under Rule 10b-5 as well as Section 17(a) of the Securities Act of 1933, relief has been granted against all defendants for fraud in the offer and sale of securities. The court has ordered the defendants (INR, Williams, and Hirschmann) to jointly and severally disgorge their gains and the funds that they received.

What is a Ponzi Scheme?

A Ponzi scheme is a kind of securities fraud named after the original criminal, Charles Ponzi. It refers to the structure of a financial scam that cannot pay investors with anything other than new funds procured from more victims. Eventually, the operations cannot find fresh money, and it collapses in on itself.

Are Ponzi Schemes Legal?

No. Ponzi schemes, pyramid schemes, and multi-level marketing scams are all illegal under US securities law. Ponzi schemes are a misrepresentation of material facts surrounding the investment opportunity, and are prosecutable under federal law.

Ponzi Scheme vs. Pyramid Scheme

Ponzi schemes and pyramid schemes share many elements, but Ponzi schemes are often harder to spot. In Ponzi schemes, investors pay into an investment opportunity that may not exist, or may not generate enough revenue to pay out genuine dividends, all while promising significant returns. Funds are then paid to other investors in order to keep the enterprise afloat for a time, while the rest is usually pocketed by the perpetrators.

In pyramid schemes, the opportunity may or may not be genuine, but there is more pressure on each new investor to find subsequent participants and “sell” to friends and family members.

Signs of Ponzi Scheme

The following are some of the common warning signs of a Ponzi scheme:

• Offering high returns with little or no risk: All investments involve some degree of risk, and there is no such thing as a “sure bet” in financial markets.
• Consistent flow of returns: Returns in a Ponzi scheme are usually funded by other investors’ payments. While they may seem secure for a time, they eventually dry up without new investments. Pressure to recruit new investors, or facilitate pitch meetings, may be a sign that an investment opportunity is not legitimate.
• Secret or complicated investment strategies: Never agree to a financial prospect that you do not fully understand.
• None or invalid license and registration documents: Tools like the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck and the Security and Exchange Commission’s (SEC) EDGAR database can help verify that relevant registrations are accurate and up to date.
• Lack of transparency with paperwork: Poor record keeping or missing information may be a technique to hide wrongdoing.
• Deviations from standard accounting methods: Most legitimate enterprises use standardized accounting methods in order to make it easier for investors and auditors to assess their financial status. Deviations from generally accepted accounting principles (GAAP) are often an attempt to purposefully obscure figures.
• No cash outs: Most Ponzi schemes fall apart quickly without investor funds, meaning that scam artists will do almost anything to prevent you from withdrawing your principal investment. Some fraudsters will promise very high returns if you agree to wait to receive a cash out, or may stop paying disbursements after a period.
• Corporate governance issues: A functioning board of directors and trustworthy governance is often the sign of a healthy corporation. In the Weedgenics case, the scam artists behind the Ponzi scheme used fake names like “Max Bergmann” in order to make it seem that the company had a more extended governing structure than it really did.

I Lost Money in a Ponzi Scheme: What Should I Do Next?

If you lost money in a Ponzi scheme, know that there is help available. Here are some of the steps you may take:

1. Gather as much information as possible: For the purpose of collecting evidence for your claim, gather as much information as possible. Save voicemails, print out emails, and ensure you have your full financial records accessible to you, as well as documentation of any claims, offers, or communication involving the scam.
2. Summarize all evidence collected: Your evidence might include notes on the investment strategy, names of top managerial personnel, bank account info, and more.
3. Store all evidence gathered in a safe location: Make digital records as well as keep hard copies of evidence gathered. You might keep a file in a safe deposit box, or locked up in a home office.
4. File a police report: Financial fraud is a crime, and filing a police report can ensure that your claim is entered into record with a law enforcement agency.
5. Contact a Ponzi scheme fraud attorney: Speaking with an experienced attorney who understands how to handle investment fraud can strengthen your claim.

When Should I Call a Ponzi Scheme Fraud Lawyer?

The sooner you are in contact with a Ponzi scheme fraud lawyer, the better. Speaking to an attorney as soon as you suspect financial fraud is the best way to minimize your losses and build the strongest possible case for recovery.

Wolper Law Firm has a 99% successful recovery rate for our clients. We have decades of experience in fighting financial fraud and ensuring that our clients are not the ones left holding the bag when a Ponzi scheme implodes. Our firm can help you recover damages and ensure that no legal avenue is overlooked.

Contact a Ponzi Scheme Fraud Lawyer at Wolper Law Firm Today

Wolper Law Firm is available today for a complimentary consultation regarding the facts of your case. If you have been the victim of a Ponzi scheme, you do not have to simply accept your loss. Being taken advantage of by your financial advisor pitching you nonexistent investment opportunities is a crime. Let our team help you recover your losses. Contact us today for more information on how we can help.