CV Sciences Inc (OTCMKTS:CVSI)
Michael Mona, Jr., CEO of CV Sciences Inc (OTCMKTS:CVSI) is the subject of a civil action by the U.S. Securities and Exchange Commission (SEC) that includes allegations of accounting fraud regarding the company’s 2013 asset purchase of PhytoSphere Systems from Medical Marijuana (OTCQB:MJNA). Shares of CVSI are down over 18% at $0.247 with less than one hour of trading left. Volumes are heavy. CVSI has a 30-day, daily average volume of 273,000 shares but today over 2.5 million shares have traded hands.
In the SEC complaint, CannaVEST, the precursor to CV Sciences Inc (OTCMKTS:CVSI), reported the acquisition of PhytoSphere Systems LLC. The acquisition included existing rights to hemp production and processing facilities, for $35 million. However, the SEC alleges that Mona knew that the agreed valuation was significantly overstated. The SEC alleges in the complaint that CannaVEST agreed to the inflated valuation because CannaVEST would pay for PhytoSphere Systems with, primarily, shares of CannaVEST which Mona believed had little value at the time.
The SEC complaint goes on to describe the accounting fraud it believes took place. CannaVEST, now CV Sciences Inc (OTCMKTS:CVSI), wrote down the acquisition value to $8 million on the Form 10-Q filed by CannaVEST in their Q# filing. However CannaVEST failed to publicly disclose the inflated valuation. That failure would have led to Q2 and Q3 balance sheets being materially overstated. According to the complaint, in April 2014, at the request of its new auditors, CannaVEST restated the three quarterly filings for 2013 in order to report PhytoSphere’s $8 million value, not the $35 million it had previously reported.
The SEC’s complaint charges CannaVEST with fraud, filing false financial reports, and other federal securities law violations, and seeks a permanent injunction and civil money penalties. The complaint charges Mona with fraud and other violations, including the deceit of auditors, and seeks a permanent injunction, civil money penalties, an officer and director bar, and reimbursement of his $10,000 cash bonus for 2013, as provided for under Section 304(a) of the Sarbanes-Oxley Act.
A review of the CV Sciences Inc (OTCMKTS:CVSI) website revealed no acknowledgement of the SEC complaint or the charges against the CEO. However an announcement was released by the company today that CV Sciences Inc is pursuing an Investigational New Drug application with the FDA for their smokeless tobacco addiction therapy.
I have no positions in any of the stocks mentioned, and have no plans to initiate any positions within the next 72 hours. All information, including any data, is provided without any guarantees of accuracy.
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About the author: James Marion is a University of Houston student studying Business with a concentration in Finance. James has interned with several investment professionals and hopes to pursue a career as a professional stock analyst after graduation.