15. Cannabiz Mobile, Inc. is a corporation purportedly based in Cambridge, Massachusetts, but in reality operated out of shared office space with Lionshare. Cannabiz initially claimed to be in the business of mineral exploration in Brazil and, later, servicing businesses in the medical marijuana industry. It had other names and purported business operations prior to the adoption of its current name, Cannabiz, including ReBuilder Medical Technologies, Inc. ("ReBuilder" from March 2007 through August 2012) and Lion Gold Brazil, Inc. ("Lion Gold" from August 2012 through May 2014). Cannabiz's stock is not registered with the Commission and it has never registered any securities offerings with the Commission. Since at least March 2007, Cannabiz (and its predecessors) has been quoted on the Over-the-Counter (OTC) securities markets ("OTC Markets").
Maybe it's me -- and, yeah, I know, it's often me -- but I'm not all that big of fan of cutesy corporate names like Cannabiz. Of course, that observation comes from the same idiot who uses BrokeAndBroker for a serious website about Wall Street legal/regulatory/compliance matters, right?
1. This case involves Esposito's scheme to defraud investors by misappropriating for his own purposes funds from investors in Lionshare, and concealing his ownership and control of the publicly-traded company Cannabiz in order to enrich himself and others by colluding in the sale of millions of shares of Cannabiz into the public market, in violation of SEC statutes and regulations.
2. Esposito accomplished the first phase of his fraudulent scheme by (a) raising more than $550,000 from investors between June 2011 and June 2012 in an unregistered offering of securities in his company Lionshare; (b) spending almost $300,000 of Lionshare investor funds for unauthorized personal expenses; and (c) using $75,000 of Lionshare investor funds to acquire control of Cannabiz by purchasing all of its convertible debt.
3. In the second phase of his fraudulent scheme, between May 2012 and August 2015, Esposito, with Pignatello, concealed his de facto control of Cannabiz and a large percentage of Cannabiz's securities in order to profit by evading SEC Rule 144 [17 C.F.R. §230.144], which limits securities sales by affiliates, such as control persons. Esposito did this by, among other things, (a) installing Gondolfe as the sole officer and director of Cannabiz-even though Esposito secretly controlled the company-to make false statements in Cannabiz's public filings and other documents; (b) paying third-party stock promoters to tout Cannabiz in order to increase its stock price and trading volume; (c) selling significant amounts of Cannabiz convertible debt to others for almost $304,000; and (d) with Pignatello and Galizio, selling millions of shares of Cannabiz stock directly into the market.
4. The Defendants' conduct violated various registration, disclosure and antifraud statutes and rules and regulations of the SEC, including Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.
5. Based on these violations, the Commission seeks the following relief: (i) entry of permanent injunctions prohibiting Esposito, Pignatello, Gondolfe, Lionshare, and Cannabiz from engaging in future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act; (ii) entry of permanent injunctions prohibiting all Defendants from engaging in future violations of Section 5 of the Securities Act; (iii) an order requiring all Defendants to disgorge their ill-gotten gains and pay pre-judgment interest; (iv) an order requiring all Defendants to pay appropriate civil monetary penalties; (v) an order barring Esposito, Pignatello, and Gondolfe from serving as an officer or director of a public company, pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]; and (vi) an order barring Defendants Esposito, Pignatello, Gondolfe, Lionshare, and Galizio from participating in any offering of penny stock, pursuant to Section 20(g) of the Securities Act [15 U.S.C. § 77t(g)] and/or Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)].
Is that Permanent Bar against Gondolfe the Grey or Gondolfe the White? As to Esposito, Lionshare, Pgnatello, and Galizio, well, as the song says:[G]ondolfe and Cannabiz from future violations of Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgments also order Gondolfe to pay disgorgement and pre-judgment interest in the total amount of $106,681 plus a $160,000 civil penalty and Cannabiz to pay disgorgement and pre-judgment interest in the total amount of $11,694 plus a $775,000 civil penalty. Additionally, the final judgment against Gondolfe bars him from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, and permanently bars him from participating in an offering of a pennystockThe SEC's litigation in this matter continues against Esposito, Lionshare Ventures, LLC, Pignatello and Galizio.
Sittin' and starin' out of the hotel windowGot a tip they're gonna kick the door in againI'd like to get some sleep before I travel,But if you got a warrant, I guess you're gonna come in
On April 14, 2017, DMA entered a final default judgment against Lionshare. "Court Enters Final Judgment Against Microcap Industry Consulting Company Involved in Fraudulent Scheme" (SECLitigation Release No. 23807)
https://www.sec.gov/litigation/litreleases/2017/lr23807.htm Lionshare was enjoined from future violations of Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordered to pay disgorgement and pre-judgment interest in the total amount of $1,107,413 plus a $775,000 civil penalty.
On December 11, 2017, DMA entered a final judgement by consent against Galizio. "Court Enters Final Judgment Against Microcap Industry Consulting Company Involved in Fraudulent Scheme" (SEC Litigation Release No. 24123)
https://www.sec.gov/litigation/litreleases/2018/lr24123.htm Galizio was enjoined from future violations of Section 5 of the Securities Act and ordered her to pay disgorgement of $22,500 and a civil penalty of $7,500. The judgment also barred Galizio from participating in an offering of a penny stock.
April 2018On April 30, 2018, DMA entered a default judgment against Esposito. "Court Enters Final Judgment Against Microcap Executive and Co-Defendant Involved in Fraudulent Scheme" (SEC Litigation Release No. 24123)
The SEC's litigation in this matter continues against Pignatello.