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A Canadian hemp company and its co-founders have been charged with fraud by the U.S. Securities and Exchange Commission (SEC) for allegedly misappropriating millions of investor funds.

Vancouver-based CanaFarma Hemp Products Corp. and its U.S. co-founders, Vitaly Fargesen and Igor Palatnik, were charged by the SEC with fraudulently raising approximately US$15 million from investors and misappropriating at least US$4 million for personal use.

According to the SEC’s complaint, Fargesen and Palatnik used a strawman to purchase a Canadian shell company (KYC Technology Inc.) from an unnamed Canadian bank in 2019.

KYC acquired CanaFarma Corp. in a reverse takeover in March 2020, changed its name to CanaFarma, and was listed on the Canadian Stock Exchange and the Frankfurt Stock Exchange and quoted on OTC Markets.

The regulator alleged that the company and its co-founders made misrepresentations to investors in raising funds for the company, including misrepresenting the business, misstating historical revenues and providing baseless projections about future revenues.

In a parallel action, Fargesen and Palatnik were also charged with securities fraud, wire fraud and related offences by the U.S. attorney’s office for the Southern District of New York.

The allegations have not been proven, and they are presumed innocent of the criminal charges.

“As alleged in our complaint, the defendants pitched investors with falsehoods about a fully integrated hemp company with rosy financial projections,” said Richard Best, director of the SEC’s New York office. “We will relentlessly pursue those who deceive investors and misappropriate and misuse their funds.”

The SEC seeks permanent injunctions, disgorgement and prejudgment interest, and civil penalties against the defendants, and also seeks officer-and-director and penny-stock bars against them.