May 23, 2014: On 20 May 2014, John Germinario, chairman of the board of Creative Edge Nutrition, Inc. (FITX) and Cen Biotech, a partially owned subsidiary of FITX, posted an extraordinary letter on the company's Facebook page. The subject line read "The Decimation of an Industry." The letter was addressed to SEC attorneys Elisha Franke, Co-Chair of the Microcap Task Force, and Lori Schock, Director of the Office of Investor Education and Advocacy, and was copied to Mary Jo White and the other four commissioners.
On a page dedicated to himself, Germinario explains that he's considered to be "one of the world's most knowledgeable experts on International Capital Markets and Depositary Receipts." He once developed ADR programs, but now seems to work as a consultant. He's occasionally quoted in the financial press, usually explaining his concerns about unsponsored ADRs, which have become increasingly popular in recent years. Perhaps ironically, they trade on the U.S. Grey Market or as Pinks.
Germinario's missive to the SEC is not quite what one would expect of someone who's spent decades dealing with relatively boring ADRs. He begins by announcing that he wishes to express his disagreement with the agency's recent treatment of stocks in the pot sector.
I and my team of Whistleblowers are overwhelming appalled with the Commissions shot gun approach of decimating the capitalizations of legitimate shareholder values of company's by a submission of a broad based investor alert by the commission. It has resonating effects on the entire industry which include companies that are not involved in the investigations. The commissions approach to suspend trading activity in companies that are perceived, targeted or evidenced by criminal activity should not be suspended which destroys the investment of legitimate shareholders but to aggressively hold these perpetrator(s) accountable and prosecute those individuals to the full extent of the law.The investor alert of which he speaks isn't as appalling as Germinario claims. It is, in fact, one of several similar alerts released by the SEC and by FINRA since the summer of 2013. Their intention is to warn retail market participants of possible fraud in a new industry populated by companies that have sprung up overnight, or abruptly changed their business plans to accommodate the public's sudden enthusiasm for anything weed-related. The alert offers familiar information about what should be considered red flags, but there's something new, and that is what seems to have ticked off Germinario. The first topic of discussion is the recent trading suspensions imposed by the SEC on five penny companies in the pot sector: Petrotech Oil and Gas, Inc. (PTOG); Advanced Cannabis Solutions, Inc. (CANN); GrowLife, Inc. (PHOT), and FusionPharm, Inc. (FSPM). The SEC itself apparently forgot about two others: Aventura Equities, Inc. (AVEN) and Citadel EFT (CDFT), which had at least expressed an intention of getting into the marijuana business. Add to that list Fortitude Group (FRTD), which was suspended just this morning.
|The Marijuana Index (marijuanaindex.org)|
By now it's clear that the suspensions will continue. But rather like tornados, they're unpredictable, hitting their targets without warning. Germinario feels, as do many players, that far from protecting investors, this policy hurts them. He believes that if wrongdoing is found, the perps should be punished, but, presumably, that the stock should be allowed to continue to trade. The problem with his idea is that it takes the SEC a long time to build cases that can be taken to court. The agency has said many times that while it sympathizes with shareholders caught in a scam, its priority is to stop the scam as quickly as possible by delisting it to the Grey market (after a temporary suspension), thereby protecting future investors. Once the excitement is over, the next moves can be considered at leisure.
Germinario goes on to say that as a "Financial Securities Fraud Examiner and Registered Whistleblower with the Securities and Exchange Commission on Bank Fraud, Systemic Money Laundering, Global Bribes, etc." and then loses his train of thought. His writing is clumsy to the point of incomprehensibility, but the drift seems to be that he knows about fraud and doesn't think suspensions are a good way to fight it. Many wonder what a "registered Whistleblower" may be. Our guess is that he's done what anyone can do, which is simply to fill out a Form TCR at the SEC's website. It's less clear what he means when he says he's a Financial Securities Fraud Examiner. Perhaps he's a member of ACFE, an international organization open to participants from diverse backgrounds.
Having mounted his soapbox, he can't resist taking a swipe at the Wall Street investment banks that are evidently his nemesis; entities he's reported to the SEC many times, accusing them of fraud amounting to hundred of billions in losses. Nobody believes these firms are pure as the driven snow, but the question of how they should be dealt with is complex. Dealing with penny stocks is not complex, nor should it be. While Germinario seems to recognize that they're the dregs of our capital markets, he needs to protect his own company, FITX. So he adds irrationally that:
…the targeting of Marijuana based investments as described in the Commissions recent submission to investors has unilaterally fueled paid stock bashers and other fraudulent activity to further exacerbate the demise of company's and investor values for self profit.Who told him about those evil "paid bashers"? Who'll tell him they don't exist? Descending to this level of foolishness does not lend conviction to his argument. The SEC doesn't suspend trading because of "bashers"; it suspends trading because it believes there's something seriously wrong with the company it takes action against.
In a single subpar literary effort, Germinario succeeded in scolding the SEC, ranting about "paid bashers," and accusing unnamed companies in his own industry of "serious" fraud. That's a hat trick that could have "serious" repercussions.
The ineptitude of the exercise is underscored by the fact that the letter was posted to Facebook to begin with. Like many companies these days, FITX has embraced the social medial site, using it to chat with investors and disseminate company news and more general updates. On 17 May, only three days before the Germinario letter appeared, an important notice was posted on the company's page:
Why, then, was the letter not issued as a press release, after careful consideration and judicious editing? It could also have been put on the company's website. To violate a new policy within days made the company look indecisive and disorganized, and raised questions about who, if anyone, was really in charge.
FITX also appears to be misdirecting its energies. Those nasty bashers have been a theme at the FITX Facebook page and on the message boards for months. That''d be normal enough if only dedicated longs were going on about them, but the company's CEO, Bill Chaaban, has joined in. In early March, he informed his following that:
|Four hour shifts for bashers|
Following the publication of Germinario's letter, many company loyalists eagerly hoped he'd blow his whistle on the bashers he claimed to find so objectionable. One asked Chaaban if that would happen. The CEO replied: "Peter we are all over it. We've identified many and have acted appropriately."
It would be a pity to see all this escalate from normal attempts to discredit critics to a serious effort to silence them. "Basher suits" tend not to work out well for the plaintiffs.
So how does this help the company?
The simple answer is that it doesn't. Creative Edge would presumably like to be taken seriously, but missteps like the Germinario letter--not to mention ill-advised off the cuff comments from management--do not further that goal.
Creative Edge Nutrition is a Nevada company formed in 2008 as Laufer Bridge Enterprises, Inc. In April 2012 a reverse merger transaction was effected, and FITX was born. Initially, its business was selling sports supplements, but by early 2013 it had seen the potential in the pot sector and made an early entry, which it announced on 25 March 2013.
The initial press release was all over the place. In the title, the company said it'd be doing medical maryjane. In the body, it said it would add hemp powder--not really a medicine--to its line of supplements. Hemp is, of course, not marijuana, but it was vaguely noted that FITX would be looking into licensing other products.
|The Lakeshore property|
Back in September of last year, FITX announced the formation of a wholly owned subsidiary called Cen Biotech, which, it said, would "focus on advancing its business in the Medicinal Marijuana business sector." Over time, Cen Biotech picked up some partners, becoming a partially owned FITX subsidiary. One of those partners was GrowLife (PHOT), through its own partner Organic Growth International, LLC (OGI). The deal between FITX and PHOT was heralded in a press release on 29 January 2014. The shareholder agreement specified that PHOT would own 25% of Cen Biotech.
Investors in both companies were pleased; synergy always plays well in Pennyland. By that time, PHOT and FITX were considered part of an exclusive group of relatively "established" and "legitimate" marijuana companies. Other members were Hemp, Inc. (HEMP) and FusionPharm (FSPM).
Stock price rose. Overjoyed shareholders rejoiced, and went so far as to create t-shirts celebrating Chaaban and the company. All proceeds would go to the CEO's favorite charity.
In several subsequent press releases, the Lakeshore project was touted as "the world's largest and most advanced legal cannabis production facility." That bothered some Canadians, Stockhouse's Chris Parry among them. In an interview with Chaaban published on 16 May, Parry pointed out that Tweed Marijuana (TSX.V: TWD), FITX's chief Canadian rival, has a facility that's 2.5 times bigger than Cen Biotech's, and is already permitted, licensed and producing. Chaaban protested that he'd never "really" said Lakeshore would be the biggest, and blamed the circulation of that boast on PHOT, which had initiated some of the press releases on the subject. But that isn't entirely true. On 21 March, FITX alone announced that it had received private funding for--you guessed it--"the world's largest and most advanced legal cannabis production facility.
Chaaban also volunteered a juicy quote to the author of a New York Post piece from 6 May whose headline read: "World's largest legal pot facility to open." According to Chaaban, "The facility is done, it's ready." Except that, as noted above, it hasn't been licensed, and the new build-out is in its early stages.
The chatty CEO also told Parry that he'd "had FINRA all over [his] ass," but he "showed them emails and they were fine with it." With what? When the regulators ask questions, they don't usually say much more than "thank you" when information requested is supplied. In early February, Chaaban even told his shareholders about his communications with FINRA in a Facebook post. That post has since been removed.
|Bill's amazing call with FINRA|
Shortly thereafter, the SEC began to suspend trading in "respectable" companies. The action against PHOT sent a shiver through the the entire sector. It especially horrified FITX, its partner in Cen Biotech. PHOT was suspended on 10 April; the very next day Cen Biotech rescinded all of its agreements with that company and OGI.
We naturally wonder if PHOT is one of the companies Germinario found to be fraudulent, and is planning to denounce to the SEC. He may be a little late with that, but says he is preparing other whistleblower claims. That is, at least, the most likely interpretation of what he wrote. If it's the correct one, how is he different from the "bashers" he so despises?
In its most recent press release, issued on 21 May, Creative Edge announced the engagement of a new law firm, Thompson Hine, LLP. The firm has offices in seven major cities, a considerable step up from the sole practitioners the company has used in the past. Perhaps Chaaban feels that one way or another, FITX may soon need competent representation.
Editor's Note: While we hesitate to speculate, perhaps Mr. Germinaro is pointing his accusatory finger at other unnamed marijuana companies in order to make FITX seem shinier. We suggest that his investigations start with the seven separate Pump & Dump campaigns subjected on shares of FITX during 2013.
The text of Mr. Geminaro's letter to the SEC, as it appears on FITX's Facebook page is offered below:
From: John Germinario
Date: May 20, 2014 at 7:33:33 PM GMT+2 To: "firstname.lastname@example.org" , "email@example.com"
, "firstname.lastname@example.org" , "email@example.com" , "firstname.lastname@example.org" , "email@example.com"
Subject: The Decimation of an Industry
Reply-To: John Germinario
Dear Agents Frank and Schock,
I am writing this email to express a firm disagreement with the Commissions handling of the OTC markets regarding the Marijuana traded equities. I and my team of Whistleblowers are overwhelming appalled with the Commissions shot gun approach of decimating the capitalizations of legitimate shareholder values of company's by a submission of a broad based investor alert by the commission. It has resonating effects on the entire industry which include companies that are not involved in the investigations. The commissions approach to suspend trading activity in companies that are perceived, targeted or evidenced by criminal activity should not be suspended which destroys the investment of legitimate shareholders but to aggressively hold these perpetrator(s) accountable and prosecute those individuals to the full extent of the law.
As a Financial Securities Fraud Examiner and Registered Whistleblower with the Securities and Exchange Commission on Bank Fraud, Systemic Money Laundering, Global Bribes, etc., and if the similar method of suspension that the Commission has implemented on the Marijuana Industry Company"s then the Commission is long overdue in taking action and suspending the trading activity for ten days for The Bank of New York Mellon, JPMorgan, Citibank and Deutsche Bank as perpetrators of the above Fraud as described in my Whistleblower Claims for the past NINE years and without any action taken by the Commission. The combined Fraud by these banks is insurmountable and losses to global investors are decades long and in the many hundreds of billions of dollars which still continues today.
While I am not a proponent of the OTC markets, it is the least resistant means of public trading in the United States Capital Markets and represents an opportunity for securities fraud to exist however, the targeting of Marijuana based investments as described in the Commissions recent submission to investors has unilaterally fueled paid stock bashers and other fraudulent activity to further exacerbate the demise of company's and investor values for self profit. The investor alert targeting the Marijuana industry has caused my company's share price unjustifiable reduction of over 50% in a few days. This is unacceptable!
I have accepted the Chairman of the Board position of Creative Edge Nutrition primarily for the purpose to help guide the company and support the development of medical marijuana in a variety of applications that are unconventional and provide a natural alternative to very commonly used intrusive drugs that are deemed legal today. During the past 5 weeks of my appointment as Chairman, I have uncovered a serious level of securities fraud from the help of current shareholders of several of the industry's company's of which my team is preparing Whistleblower claims to be submitted to the Commission.
For the record, I am not or have I ever experienced first hand marijuana, nor have I ever smoked cigarettes and I do drink a beer occasionally,but I will not criticize those who do. For those who do not believe in the development of natural alternatives such as marijuana for medical use have never experienced a loved one lying in a hospital bed suffering from terminal cancer and feeling helpless that the only source of comfort you can provide is that of the toxic and synthetic forms of relief until the end. Medical Marijuana is here to stay and we expect great contributions derived by the Science of Natural Alternatives.
In summary I strongly suggest that if the Commission has a concern with company's activities, the commission seek justice against those perpetrators in question and not penalize all shareholders by suspending trading activity.