SEC Charged CbdMD CEO With Fraud, Firm’s Board Forms Special Review Committee

The US Securities and Exchange Commission charged cbdMD, Inc. (NYSE American: YCBD) CEO Martin Sumichrast with fraud related to the private equity fund he managed–the descendant of the infamous Ponzi scheme Siskey Capital.

The complaint alleges that Sumichrast, while managing private fund Stone Street Partners, engaged in “undisclosed conflict-of-interest transactions that advanced his personal interests” and misappropriated around US$300,000 of the firm’s funds to double “his annual salary between 2017 and 2019.”

The commission also claims that Sumichrast engaged in “a series of self-dealing transactions,” including with his company now cbdMD, and failed to report these as related-party transactions.

The SEC is seeking, among others, injunctive relief, disgorgement with prejudgment interest, civil penalties, and an officer-and-director bar.

But while the North Carolinian businessman has already resigned as CEO of SPAC Adara Acquisition (NYSEMKT: ADRA), he remains to be the chairman and CEO of cbdMD. The cannabidiol firm said that its board has formed “a special committee of independent directors to review the SEC action” and Sumichrast “has agreed to cooperate fully.”

“The company notes that the complaint does not allege any wrongdoing by cbdMD, Inc. However, the complaint states that Mr. Sumichrast engaged in a series of transactions with entities in which he personally had a conflict of interest, including the company during 2017 and 2018,” the company said in its statement.

Sumichrast became the sole manager of Stone Street–formerly Siskey Capital–after the controversial death of its fund manager Rick Siskey in 2016. The company was involved in a Ponzi scheme from 2010 to 2016, causing investors to lose around US$50 million.

In response, Sumichrast’s lawyer, Ellyn Garafalo says this is a case of “no good deed goes unpunished.”

“Perhaps to deflect from its own inaction on the Ponzi scheme, the SEC has chosen to pursue Mr. Sumichrast [for] the very transactions which benefited his investors and restored the bulk of their investments that would otherwise have been lost as a result of Mr. Siskey’s fraud,” said Garofalo.

Specifically to cbdMD, Sumichrast allegedly had Stone Street purchase 150,000 restricted cbdMD shares for US$645,000. The 16% price premium at the time of the acquisition raised suspicions as Sumichrast also sat as a member of the cbdMD’s board at that time.

cbdMD last traded at US$0.61 on the NYSE.

Information for this briefing was found via MSN, Business Journal, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

One thought on “SEC Charged CbdMD CEO With Fraud, Firm’s Board Forms Special Review Committee

  • June 6, 2022 9:27 PM at 9:27 pm

    We’ve heard enough about the SEC and Marty. We all knew he was a scammer. What have we heard in regards to the FDA reviewing CBDMDs Extensive Safety Data?


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