VerdeGroup Investment: A Pizza-flavored Cannabis Ponzi Scheme
The lack of effective federal enforcement authority in the legal cannabis realm may provide some unique challenges for state regulators, but it is clear that cannabis companies are not immune from the specter of federal regulation—especially when it comes to fraud and other criminal activity.
One recent SEC filing is a striking case study of federal enforcement authority being exercised against a cannabis-adjacent business in a case of active fraud.
This post dives into SEC v. VerdeGroup Investment Partners, a 2021 enforcement action against a fraudulent self-described “cannabis investment group.” In an attempt to keep things interesting, I’ve pulled the original fraudulent materials where I could find them.
Images in this post were taken from either the VerdeGroup marketing website or “investor” slidedeck. (courtesy of The Internet Archive).
The information below is based on the SEC’s Complaint in the case and information available from publicly available archives of original source material. Currently Thomas Gaffney has not made an appearance in the SEC action and may be subject to default judgement.
Introduction
The complaint in question describes VerdeGroup as a classic Ponzi scheme. The individual Thomas Gaffney is accused of misappropriating some $467,110 dollars from investors into cruises and a family pizza parlor through the scheme, among other personal expenses.
Diagram of fraudulent scheme as described in the SEC’s Complaint.
Rather than receiving money in his own name, Gaffney disguised his role by directing investors to send their funds to a third party account. Investor funds were transferred from that third party account to an account in the name Tommy’s Pizza Ventures, Inc. (“Tommy’s Pizza”), the personal pizza business of the defendants’ family.
Active steps were taken to cover up the fraud. In one instance, Gaffney was accused of returning investor money back to one elderly investor who called to inquire about her guaranteed 12% annual return. Gaffney allegedly sent a check to the elderly woman with her “guaranteed return”—before goading her into making an extra $10,000 investment in November 2019.
Generally, funds were solicited through an online website and print advertisements such as the following:
August 2018 Archived Copy of form from VerdeGroup website.
Structure of the Scheme
VerdeGroup primarily consisted of a scheme to solicit investments in a fictitious “investment group” that would purportedly use the funds to invest in cannabis-related businesses. In actuality, the money was deposited into a business bank account and then diverted to the family’s personal pizza business’ accounts.
After funds were deposited in the family business, they were allegedly used both to pay Lisa Gordon—another individual involved with the scheme—and to fund personal endeavors (including Tiffany’s Jewelry and Carnival Cruise ticket purchases.) Lisa Gordon’s monetary involvement is unclear, beyond the fact that she received at least one payment for her participation. Gaffney admitted to knowing Lisa Gordon for over 25 years, and Lisa was the face of the scheme according to the SEC, managing the face-to-face conversations with victims.
On at least one occasion, Gaffney paid investors with the funds he had raised from other individuals.
Web Marketing Materials
VerdeGroup materials make several exaggerations, but primarily consist of generic marketing copy on text-heavy slides. Few claims are made that are readily disputable, but some basic fact checking would lead a savvy user to the conclusion that the scheme is less than legitimate. In fact, many of the named individuals are not real people. Some examples from VerdeGroup’s marketing are displayed below, but the full investor slide deck is informative.
Print Marketing Materials
VerdeGroup was also advertised in newspapers in multiple states. As the complaint does not mention specific newspapers, I was not able to find any specific examples to include here. However, text included advertisements such as:
“OUR COMPANY IS OFFERING THE OPPORTUNITY FOR MAIN STREET PEOPLE TO INVEST IN THE LEGAL MARIJUANA INDUSTRY. OUR LEGAL MARIJUANA FUND IS NOW ACCEPTING NEW INVESTORS.
12% GUARANTEED APR $10,000 MIN. INVESTMENT.”
Some print advertisements included typographical mistakes, such as a tagline in one ad that stated “Nobody knows the marijuana investment verticle better than we do.”
Falsified Letter from CEO
In 2019, VerdeGroup informed investors in a “Letter to Shareholders” that it would need to withhold the 12% guaranteed return on investment in order to cover a cost of a fictitious “audit” required for the company to “go public.”
The SEC analyzed this file and found metadata that indicates that it was unsurprisingly written by Thomas Gaffney himself. Unfortunately I was not able to locate a copy of this letter.
Trademark Violations
The VerdeGroup website included branding marks of industry organizations such as the National Cannabis Industry Association (NCIA). These marks were removed on at least one request by the named organization.
VerdeGroup August 2018 Archived Copy, Logos belong to their respective companies.
Outcome
It’s unclear what the ultimate outcome will be for Thomas Gaffney, though it seems that likely that the SEC action spells the end of “VerdeGroup Investment Partners.” Litigation is still ongoing, but the SEC obtained a default judgement entry in December 2021. For now, this company will serve as an example of the potential for abuse in the market, especially when it comes to uninformed and vulnerable investors.
