The Securities and Exchange Commission has filed charges against former NewAge Inc. Chief Executive Brent David Willis, accusing him of a “multi-year fraud” that included misleading public statements meant to promote the wellness-focused beverage maker that once hoped to take advantage of the nation’s CBD craze.
The SEC alleged that Willis’ statements created the “illusion” that NewAge NBEVQ, +1900.00% was a pioneer in beverages containing CBD — a cannabis compound that is viewed as non-intoxicating — and that its beverage products overall were taking off with big retailers and distributors worldwide, in an effort to boost the company’s financials and stock price.
NewAge was called New Age Beverages Corp. when it briefly enjoyed attention from investors as a CBD-drink company amid widespread interest in “pot stocks” after the legalization of recreational cannabis in Canada. The company’s market capitalization shot as high as $500 million in early 2019. But in recent weeks , NewAge had its stock delisted from the Nasdaq and filed for bankruptcy protection. The stock, which still trades over the counter, ended Tuesday’s trading session with a market cap of less than $3 million.
In a complaint filed Tuesday, the SEC characterized NewAge as a company that was in “dire financial straits” through 2017 and 2018, and said Willis was “well-informed and knowledgeable about NewAge’s business operations and activities.”
From around July 2017 to April 2019, the agency alleged that Willis, 62, made false or misleading statements about NewAge’s development and beverage sales “during investors conferences, earnings calls, media interviews, and in at least 12 press releases” related to a variety of subjects, including purported deals with big drink distributors and retailers.
“In reality, these distribution deals either did not exist or were significantly smaller than claimed in the public statements,” the SEC alleged in a complaint.
The agency has asked the court to order Willis to give up any “ill-gotten gains” related to the accusations and to pay civil penalties. It has also asked that he be barred from acting as an officer or director of any company required to file reports, or issuing registered securities, under certain sections of the Exchange Act. The SEC has also asked that Willis be prohibited from partaking in penny-stock offerings.
The SEC’s allegations, among other things, surrounded purported distribution agreements with the U.S. military, its relationships with 7-Eleven, Walmart Inc. WMT, +2.11% and other retailers and distributors, as well as its CBD beverages development and sales.
“Capitalizing on current media and public attention focused on the legalization of cannabis and growth in the cannabis industry, defendant falsely stated that NewAge had secured substantial retail and distribution orders and commitments to sell its CBD products, and that NewAge’s CBD products were being sold in retail stores,” the SEC’s complaint said.
“In fact, NewAge never completed the development of a CBD beverage product and never received orders or commitments from any retailer for CBD beverage products,” it said.
Willis resigned from NewAge in January, which was characterized as a mutual decision at the time, and the company revealed in a March filing that Willis was aware of sales of CBD drinks that went against company policy. NewAge could not immediately be reached for comment.