Former CannTrust CEO, 2 executives face jail time in fraud case

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FILE – This March 22, 2019 file photo shows a bud on a marijuana plant at the Compassionate Care Foundation’s medical marijuana dispensary in Egg Harbor Township, NJ (AP Photo / Julio Cortez, File)

The former CEO of CannTrust Holdings and two other former directors of the struggling Canadian cannabis company face a number of charges, including fraud, related to the company’s infamous illegal cannabis cultivation scandal.

Former CEO Peter Aceto, former chairman of the board of directors Eric Paul and former director Mark Litwin face up to five years in prison if convicted in a quasi-criminal case conducted by the Commission of Ontario Securities (OSC).

Health Canada discovered that CannTrust illegally cultivated millions of dollars in cannabis over a 10-month period in 2018 and 2019. During this period, the three defendants reportedly failed to disclose to investors that approximately half of the space of cultivation at the company’s facilities in Pelham, Ont. did not have a license.

“These allegations relate to efforts to cover up the illegal cultivation of cannabis,” the OSC said in a statement on Tuesday.

The securities regulator exposed more than a dozen charges against the three Toronto men, including fraud, insider trading, making misleading statements to the OSC and the market, and publishing false prospectuses .

According to the OSC, the trio have said CannTrust is fully compliant with Canadian cannabis regulations in press releases, corporate disclosures, analyst calls and prospectuses. The OSC also alleges that Litwin and Aceto signed prospectuses used to raise capital in the United States that included similar claims. Litwin and Paul are said to have traded CannTrust shares while being aware of unlicensed growth.

None of the allegations have been proven. The accused are scheduled to appear in Toronto court on July 26.

The CannTrust scandal rocked the legal pot industry in Canada when unauthorized cultivation was discovered. In June 2019, a whistleblower revealed the company was growing cannabis in unauthorized rooms and allegedly erected walls to deceive Health Canada inspectors. The federal health agency suspended the company’s license to produce cannabis in September and seized thousands of kilograms of the dried pot.

Nick Lalonde, the whistleblower who shed light on the illegal cannabis scandal, shared a video on his cell phone with Yahoo Finance Canada in November 2019. He says the footage shows the room where he was allegedly tasked with installing plastic walls to hide illegal cannabis in photos sent to Health Canada.

A CannTrust spokesperson confirmed that the video was shot on company property.

CannTrust’s licenses were reinstated in August last year, following a remediation process to ensure the company was in compliance with regulations.

In December, CannTrust announced its return to the Canadian market with the launch of two recreational brands called Liiv and Synr.g. As of April, the company remained under the protection of its creditors as part of efforts to resolve civil disputes and complete its review of strategic alternatives.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on twitter @jefflagerquist.

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