CBD Company Faces Securities Fraud Suit

On May 12, Aaron Silberman and AMJ Misil AB LLC sued Premier Beauty and Health LLC in the Southern District of Florida for allegedly violating federal and state securities laws by using false information to sell unregistered securities in their beauty and health company specializing in products containing CBD blends. The plaintiff sought a dissolution of the investment agreement, a return of funds used to buy the securities, and attorney’s fees.

Under federal law, the plaintiff alleged the defendant violated Section 10(b) of the Securities Act and the corresponding regulations. Section 10(b), found at 15 U.S.C. Sec. 78j, states that “it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails…to use or employ, in connection with the purchase or sale of any [unregistered security]…any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.”

In conjunction with Section 10(b), 17 C.F.R. Sec. 240.10b-5 makes it “unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails…to employ any device, scheme, or artifice to defraud… [or] to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or…to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.”

According to the accusations in the plaintiff’s complaint, the defendant violated the aforementioned legal standards by persuading the plaintiff to invest by using false information such as: (1) the defendant maintained a contractual agreement with Shop HQ (a seller of beauty products via televised broadcast) where “ShopHQ would guarantee payment of purchase orders (PO) to the defendant” despite not a single PO ever existing; (2) that company financial projections predicted twelve to thirty million dollars in revenue within one year of the plaintiff’s investment when the defendant previously filed for bankruptcy; (3) the defendant held intellectual property rights in the CBD blends when said rights were licensed from Cosmetic Solutions; (4) the plaintiff, following investment with the defendant, would receive “an employment position…with a monthly salary of $10,000”, despite the defendant previously breaching similar employment agreements; and (5) the defendant employed Dr. Lin, a Harvard educated doctor who personally developed the CBD blends, when the defendant simply paid Dr. Lin to pretend to be such a person during broadcasts.