On Monday, the Securities and Exchange Commission (SEC) published a press release announcing that they would be charging Cronos Group Inc., a publicly traded cannabis company based in Toronto, with violating the antifraud, reporting, books and records, and internal controls provisions of federal securities laws. The statement claims that they improperly accounted for millions of dollars in revenue in three separate quarters spanning from 2019 to 2021.
However, the statement also mentions that Cronos has fully cooperated with the SEC after an internal investigation revealed that a $2.3 million accounting error. After realizing the mistake, Cronos was quick to report the error to the SEC, and “provided extensive cooperation that meaningfully advanced the Commission’s investigation. It also took effective remedial steps to enhance its internal accounting controls.”
Mark Cave, the Associate Director of the SEC’s Enforcement Division, stated that “It is critically important for issuers to have adequate controls in place before they take on the reporting obligations required of public companies. While today’s order finds that Cronos’s controls were not up to standards when it began filing financial statements with the SEC, Cronos avoided penalties by promptly self-reporting its accounting misconduct as it came to light within the company, cooperating with our investigation, and promptly taking effective remedial steps.”
Cronos, as well as their former CCO William Hilson, agreed to settle with the SEC and cease and desist from any further violations. They also agreed to retain an independent consultant to ensure their compliance with all SEC rules moving forward. Lastly, Hilson agreed to a 3 year ban from any officer or director positions, or from practicing as an accountant before the SEC, and agreed to pay a fine of approximately $54,000 USD to the Ontario Securities Commission.
