The Sniff Test: All a intensity red flags for investors in IGC, a pot batch that jumped 1,000% in 3 months

Investors who purchased shares of cannabis play India Globalization Capital Inc., or IGC, in a past month are expected gratified with a stock’s some-more than 500% surge, though can it reason those gains?

A examination of a company’s

IGC, -27.57%

story and regulatory filings has unclosed an shocking series of red flags that criticise some of a claims finished by a association and denote a significance of due attention when investing.

The stock’s pierce came after a association announced a devise for a line of CBD-infused drinks, or those containing cannabinoids, mixture in cannabis that are pronounced to have health benefits. With Canada gearing adult for full legalization of cannabis for adult recreational use on Oct. 17, a zone has turn a prohibited marketplace for speculators, with investors jumping on each proclamation of a designed product, alliance, placement agreement or deal.

IGC has benefited — a marketplace capitalization has ballooned to $295 million on Thursday from usually $78 million on Sept. 25, a day before a drinks announcement.

In a many new quarterly gain report, IGC posted a detriment of $512,296 on income of $1.5 million for a 3 months to finish June. Cost of income came to $1.4 million, while SGA costs came to $553,645, that surpass a revenue.

“Marijuana or any form of products including CBD oil is bootleg in Malaysia.”

Erny Sabrina Mohd Noor, advisor for agriculture, Malaysian Embassy, Washington, D.C.,

MarketWatch has spent several days job and emailing IGC, a executives and a scientists whom it names as advisers on a website. Founder and Chief Executive Ram Mukunda returned a call on Wednesday, before seeking for time to examination a questions we had emailed him with a guarantee he would call back. On Thursday, a association pronounced it would yield answers to a questions. It has not finished so during this time.

Here are 10 intensity red flags for investors to be wakeful of:

MarketWatch/Steve Goldstein

Photograph taken Oct. 2 during a residence in suburban Washington, D.C., listed by India Globalization Capital Inc. as a headquarters.
Made in Malaysia?

In a recover announcing a devise for CBD-infused drinks, IGC indicates it will work with a manufacturer in Malaysia, though that nation has a imperative genocide judgment for cannabis possession and has no medical-marijuana program.

“Marijuana or any form of products including CBD oil is bootleg in Malaysia,” Erny Sabrina Mohd Noor, advisor for cultivation during a Malaysian Embassy in Washington, D.C., told MarketWatch.

History of pivots

IGC, that started life in 2005 as a blank-check company, has a story of pivoting to new businesses as they turn renouned and releasing press releases to prominence those business-plan shifts.

The company’s IPO handbill pronounced that it directed to acquire or combine with businesses handling in India, to take advantage of a intensity of that market. In 2007, it began to acquire infrastructure resources in Asia and after started trade line such as steel and iron ore, leasing complicated construction apparatus and handling genuine estate in Malaysia, according to a website. Today, a SEC-registered area of business is described as “wholesale electronic tools and equipment.”

In 2013, a association started to demeanour into a cannabis industry, where it now claims to be operative on treatments for critical diseases including Alzheimer’s and Parkinson’s, as good as stress and nap disorders.

However, a examination of a regulatory filings reveals that it has reserved really small appropriation to investigate and expansion — roughly $150,000 a year — and nothing to clinical studies or any of a other stairs indispensable to win U.S. Food and Drug Administration approval.

A demeanour during press releases from a final year shows a transparent settlement of regularly entering a latest prohibited market. In late 2017, that was blockchain, while final month it was cannabis that helped pull or support a batch above a $1 threshold. The latest proclamation seemed to be timed with a sale of shares.

FactSet, MarketWatch

The strategy-pivot proceed to capturing financier seductiveness was used many dramatically by Long Island Iced Tea Corp., that caused a stir on Dec. 21, 2017, by announcing it was changing a name to Long Blockchain Corp.

LBCC, +7.07%

, promulgation a batch adult 183%. The news came 3 days after bitcoin futures

XBTV8, -0.11%

started trading, during prices above $20,000.

From a MarketWatch archives: Nasdaq to delist Long Blockchain Corp., underlining vanishing bitcoin passion

Less than a week later, IGC followed with a possess blockchain initiative, observant it would use a record to residence “issues” in areas such as product identification. The batch shot adult 91% to $1.26 on Dec. 26, a initial tighten above a $1 pitch given Jul 2014.

On Dec. 29, a offer to approve a extend of 1.9 million shares of batch to “current and new employees, advisers, directors and consultants by a house of directors” upheld a shareholder vote.

In mid-September, Level Brands Inc.’s stock

LEVB, -10.61%

some-more than doubled in 4 days, usually before a association announced on Sept. 21 a online launch of 5 new cannabidiol (CBD) products underneath a Kathy Ireland Health Wellness brand. The batch ran adult as many 24% during a day of a announcement, before reversing march to tighten a event down 12%.

Four days later, IGC pronounced it was entering a marketplace for CBD-infused appetite drinks, with “plans to emanate a branded hemp/CBD-infused chronicle of a devise that addresses marketplace direct for appetite drinks with a inclusion of healthy properties subsequent from hemp including CBD.” In other words, a product, called “Nitro-G,” was still in a formulation stages. Still, a news helped flog off a nearby sixfold arise — a batch ran adult 458% — over a subsequent 5 sessions.

On cue, a association disclosed late Tuesday it had finished a at-the-market charity of 5.65 million shares during a weighted normal cost of $5.30, that was some-more than double a shutting cost of $2.33 on Sept. 25, when a charity commenced. Coincidentally, Sept. 25 was a day IGC pronounced it was entering a marketplace for CBD-infused appetite drinks.

A story with a SEC

IGC went public on May 13, 2005, led by Ram Mukunda, who has given served as authority of a board, CEO and president. Mukunda was formerly owner and CEO of a association called Startec Global Communications, according to a autobiography on his association website. The bio fails to divulge that Startec went broke in 2001, carrying defaulted on a $9.6 million seductiveness payment.

IGC started in 2005 with $200,000 in assets, a $100,000 loan payable to Mukunda and an requirement to compensate Mukunda’s company, Integrated Global Network LLC, an executive cost of $7,500 a month for bureau space and ubiquitous and executive services. John Cherin, an Arthur Andersen alumnus, served as arch financial officer until he was transposed by Rohit Goel and Shajy Mathilakathu as co-principal accounting officers on Sept. 29, 2017.

Claudia Grimaldi became a company’s “principal financial officer” in May 2018.

The association has captivated a lot association from a SEC. In Mar 2017, a SEC wrote to ask about a 2009 transaction with Bricoleur Capital Management, an investment adviser. The loan from Bricoleur to IGC has been renegotiated several times.

IGC’s financial statements filed with a SEC as of Jun 30, 2017, pronounced a association had released 90,000 shares valued during $36,600 to Bricoleur Partners L.P. opposite a superb $1.8 million promissory note as amends of interest. Bricoleur’s SEC registration was consummated in Dec 2012, and a permit was revoked by a state of Florida in 2015.

IGC has perceived 9 late-filing notices from a New York Stock Exchange in usually a past 3 years, call a SEC to ask over and over when it is going to approve with a rules. IGC perceived another notice of delisting from a NYSE in Oct 2017 and had to ask a SEC for an prolongation to record and reason a shareholder meeting. The association had still not hold a shareholder assembly by Dec 2017, and it got another notice from a SEC seeking when it would approve with a exchange’s rules.

The association finally held adult on a filings, averting a NYSE delisting by arising a annual news and 10K on Jun 21 and holding a shareholders assembly on Aug 6.

An SEC mouthpiece declined criticism on a company.

Insiders make a many income from batch gains

The biggest beneficiaries of a news that’s pumped adult a batch are IGC’s executive officers, as a following list shows:

FactSet, MarketWatch

Six of a tip 7 shareholders, who possess a total 16.5% of all shares outstanding, are IGC’s 6 executive officers and directors, as named in a company’s latest annual news filing.

Of a rest of a superb shares, 0.9% is owned by institutional investors and 82.6% is owned by “unknown” investors, which, according to FactSet, can embody particular investors, mutual supports not lonesome given of nondisclosure laws, institutional managers handling reduction than $100 million and foreign-based institutional investors.

The solitary institutional financier in a tip 7 is sidestep account Citadel Advisors LLC, that owned about 115,000 shares as of Jun 30, or 0.3% of a shares outstanding, according to a many new 13F filing with a SEC. That’s down from about 149,000 shares as of a finish of May, and adult from 0 shares during a finish of 2017.

IGC’s business partners have issues

The Dama Pharma association in Puerto Rico appears to have been combined usually in time for an IGC press release, headlined “Puerto Rican Alzheimer’s Patients to Be First in U.S. to Obtain Cannabis-Based Relief” on Mar 26, 2018. It was incorporated 3 days before a press recover was sent out.

DaMa Pharma says it is “a medical cannabis production company, and a Clinical Research Organization (CRO) for conducting clinical trials on cannabis-based products” and has a LinkedIn profile, though a website is incomplete. DaMa Pharma’s usually worker is Stephen Inglis, who is also CEO of a association called InPortal USA.

InPortal is a facilitator, providing “Compliant Market Access by an equity collateral markets (ECM) and a debt collateral markets (DCM) height with a dedicated open corporate alighting site and tranquil financier entrance to a understanding information room.”

IGC shares also trade on a Boerse Frankfurt, Stuttgart, and Berlin Exchanges underneath a ticker pitch “IGS1” and on a Boerse Frankfurt, Boerse Berlin and Boerse Stuttgart underneath “XETRA2,” according to a company’s filings.

IGC’s German placement partner was pronounced to be prepared to “distribute a formulations in Germany in early 2018,” according to a press release from Oct 2017.

Between Oct. 25, when a press recover was issued, and Nov. 3, IGC’s Mukunda sold 200,000 shares of IGC stock. There was no offer discuss in SEC filings of this business partnership and no offer press releases.

Medicann is a German “medical pot tradesman website,” and a listed CEO is Carsten Siegemund. Medicann was created with usually 25,000 euros in collateral on May 31, 2017.

A hunt of a site finds no discuss of a IGC product Hyalolex, that it claims can provide symptoms of Alzheimer’s disease.

The site itself is a work in progress, given a map shows a core of Central Park in New York, and a answers to FAQ questions are “lorum ipsum” — filler calm mostly used in place of a contingent calm of new website templates and other yet-to-be-published materials.

Cartsten Siegemund helps discharge productsfor other penny-stock companies besides IGC. One press release touts a 3.7 million eurosdistribution agreement, flattering large business for a association started 6 months progressing with a €25,000 investment.

It common an auditor with purported rascal Longfin

On Nov. 8, 2017, a company’s shareholders ratified a appointment of AJSH Co. LLP as IGC’s eccentric purebred open accounting organisation for a 2018 mercantile year, according to an SEC filing. AJSH had been a company’s auditor given 2013.

On Mar 16, the association unexpected announced it had altered a mind and motionless to boot AJSH Co. as a review firm, with no deputy named. An SEC filing pronounced that “after 5 years with a same eccentric open accounting firm, as a matter of good corporate governance, it was suitable to change to a opposite firm.”

On Apr 6, a SEC performed a judge’s sequence to solidify $27 million that it characterized as deduction from bootleg sales of shares of LongFin Corp.

LFIN, -8.91%

, a mint review customer of AJSH Co. When LongFin went open in Dec 2017, it was a print child for by-pass “mini-IPO” manners famous as Reg A+, according to an essay in Barron’s.

There’s one additional tie between LongFin’s auditor AJSH and IGC.

Rohit Goel, formed in Delhi, India, became IGC’s principal accounting officer in Sep 2017, according to a company’s website. Goel formerly worked for AJSH from Apr 2014 to Aug 2016, according to his LinkedIn profile. That form also states that he has runs BnA Consultancy, an accounting and government consultancy firm, from Apr 2015 — before he left AJSH — to a present. IGC told a SEC that Goel assimilated a organisation full-time on Sept. 27, 2017, and would offer as a co–principal accounting officer.

Chief systematic officer has falsified data

In 2017, IGC’s arch systematic officer, Jagadeesh Rao, was caught equivocating information in systematic papers published in a Journal of Neurochemistry, a International Journal of Neuropsychopharmacology and Psychopharmacology, according to a website Retraction Watch.

The dishonesty contributed to a abdication of Rao’s boss, Dr. Stanley Rapoport, from his work using a lab during a National Institutes of Health, who was quoted as woeful a falsifications.

“In these days of formidable interdisciplinary research, one depends on a honesty of colleagues who use methodologies with that one has no personal experience. we bewail blank a falsifications by Dr. Rao,” he told Retraction Watch.

It relies heavily on paid batch promoters

IGC pays veteran batch promoters to pull a shares to sell investors, alongside a possess selling around a Twitter account and a company and productwebsites.

The SEC is so concerned about investors being fooled by “paid-to-promote” sites that it has put out multiple financier alerts and highlighted new enforcement actions opposite pot penny-stock and microcap promoters. “If a company’s batch is promoted some-more heavily than a products or services, this might be a red dwindle of investment fraud,” according to a regulator’s alert.

Beginning in 2014, the SEC beheld an increase in these promotional efforts associated to pot bonds and put out a special alert. “Fraudsters mostly feat a latest innovation, technology, product, or expansion to captivate investors with a guarantee of high returns,” it said.

The disturb over pot bonds is during an all-time high, fueled by Canadian legalization and moves toward legalization of pot in a U.S. for medical and other uses. CBD oil, that strips out psychoactive ingredients, is a prohibited new product in states that have ratified medical marijuana.

Promotional emails and selling materials mostly enclose extensive disclaimers, though a disclaimers frequency exhibit that a promoters are being paid in shares, already possess a stock, or devise to immediately sell their shares and distinction from a boost in cost and direct that their efforts generate.

A story published on Sept. 26 on a site talked about a company’s skeleton for CBD-infused drinks. Per a disclaimer: “You know that a Company receives possibly financial or bonds remuneration for a services. We mount to advantage from any volume this write-up might generate.”

There’s another one in about how IGC has “targeted California as a priority marketplace for Hyalolex, a lead cannabis-based medicine product for treating Alzheimer’s patients.” That piece, too carries, a disclosure: India Globalization Capital Inc. is a paid customer of Stockhouse Publishing.”

The organisation SeeThruEquity, that characterizes itself as “a heading eccentric equity research” though also a “corporate entrance firm,” put a $2 cost on IGC on Aug. 23, in a post that was picked adult on A avowal on a company’s website, not a post that requires another click from a bottom, notes: “SeeThruEquity charges companies for a apartment of services that might embody discussion display fees, a credentials of and placement of arising and/or refurbish investigate reports, a distribution of press releases announcing a investigate reports and amicable media posts.”

Uptick Newswire calls itself an “investors family organisation with a dedicated amicable media group to rivet investors.” That means IGC’s Mukunda paid to be interviewed on Uptick’s YouTube channel articulate about how it would discharge a Alzheimer’s drug.

IGC shares have gained 611% in 2018, while a SP 500

SPX, -0.82%

has climbed 9% and a Dow Jones Industrial Average

DJIA, -0.75%

has gained 8%.

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