Instead of selling their $50,000 vending machines that were supposed to dispense marijuana on the basis of biometric identification, Medbox executives and consultants created phony press releases with false revenue figures, the SEC said. In fact nearly 90% of the company's revenue reported in the first quarter of 2014 was actually false, the SEC claims.
According to the SEC, then-Medbox consultant and inventor Vincent Mehdizadeh even acknowledged in a text message that “the only thing we are really good at is public company publicity and stock awareness. We get an A+ for creating revenue off sheer will but that won’t continue.”
And he was likely right about the company's ability to manage publicity. Bloomberg Businessweek profiled the California company back in 2013 at a time when Medbox, now renamed Notis Global, was already posting false revenue figures. That article noted that Medbox wanted to be "the Walmart of weed." Fortune also mentioned Medbox in a 2013 cover story, "Yes We Cannabis."
So how was Medbox making money at all? According to the SEC, Mehdizadeh created a shell company called New-Age Investment Consulting. That shell company would carry out illegal stock sales, and use the proceeds to boost Medbox's revenue.
Mehdizah used at least $640,000 of those funds to buy a luxury home in the Pacific Palisades, the complaint alleged.
“As alleged in our complaint, investors were misled into believing that Medbox was a leader in the burgeoning marijuana industry when the company was just round-tripping money from illegal stock sales to boost revenue,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office in a statement.
Mehdizadeh and Medbox agreed to settle the SEC charges and pay over $12 million in disgorgement and penalties.
Litigation against Medbox's then-CEO Bruce Bedrick, continues.