Two Marijuana Container Businessmen Charged wtih Conspiracy to Defraud the U.S. as Part of Securities Fraud Involving Microcap Company FusionPharm, Inc.
Both defendants waived their right to Indictment, and were charged by Information
DENVER – William Sears, age 50 of Thornton, Colorado, and Scott Dittman, age 47, now of Boyertown, Pennsylvania, and formerly of Elizabeth, Colorado, were charged by Information yesterday with Conspiracy to Defraud the U.S. as part of a scheme to defraud the U.S. Securities Exchange Commission, the U.S. Attorney’s Office, the Federal Bureau of Investigation (FBI), the Internal Revenue Service – Criminal Investigations and the U.S. Postal Inspection Service announced. Both defendants made their initial appearance before a U.S. Magistrate Judge in U.S. District Court in Denver.
According to the Information, beginning as early as in or about March 25, 2011 and continuing at least through in or about May 15, 2014, the defendants knowingly and willfully conspired, combined and agreed with each other, and with other persons both known and unknown, to defraud the United States and the United States Securities and Exchange Commission ("SEC"), by impeding, impairing, defeating and obstructing the lawful governmental functions of the SEC. The conspiracy includes the offenses of securities fraud, mail fraud and wire fraud.
FusionPharm, Inc. (“FusionPharm”) was a Nevada corporation with its principal place of business at first in Denver, Colorado and later in Commerce City, Colorado. FusionPharm’s principal business was the development, manufacture and sale of steel shipping containers retrofitted and refurbished for use as hydroponic growing pods, branded as “PharmPods,” for indoor plant cultivation, primarily cannabis. Defendant Dittman was the founder, chief executive officer and sole director of FusionPharm but, in fact, operated FusionPharm, and pursued and developed its business, together and in concert with defendant Sears, and the two defendants together beneficially held and controlled the majority of the shares of FusionPharm’s common and preferred stock, which was convertible into the company’s common stock. FusionPharm’s common stock was publicly traded in the over-the-counter markets, primarily through transactions involving networks of securities broker-dealers.
Sears would cause shares of preferred stock of FusionPharm held in the name of Microcap to be converted into shares of FusionPharm common stock and deposited into brokerage accounts established in the name of Microcap. He would induce brokers overseeing these accounts to consider and treat these common shares as unrestricted securities that could be immediately sold in the public securities markets by falsely representing to them that neither he nor Microcap was an affiliate of FusionPharm or a control person of the company. Dittman facilitated the deposit of these shares, and their treatment as unrestricted securities, by executing FusionPharm officer certificates and other documentation affirming that Microcap was not an affiliate of FusionPharm.
Sears would then cause the remainder of these preferred shares to be transferred from Microcap’s name into the names of family members or entities held in the name of family members, in order to make it appear that neither he nor Microcap had shareholdings in FusionPharm in such amounts as to deem either Sears or Microcap to be affiliates or control persons under the federal securities laws or to trigger their disclosure as significant shareholders under reporting guidelines. Sears would thereafter cause portions of the FusionPharm preferred shares that had been transferred into the names of these family members and entities, in turn, to be converted into additional common shares of FusionPharm that could be publicly sold later on or that he and Dittman could later use to raise funds for the company in private sales to select FusionPharm investors.
Sears, working in coordination with another individual, would thereafter cause the FusionPharm common shares that had been deposited into the Microcap brokerage accounts to be sold in the public securities markets and, in consultation with defendant Dittman, would deposit significant portions of the proceeds of these FusionPharm stock sales into operating bank accounts of FusionPharm – both directly and through a series of transactions involving Bayside, Meadpoint or Vertifresh – so that the money could then be used to capitalize and operate the company, as well as be used for the defendants’ own financial support.
Sears and Dittman both face one count of Conspiracy to Defraud the U.S., which carries a penalty of not more than 5 years in federal prison, and up to a $250,000 fine. In addition, Sear also faces one count of Filing a False Income Tax Return. That crime carries a penalty of not more than 3 years in federal prison, and up to a $250,000 fine.
This case was investigated by the FBI, IRS Criminal Investigation, and the U.S. Postal Inspection Service.
This case is being prosecuted by Assistant U.S. Attorneys Kenneth Harmon and Tonya Andrews with Special Assistant U.S. Attorney Scott Mascianica.