Former Chairman of Health Care Company Board of Directors Pleads Guilty to Selling Unregistered Securities
For Immediate Release
U.S. Attorney's Office, District of Massachusetts
BOSTON – The former chairman of the Massachusetts-based company Arch Therapeutics, Inc. pleaded guilty yesterday to three felony securities offenses, two of which concerned his undisclosed sale of over $1.3 million worth of company shares.
Avtar Singh Dhillon, 61, of Long Beach, Calif., pleaded guilty to one count of willful failure to disclose stock sales, one count of aiding and abetting the sale of unregistered securities and one count of touting compensation nondisclosure conspiracy. U.S. Senior District Court Judge Douglas P. Woodlock scheduled sentencing for April 18, 2023. Dhillon was arrested and charged by criminal complaint in August 2021. He was subsequently charged by an Information on Sept. 30, 2022.
Dhillon and his then attorney, Daniel V. Martinez, placed 2.75 million Arch Therapeutics shares that Dhillon beneficially owned into a limited liability company that Martinez created. Dhillon and Martinez then worked together to sell the shares in the open market without a valid exemption under the relevant securities laws and to distribute the approximately $1.34 million in proceeds. The proceeds were distributed primarily to third parties for Dhillon’s benefit, with a small portion distributed to Martinez directly. Dhillon thereafter willfully failed to report the stock sales to the U.S. Securities & Exchange Commission and the investing public, as he was required to do.
Martinez was also charged and has agreed to plead guilty to one count of sale of unregistered securities. Martinez’s plea hearing is scheduled for Dec. 15, 2022.
Separately, Dhillon also participated in a securities conspiracy involving the nondisclosure of compensation paid to a subscription newsletter analyst. Specifically, Dhillon agreed with others to cause Emerald Health Pharmaceuticals (EHP), a life sciences company in San Diego, to indirectly compensate a subscription newsletter analyst to tout a securities offering by EHP without the analyst or the newsletter disclosing the compensation, as required under securities laws. Dhillon was both a one-time board member of and an indirect shareholder in EHP, which raised tens of millions of dollars in the securities offering.
The charge of willful failure to disclose sales provides for a sentence up to 20 years in prison, three years of supervised release and a fine of $5 million. The charge of sale of unregistered securities provides for a sentence up to five years in prison, three years of supervised release and a fine of $10,000. The charge of touting compensation nondisclosure conspiracy provides for a sentence up to five years in prison, three years of supervised release and a fine of $250,000, or twice the gross gain or loss, whichever is greater. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and statutes which govern the determination of a sentence in a criminal case.
United States Attorney Rachael S. Rollins and Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Office made the announcement. Valuable assistance was provided by SEC’s headquarters, Boston and Los Angeles regional offices. Assistant U.S. Attorney James R. Drabick of Rollins’ Securities, Financial & Cyber Fraud Unit is prosecuting the case.
The details contained in the charging documents are allegations. The remaining defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
Updated December 8, 2022
Securities, Commodities, & Investment Fraud