Two investors in the California-based cannabis business Cannafornia are suing the company’s CEO Paul King, claiming King bought luxury condo units with money stolen from their years-long venture together and launched into a libelous campaign against them.
King has filed his own suit against the investors, alleged Russian expatriates Dimitriy Romantsoff and Roman Temkin (and several others), accusing them of infiltrating his business and stealing money and cannabis clones.
Romantsoff, Temkin and their company GIA Investments, LLC filed suits against King and several of his companies on March 26 and April 9 in Florida’s 11th Judicial Circuit Court in Miami-Dade County.
Xavier Franco, an attorney for Romantsoff and Temkin in the suit filed March 26, declined an interview but provided the following prepared statement to Cannabis Business Times: “As stated in our complaint, our clients are victims of a relentless campaign to impugn their reputations and our firms intend to pursue the substantial remedies available to them under Florida law.”
Lawyers for Romantsoff and Temkin in the GIA Investments suit did not respond to CBT’s request for an interview.
King and his lawyers filed their complaint April 13 in Monterey County Superior Court. It alleges that Romantsoff, Temkin and several others agreed to provide investment funds and help run Cannafornia but committed a host of nefarious acts.
Details of Paul King’s Suit
According to King’s complaint, Romantsoff and other employees allegedly lied about their employment eligibility and social security numbers. King also claims Romantsoff, Temkin and their contacts forced people out of Cannafornia and replaced them with people they knew, in addition to diverting away from Cannafornia millions of dollars that they agreed to raise for the company.
Allegations in the suit are for breach of fiduciary duty, fraud and deceit, negligent misrepresentation, conversion and violations of penal and “business & professions” codes.
The complaint states that King, who founded Cannafornia in August 2017, met Romantsoff and Temkin in November of that year and that in December 2017, Temkin told King that Temkin could raise at least $20 million to fund “manufacturing” and the purchase of 150,000 square feet of greenhouses.
King and Temkin agreed to become partners, with King having control over operations and Temkin overseeing funding, according to the complaint. In January 2018, Temkin’s associate Romantsoff, who the suit later mentions said he had a “hundred million dollar clothing empire in Russia,” convinced King to hire him part-time; Romantsoff began working remotely from Miami and visited Cannafornia every few months, according to the complaint.
Romantsoff and Temkin convinced King to transfer Cannafornia LLC’s assets and liabilities to numerous limited liability companies, according to the complaint. Today, King continues to operate through many of these companies, and Cannafornia LLC is defunct, according to the complaint and Cannabiz Media.
In 2018, Romantsoff began “acting as CFO of Cannafornia,” controlling money that came from investor groups, according to King’s complaint. The complaint also alleges that King and his team didn’t have enough funds to cover construction and renovation, so King frequently paid company expenses using his credit card.
“There was always some kind of problem, there’s always—funds get stuck in Russia, money not coming, there’s problems with construction,” King told CBT. “So, I was always believing them because they did put a couple million in, which is a lot of money.” (The complaint notes they raised roughly $4 million “from Russian investors.”)
In April 2018, the complaint states, Cannafornia planted its first crop; around that same time, Temkin and Romantsoff, who King referred to in speaking with CBT as “the head of the snake,” began hiring their own contacts at Cannafornia—causing things to go more awry.
Out With the Old, In With the New
King’s complaint details how Romantsoff and Temkin allegedly misled and distracted King, in addition to setting up communication barriers between King’s “loyal” employees and people they brought into the company.
The complaint outlines that Temkin promised he would sell a “large commercial building” in St. Petersburg, Fla., to raise about $15 million for Cannafornia. Believing millions more were coming in, King and his team leased a 250,000-square-foot property and a separate 30,000-square-foot property, both in Salinas, Calif., between March and September 2018, the suit alleges; the money never came, and King began spending most of his time working to raise capital for Cannafornia, including at investor conferences.
Romantsoff started full-time work at Cannafornia around January 2019, according to the complaint; he held the title of “board advisor” and took over COO duties, in addition to those of CFO.
He and Temkin convinced King to form Cannafornia Holdings Inc., which, according to the complaint, “owns a 100% equity interest in” numerous entities the group had formed. The companies were then restructured again, with the goal of listing Cannafornia on the Canadian Stock Exchange.
The complaint alleges that while King had been traveling, Romantsoff listed his wife, Anastasia Bukharova, and a business partner of his on the license application for the 30,000-square-foot property in Salinas but didn’t comply with background-check and fingerprinting requirements, “resulting in the California Department of Food and Agriculture (CDFA) denying the cannabis license applications and shutting down operations at the site,” according to the complaint. “As a result, Plaintiffs suffered damages in the amount of no less than $2,100,000.00,” the complaint states. (Rebecca Forée, communications manager at CDFA’s CalCannabis Cultivation Licensing division, said the department could not comment on the supposedly 30,000-square-foot Salinas property.)
“As a general matter, we are seeing more and more litigation in the cannabis industry, both the marijuana industry and the hemp industry,” Goldberg said. “The types of cases really run the gamut of civil litigation.” – Seth A. Goldberg, partner at Duane Morris and team lead of the firm’s cannabis group
“Dimitriy’s wife, Anastasia Bukharova, is the one that he filed a lot of paperwork under,” King told CBT. “He doesn’t want his name on stuff, so he puts her name.”
Romantsoff also brought his sister, Anastasia Romantsova, into the business around June 2019, according to King’s complaint.
Over time, Romantsoff, Temkin and people they and their associates put in charge in different positions at Cannafornia forced out those who had expressed loyalty to King, according to the complaint. They also put restrictions in place so people within the company couldn’t reach King, according to the complaint, which alleges that Romantsova allegedly terminated the former human resources manager and took over HR responsibilities.
“Between September 2019 and February 2020, Romantsoff, Romantsova, and Romantsova’s husband Roman Severchukov, terminated more than 30 Cannafornia employees, including many of the employees who had a long history working with King or who they perceived as being loyal to King,” the complaint reads.
The complaint alleges that Severchukov asked one employee to “take care of [another employee] and to find out what she did after work, where her daughters went to school, and with whom she associated outside of work,” according to the complaint.
King told CBT that around the middle of 2019 he noticed money was missing from Cannafornia’s bank accounts. However, he said that it took him time to figure out what was going on. “I questioned things, and at the same time, things aren’t adding up,” King said. “But it takes me a while because they’re playing mind games with me the whole time, too, like Dimitriy is telling me he hates Roman, and Roman is telling me he hates Dimitriy.”
King’s Later Alleged Discoveries
Around early March 2020, according to the complaint, King terminated Romantsoff, Romantsova, Bukharova, Severchukov, Bukharova’s stepson Timur Daulbaev, and Dinara Akzhigitova, who had become controller of Cannafornia at Romantsoff’s recommendation. King then allegedly discovered that none of them had legal work authorization.
“Plaintiffs are informed and believe that these individual defendants had provided I-9 employment eligibility forms with falsiﬁed information, fake social security numbers, and related false documents suggesting that they were permitted to work lawfully in the United States when in fact they were not,” the complaint reads. “Importantly, when Plaintiffs searched for the personnel ﬁles that were controlled by these individuals during their tenure at Cannafornia, Plaintiffs discovered that they had all been physically removed from Cannafornia’s headquarters and/or erased from Cannafornia’s electronic database.”
The complaint also states that one day after they lost their jobs, Romantsoff, Romantsova and Akzhigitova “cancelled Plaintiffs’ payroll services and removed Cannafornia’s website,” causing further issues for King and the rest of his team.
After Romantsova’s termination, Cannafornia’s cloning manager shared with King that Romantsova had previously asked employees to load clones onto her truck in the evenings when many of the employees weren’t there, according to the complaint.
“For example, on January 22, 2020, Romantsova ordered [the cloning manager] to load approximately 3,000 clones without the required track-and-trace ‘METRC’ tags into a truck for her,” the complaint reads. “The clones could not be sold by Cannafornia due to their lack of the required METRC tags.”
The complaint alleges that Romantsoff, Romantsova, Severchukov and Daulbaev began selling the plants to third parties “immediately after they began working at Cannafornia.” They allegedly sold “tens of thousands of clones” “at a value of over $250,000.00 which they failed to report to Cannafornia and for which they retained the proceeds.” In addition, they underreported sales numbers and pocketed the difference between the reported figures and actual money received, according to the complaint. And, according to the complaint, they collected cash from the sales department and kept it for themselves.
“Plaintiffs are informed and believe, and thereon allege, that as a result of these schemes, between July 2019 and February 2020, defendants Romantsoff, Romantsova, Severchukov, and Daulbaev retained for themselves no less than $600,000 in cash belonging to Cannafornia,” the complaint reads.
The complaint also notes that Romantsova, Severchukov, Akzhigitova and Daulbaev all forged King’s signature on checks to themselves, totaling, respectively, about $79,000, $95,000, $27,000 and $14,000.
King told CBT that in spring 2020 he discovered “that all these little coincidences—or all these little problems—that have happened at the farm have all been planned the entire time. They turned people on me at the farm, they turned salespeople against me. It’s a cash business, so it’s hard to account for everything all the time.”
Cannafornia was successful in raising funds between June 2019 and January 2020, according to King’s complaint. This included a supposed raise of about $9.6 million in U.S. dollars after fees, from Canadian investors. However, Romantsoff allegedly instructed an attorney handling wire transfers to deposit money into Romantsoff’s and Temkin’s accounts, including Jane, Inc., and Cross Atlantic Builders, LLC, which are defendants in King’s complaint.
The complaint also claims that Romantsoff and Temkin agreed with King on a $21 million investment in Cannafornia from Russian investors “in exchange for a 37% interest in Cannafornia Holdings for the Russian investors”; they then agreed to increase that percentage to 50%,.
The plaintiffs believe that Romantsoff and Temkin actually did raise $21 million from Russian investors, but moved $15.4 million into their own entities, including Septaria US, LLC, another company named as a defendant in King’s suit.
King told CBT he won’t capitulate as the court cases proceed. “Even if they offer to give all their shares back plus a big cash payment, we’re not settling because these people need to be stopped,” he said. “And we have so much information on them now that if we don’t stop them, then it is going to just keep getting worse and worse with their schemes, and [they’ll] just keep hurting people.”
In addition, King said he will be more careful in his business dealings in the future. “It’s easy to say that you should do your due diligence on partners and you should really know who you’re working with,” he said. “But if someone’s planning a scheme on you from Day One and you have good intentions to just build a good company, it takes you way longer than you want it to, to realize what’s going on. And I don’t even know how you figure it out. Now, I’m just going to be paranoid about everything.”
The Other Side’s Suits
As King alleges misconduct by Romantsoff, Temkin and their associates, the two men have filed their own lawsuits that paint a different picture of King.
GIA Investments, allegedly acting “individually and derivatively on behalf of” King’s Cannafornia Holdings Inc. and California New Wave I, LLC, filed the April 9 complaint in the court’s Complex Business Litigation Division. The GIA suit alleges that Cannafornia Holdings Inc. and California New Wave I, LLC borrowed $3 million from GIA and never paid back the loan. It also claims that King stole almost $2 million, treated his companies “as his personal piggy bank” and used funds to purchase condominium units.
Seth A. Goldberg, partner at Duane Morris and team lead of the firm’s cannabis group—and who is not involved in the suit—told CBT the likely reason the same companies are listed as both plaintiffs and defendants in the same suit is because GIA claims to be acting in the interest of Cannafornia due to its dispute with King.
King told CBT that the $3 million loan is fraudulent and he never signed it.
The GIA Investments complaint also states that between February and April 2018, King transferred about $921,000 to his own account and used the money to buy Florida real estate. In addition, the complaint says King transferred roughly an additional$822,000 to his own account and used it to buy real estate.
Much of the money from these transfers, according to GIA’s complaint, was transferred again to the companies 1401 Investments 500, LLC and 803 Investments, Inc. The stolen money, the complaint alleges, went toward the purchases of a nearly $998,000 condo unit in Miami and a $775,000 condo unit in Miami Beach.
Romantsoff and Temkin’s March 26 complaint against King, filed in Fla.’s 11th Judicial Circuit Court General Jurisdiction Division, outlines “a malicious campaign by the Defendant to disseminate false and inherently damaging statements about Plaintiffs in an effort to gain leverage in a business dispute between the parties.”
Among King’s wrongdoings as part of his alleged disinformation campaign, according to Romantsoff and Temkin’s March 26 complaint, was posting a YouTube video that “contains multiple false and defamatory statements, as follows: (a) the Plaintiffs defrauded US citizens via a real estate scheme in Miami, and (b) the Plaintiffs stole hundreds of millions of dollars in Russia.”
King also sent a March 18 email to an alleged business contact, according to their complaint, which said that Romantsoff and Temkin tried to defraud him and that he is “currently suing them in every way imaginable.” Their complaint states that neither of these statements were true at the time.
Their complaint also claims that King sent “harassing and threatening emails and text messages to the Plaintiffs’ family members.”
A Broader Context
These cases, Goldberg said, provide “a good example of why courts look at litigation on a case-by-case basis.” Multiple allegations and parties, alongside unique facts, are not unique to the cannabis industry, but partnership disputes are becoming more common in the cannabis market, alongside other types of litigation, he said.. (However, he noted, some courts won’t hear cases that involve non-hemp cannabis; the courts claim they don’t have jurisdiction because the crops is federally legal.)
“As a general matter, we are seeing more and more litigation in the cannabis industry, both the marijuana industry and the hemp industry,” Goldberg said. “The types of cases really run the gamut of civil litigation. They involve commercial disputes, like breach of contract, breach of supply agreements, they involve securities claims brought by private shareholders against publicly traded companies.”
When forming partnerships, such as between cultivation companies and investors, Goldberg said it’s important to conduct due diligence. “Then, you can use contract provisions, whether it’s affirmative covenants or conditions, either pre-execution or post-contractual conditions,” he said. “[Those] post-closing conditions, let’s say, … can give you the assurance you need to make the investment. If your counterparty isn’t willing to agree to those terms, maybe that tells you don’t do the deal.”
Partners can also build compliance requirements into their agreements to ensure everybody is following state law, Goldberg said.
“I think something like clones going missing, something about business operations, really gets to compliance,” Goldberg said. “It’s hard to imagine, given the seed-to-sale tracking that every state has employed, that clones would go missing, given that there should be some tracking, some compliance measures in place.”
When asked about evidence relating to allegations of stolen clones and forged checks, King said the following in an email: “We currently have evidence to support allegations in our lawsuit, and we look forward to presenting that evidence in court. We also anticipate that the discovery process will reveal further evidence of wrongdoing by the defendants.”
Published at Wed, 03 Jun 2020 17:21:00 +0000