A hemp company is among 10 microcap companies charged by the U.S. Securities and Exchange Commission (SEC) for offering and selling securities in unregistered offerings that failed to comply with Regulation A, which allows a limited exemption from registration under the Securities Act so that companies can raise money from the public as long as they meet specific requirements.
Hemp Naturals Inc., a Delaware corporation based in Sunny Isles Beach, Florida, agreed to pay a $50,000 civil penalty and to cease and desist from violations of Section 5 of the Securities Act.
According to the SEC, between December 2019 and May 2022, each of the 10 companies obtained qualification from the agency for their securities offerings using Regulation A, but they subsequently made one or more significant changes to their offerings without meeting the requirements of the exemption. The SEC found that such changes included improperly increasing the number of shares offered, improperly increasing or decreasing the price of shares offered, failing to file updated financial statements at least annually for ongoing offerings, engaging in prohibited at-market offerings or engaging in prohibited delayed offerings.
In a press release, Daniel R. Gregus, director of the SEC’s Chicago Regional Office, said that “Companies that choose to benefit from Regulation A as a cost-effective way to raise capital must meet its requirements.”
“These actions stand as a reminder that companies which choose to circumvent Regulation A’s requirements by engaging in prohibited conduct or making fundamental changes to their offerings without qualification will face action by the SEC.” — Gregus in a statement
According to the SEC complaint against Hemp Naturals, the company’s business plan involves selling branded CBD products and its common stock trades on the OTC Link operated by OTC Markets Group Inc. Hemp Naturals’ stock was registered under the Securities Exchange Act from February 2016 until April 2019.
The SEC found the company sold 830 million shares, raising more than $3 million under Regulation A, despite the offerings not falling under Regulation A guidelines.
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