Danvers Company To Face Public Fraud Charges

The Securities and Exchange Commission announced on Thursday charges against four individuals and two companies for conducting a scheme to defraud investors by misappropriating investment funds and concealing the ownership and control of a publicly-traded company in order to enrich themselves by colluding in the sale of hundreds of millions of shares into the public market.

The SEC alleges that Christopher Esposito of Topsfield accomplished the first phase of his fraudulent scheme by raising more than $550,000 from investors between June 2011 and June 2012 in an unregistered offering of securities for his company Lionshare Ventures. Esposito allegedly spent $300,000 of Lionshare investor funds on his own unauthorized personal expenses. He used $75,000 to acquire the publicly traded company Cannabiz Mobile, Inc. by purchasing all of its convertible debt.

Cannabiz initially claimed to be in the business of mineral exploration, and later claimed to be in the business of medical marijuana.

In the second phase of Esposito’s alleged scheme, between May 2012 and August 2015, he, along with Anthony Jay Pignatello of Manhattan Beach, Ca., concealed his control of Cannabiz and a large percentage of Cannabiz’s securities for their own profit by evading SEC Rule 144, which limits securities sales by affiliates. Esposito installed James Gondolfe of Cambridge, Ma. as the sole officer and operator of Cannabiz, although Esposito secretly controlled the company. Esposito allegedly encouraged Gondolfe to make false statements about Cannabiz’s public filings and other documents, paying third-part stock promoters to tout the Cannabiz stock in order to increase its stock price and trading volume. They then allegedly sold significant amounts of Cannabiz’s convertible debt to others for a total of $304,000, with Pignatello and Rene Galizio of Loxahatchee, Fl. Selling millions of shares of Cannabiz stock directly into the public market.

The SEC alleges that Esposito, Pignatello, Gondolfe, Lionshare, and Cannabiz violated, aided, or abetted violations of the antifraud provisions of Section 10b of the Securities and Exchange Act of 1934 and rule 10b-5 thereunder, and Section 17a of the Securities Act of 1933, and all defendants violated the securities registration provisions of Sections 5a and 5c of the Securities Act.

Photo courtesy of Karen Neoh via Flickr