Massachusetts regulators have charged a registered investment advisor with allegedly using a bogus medical marijuana scheme to defraud more than 100 investors out of millions of dollars.
Advisor Frederick V. McDonald Jr. of Beverly, Mass.-based US Advisory Group Inc. oversaw the solicitation of millions of dollars from the investors through sham medical marijuana ventures, according to state Secretary of the Commonwealth William F. Galvin.
The advisor never acquired the medical marijuana licenses necessary to create businesses and no dispensaries were ever opened, Galvin said.
McDonald funded several of his ventures with funds from a wealthy 78-year-old client whom he scammed out of more than $3 million, state regulators said.
Investors were conned out of more than $8 million in assets from 2013 to 2019 and saw no returns on their investments, according to the administrative complaint filed by Galvin’s securities division on Wednesday.
“McDonald’s free-wheeling practices included cutting corners at every opportunity and lying to his own business partners and investors to cover his own mistakes,” the complaint stated.
McDonald is accused of concealing crucial information from the investors, breaching his fiduciary duty to clients, withholding information about his own conflicting interests in the investments he was recommending and failing to disclose key risk factors in the cannabis industry.
Medical marijuana was legalized in the state in 2013, but the process for obtaining a license to sell or grow the product is rigorous. “McDonald failed to educate himself regarding the unique and complex licensing process in Massachusetts, which resulted in the distribution of offering documents that failed to adequately disclose to investors the risks or difficulties the investment could face,” the complaint said.
While McDonald and his partners planned to start a medical marijuana venture, a lack of transparency and communication led to funding issues, according to regulators. McDonald and his partners jointly raised money for the venture, but when his partners began to dispute existing agreements, the relationship collapsed. They failed to obtain a lease or license and never returned client investments, according to the complaint.
McDonald and his partners also deliberately hid the identity of an individual who acted as an agent and fundraiser for their potential dispensary since the individual’s criminal record could have led to denial of a license, the securities division alleged.