(Bloomberg) — CannTrust Holdings Inc.’s former chief executive officer, chairman and a board director have been charged with fraud and other offenses related to breaches of cannabis growing rules in Canada.
The charges against former CEO Peter Aceto, former Chairman Eric Paul and former Vice Chairman Mark Litwin include making false statements to the Ontario Securities Commission and to the market, and authorizing or allowing other crimes, the regulator said Tuesday. Litwin and Paul were also charged with insider trading.
The illegal activity allegedly took place just as Canada legalized recreational cannabis in October 2018. News of the false statements hit the nascent industry hard, sending several already-ailing pot stocks lower. Around the same time, Health Canada was receiving criticism for being too slow to grant cannabis production licenses at a time when new companies were struggling to gain market share and legitimize recreational pot.
Canada’s cannabis industry has never returned to its 2018 height, when investors poured into the newly legalized sector. The Horizons Marijuana Life Sciences Index exchange-traded fund was trading around C$10.30 ($8.34) on Tuesday, less than half its peak of C$27 reached in October 2018.
CannTrust has lost more than 70% of its market value since securities regulators said in August 2019 that they were investigating the company, after government inspectors discovered that the company was growing cannabis in unlicensed parts of its greenhouse in Pelham, Ontario.
The company’s license was suspended by the Canadian government, and it hired Greenhill & Co. to explore a possible sale.
The charges announced Tuesday stem from efforts to conceal the illegal growing of cannabis during a 10-month period in 2018 and 2019, the regulator said. The executives failed to disclose to investors that about half of the total growing space at the Pelham facility wasn’t licensed by Health Canada, the government says.
The executives instead said in news releases, analyst calls, prospectuses and other disclosures that CannTrust had complied with regulatory requirements, the regulator said. Litwin and Paul also traded shares of CannTrust while in possession of the material, undisclosed information about the unlicensed growing, the OSC said.
The lawyers of all three men said they would dispute the charges.
Frank Addario of Addario Law Group LLP, who said he is Aceto’s lawyer, said his client would plead not guilty. “I look forward, as does Peter and his family, to a public hearing where the evidence will show that he acted with integrity at all times,” Addario said by email.
Litwin’s lawyer, Scott Fenton of Fenton, Smith Barristers, said by email that his client had fully complied with his legal obligations and committed no crimes. “Mr. Litwin intends to vigorously dispute the charges that have been made against him,” Fenton said.
Paul’s lawyer, Paul Le Vay of Stockwoods Barristers, said his client was confident that evidence would show he did nothing wrong. “We look forward to vigorously defending him against the charges and answering the allegations,” Le Vay said by email.
The executives are scheduled to appear in the Ontario Court of Justice on July 26.
(Adds lawyer comment from paragraph 9)
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