Do cbdMD Inc.’s celebrity endorsers know who they’re doing business with?

Jim McNair contributed to this report

Two-time Masters champion Bubba Watson, who refers to himself on Twitter as a Christian, husband, daddy and golfer – in that order — has lent his name and reputation to a public company run jointly by a pornographer and a promoter with ties to multiple business failures and frauds. So have volleyball player Kerri Walsh Jennings, a three-time Olympic gold medalist, and retired NFL player Steve Smith Sr., a five-time pro bowl pick.

They are among more than 40 current or former athletes who signed endorsement deals with cbdMD Inc. (AMEX: YCBD), a Charlotte, N.C.-based company that markets cannabinoid oils, lotions, bath bombs, tinctures and even pet treats.

R. Scott Coffman, who became cbdMD’s co-chief executive in July, also operates the Adult Entertainment Broadcast Network. It offers streaming porn on a pay-per-minute basis and produces its own adult videos. His connection to AEBN was not disclosed in the biographies that cbdMD included in key Securities and Exchange Commission filings, such as the proxy statement for its annual meeting or the prospectus for a recent stock offering.

Coffman also was one of the creators of the blu e-cigarette brand, which helped usher in the vaping trend that has led to a surge in nicotine use by American teens.

Coffman is cbdMD’s biggest shareholder. SEC filings show that he owns or controls at least 11.6 million shares, or 42 percent of the total outstanding. He stands to receive as many as 14 million additional shares if the company hits certain revenue targets..

The other co-CEO, Martin A. Sumichrast, was the subject of a Sharesleuth investigation in 2008. It detailed his links to fraud schemes dating back to the early 1990s and the “Wolf of Wall Street,” Jordan Belfort, whose corrupt brokerage manipulated the public offerings of more than 30 companies, including one in which Sumichrast and his father were officers.

Since we published those findings, the share prices of five Sumichrast-connected companies featured in that report have fallen to zero, or something very close to it. Three were Chinese companies that gained listings on U.S. exchanges through reverse mergers. They no longer file financial reports and have all but vanished.

A fourth, Heart Tronics Inc. (OTC: HRTT) was charged with fraud by the SEC in 2011. An attorney who secretly controlled the company and created false press releases to boost the stock price while he dumped shares also was charged criminally. He is now in prison.

The fifth company, House of Taylor Jewelry (formerly AMEX: HOTJ) filed for bankruptcy just a few years after going public. In short, none of the public companies that Sumichrast has helped to launch or finance over the past 25 years has been a long-term success. And although those ventures helped to enrich Sumichrast and other early backers who got stock on the cheap, they have been losers for buy-and-hold retail investors.

More recently, Sumichrast was co-founder of Siskey Capital LLC (now Stone Street Partners LLC). Its namesake, Richard Siskey, committed suicide in December 2016 while under investigation for orchestrating a Ponzi scheme that took in tens of millions of dollars from investors. Sumichrast said in court filings that he was unaware of Siskey’s activities.

Sumichrast has never been charged with wrongdoing by the Securities and Exchange Commission or other regulatory or law-enforcement agency. But the Nasdaq did delist the shares of a brokerage firm he headed after an internal investigation concluded that he sold ownership interests to at least two financial felons who served time in prison.

Nasdaq officials never publicly revealed the reason for the delisting of that company, Global Capital Partners Inc. (formerly Nasdaq: GCAP) .



cbdMD is trying to cash in on the growing popularity of hemp-based CBD products, which got a boost in December from federal legislation that removed hemp from the government’s list of controlled substances.

CBD’s proponents have claimed, often without evidence, that cannabidiol helps relieve anxiety and depression, reduces nerve and muscle pain and even inhibits the progression of cancer and Alzheimer’s disease.

Although sales of hemp-based CBD products in the United States were well under $1 billion in 2018, some market research firms have projected that total revenue could reach or exceed $20 billion by the middle of the decade. That figure, however fanciful, would exceed the domestic market for chocolate, for energy drinks and perhaps even for medical and recreational cannabis, now legal in more than half of the country.

cbdMD is trying to differentiate itself from rivals through endorsements from athletes and other influencers, including Internet-famous cats. It also is trying to set itself apart through representations about the quality and purity of its products. It says that all of its CBD comes from organically grown hemp and is free of synthetic pesticides. It also says that batches of all of its products are tested by a third-party laboratory.

cbdMD reported net sales of $8 million for the three months that ended June 30. That was up more than 40 percent from the previous quarter.

But the company also posted an operating loss of $8 million, and a net loss of $29 million. The bigger number reflected liabilities for additional shares it might have to issue to Coffman, Sumichrast and perhaps others. Those shares would have a current market value of $60 million. Based on the financial guidance that executives provided in a conference call last month, many of them could be earned by the end of next year.

At the rate cbdMD is burning cash, it will have to raise more capital or reverse its losses to survive that long. According to its latest quarterly financial report, the company had $11.6 million in cash as of June 30.

That meant it used up all of the $4.6 million it had on March 31, plus some of the $12.5 million it netted from a stock offering in May.

cbdMD announced plans last week to sell as many as 1.44 million shares of a new class of preferred stock, which could bring in an additional $13 million.

cbdMD did not provide answers to written questions submitted by Sharesleuth. Instead, we got a letter from an attorney who asserted that our questions and supporting material contained false and defamatory information, and suggested the company might sue.

Just to be clear, our focus on co-CEO Coffman’s involvement in the adult-entertainment business is not based on moral or ethical objections. Rather, it is based on the idea that public companies should disclose key facts so that investors – as well as people who promote or partner with those businesses  – have full information.

(Disclosure: Chris Carey, editor of, does not invest in individual stocks. Mark Cuban, owner of LLC, does not have a position in any of the stocks mentioned in this story).



cbdMD is the successor to a money-losing Sumichrast creation called Level Brands Inc.

Level Brands went public in 2017, and functioned mainly as a licensing and marketing vehicle for ex-supermodel Kathy Ireland’s home, fashion and beauty lines.

In essence, it acquired the rights to certain brands, services and images from Ireland so that it could in turn license them to additional users. Some of those licensees were other public companies with connections to Sumichrast.

Ireland and two of her lieutenants at Level Brands previously were key players at House of Taylor, the company that Sumichrast helped to bring public in 2005. It was set up to market jewelry under licensing deals with Ireland and actress Elizabeth Taylor.

In 2006 and 2007, Sumichrast and certain associates sold millions of dollars of stock they received around the time the company was created. Those transactions got little notice because they didn’t show up on the SEC’s main disclosure system.

In 2008, House of Taylor filed for bankruptcy.

Financial reports showed that the company actually derived the bulk of its revenue not from the Ireland and Taylor jewelry brands, but from trading in loose diamonds. Much of that revenue later was wiped out by returns of those same stones.



SEC filings show that entities linked to Sumichrast, Ireland and her two lieutenants, Erik Sterling and Jason Winters, sold more than $6 million in Level Brands stock earlier this year, before the company renamed itself cbdMD.

Our analysis found that Sumichrast’s firm, Stone Street Partners, paid no more than $1 million for its shares. Ireland’s group got most, if not all, of its shares at no cost, through the original licensing arrangement and related deals.

The last of the share disposals came just a few days before the company paid for the CBD business by issuing 15.2 million new shares to Coffman and his partners.

We also noted that the annual financial report that Level Brands filed with the SEC in December showed that more than half of its $12.9 million in reported revenue for fiscal 2017 and 2018 came not in cash, but in the stock of other companies.

The market prices of those companies’ shares have fallen sharply, which forced Level Brands, and now cbdMD, to book more than $4.2 million in unrealized losses through the end of June. The reduction in the value of those securities essentially nullified Level Brands’ previous claims of profitability, which Ireland touted before she rang the opening bell at the New York Stock Exchange in August 2018.

The acquisition of the CBD operation has shifted the focus away from the troubles of the legacy business. cbdMd’s shares closed $2.88 on Dec. 21, the day the deal closed. They hit $4 in January, $5 in February, and reached a high of $7.24 on May 7. That was just before the company announced a stock offering, which was priced at $6 a share.

cbdMD’s stock closed Wednesday at $4.02, giving the company a market capitalization of $111 million.



cbdMD has been aggressively marketing itself through sports sponsorships and other branding initiatives, including the creation of National CBD Day (Aug. 8) and National Hemp Day (Feb. 4). It also has been using paid promotional articles.

But it is trailing its better-established rivals in revenue generation and market penetration.

The company had $19 million in revenue for the first nine months of its current fiscal year. It said in its earnings release it expects sales of $24 million to $26 million for the full year.

cbdMD says revenue for its next fiscal year should reach $80 million to $90 million, which would translate to an annual growth rate of more than 200 percent.

That still would leave it well behind the CBD industry’s leader, Charlotte’s Web Holdings Inc. (OTC: CWBHF). That company had $69.5 million in revenue for 2018, and $11.8 million in net income.

Charlotte’s Web reported $46.7 million in sales for the first six months of 2019. It is projecting revenue of $120 million to $170 million for the full year. Charlotte’s Web has distribution deals with several large retailers, including the CVS pharmacy chain and Kroger Co. (NYSE: KR), which has more outlets than any other U.S. supermarket operator.

Charlotte’s Web also has much more capital at its disposal. It finished the latest quarter with $51.4 million in cash.

Another of cbdMd’s rivals, CV Sciences Inc. (OTC: CVSI), had $48.2 million in revenue last year, and just over $10 million in profits. It reported $31.8 million in revenue for the first half of 2019, putting it on pace for more than $60 million in sales this year.

But it has gone from profit to loss, primarily because of sharply higher spending on sales, marketing and research and development. cbdMD also has stepped up its spending in those areas. In addition to signing athletes to promote its products, it is a sponsor of the Big3 professional basketball league and the Bellator mixed martial arts circuit.

cbdMD said in its latest quarterly financial report that it entered into an endorsement deal with a professional athlete in May that called for up to $4.9 million in payments, depending on the number of events played, the number of public appearances and other variables.

The maximum payment was set at $400,000 this year, $800,000 for 2020 and $3.7 million over the next two years. Although cbdMD did not identify the athlete, May was the month it announced its partnership with Watson.

Watson’s representatives did not respond to questions from Sharesleuth.

SEC filings do not offer any clues about how much the company is paying Walsh Jennings, Smith, or Olympic track and bobsled competitor Lolo Jones, who are among the featured athletes on cbdMD’s web site..

But the company said it spent $2.6 million on advertising, marketing and promotion in the three months that ended June 30, or almost one third of its net sales.

Other notable members of what the company calls “Team cbdMD” include:

– Jonathan Stewart, the Carolina Panthers’ all-time leading rusher.

– Quinton “Rampage” Jackson, former Ultimate Fighting Championship light heavyweight title holder.

– James “Flex” Lewis, a bodybuilder and 7-time Mr. Olympia winner.

– Vicki Golden, a freestyle motocross rider and four-time X Games gold medalist.

– Ashley Kidd, a three-time winner in the World Wakesurfing Championships.

The list of athletes also features skateboarders, surfers, bicycle motocross riders and others whose fan base would skew toward younger consumers.



cbdMD also is chasing the CBD market for pets — namely cats, dogs and horses.

President Caryn Dunayer said in an earnings call with analysts last month that the company expects gains on that side of the business to fuel much of the revenue growth it is projecting for 2020.

Just as cbdMD has signed athletes to endorsement deals, the company is paying the owners of certain cats with large followings on Instagram, YouTube and other Internet platforms to promote its products.

Its roster of so-called catfluencers has included Lil Bub, Nala Cat, Venus the Two Faced Cat and White Coffee Cat. The four felines have a combined 10 million followers on Instagram and 7 million on Facebook.

A recent CNN story on the couple who own Nala and White Coffee said that the starting price for an Instagram post linking Nala to a brand is $8,000. We found 13 Instagram posts in which Nala was pictured with cbdMD products, starting in May 2018 and continuing through August of this year.



cbdMD is making a push to increase its visibility and expand its market share at the same time the Food and Drug Administration is paying closer attention to the claims that CBD retailers are making for their products.

Limited studies – most involving animals — have suggested that cannabidiol might be used to manage anxiety, insomnia and chronic pain. But those health claims and others have not been proven by human studies. The FDA has approved only one drug that contains CBD; it helps reduce the number of seizures in children with certain types of epilepsy.

The FDA has sent warning letters to at least four companies this year, saying reviews of their websites and marketing materials revealed unsubstantiated assertions that hemp-derived CBD products could help fight cancer, slow the progress of Alzheimer’s disease, lift depression and ease chronic pain.

cbdMD made similar claims in blog posts and product descriptions (see examples here, here, herehere and here ). Among other things, those posts said CBD products could:

– Boost brain power

– Slow aging

– Battle cancer

– Improve digestive functions

– Combat allergies

– Ease side effects of menopause

– Minimize hangover symptoms

– Reduce pain, anxiety and inflammation in cats and dogs

Those posts no longer appear on the company’s web site, and it now relies on more general statements about “daily wellness” routines and “overall quality of life.” cbdMD also relies on the more-specific testimonials of its athletes and other celebrity endorsers, including singer Joe Jonas, who have said that the company’s products helped them sleep better, alleviated pain, and aided their recovery from workouts and competition.

Some of cbdMD’s ads, however, give the impression that its products can promote heart health, as well improve athletic performance. And the company’s very name could lead some people to believe that its products have proven medicinal properties.



Dr. Scott Gottlieb, who was commissioner of the FDA from May 2017 to April of this year, said in a op-ed piece in the Washington Post last month that the CBD craze was getting out of hand and that his old agency should rein it in.

Gottlied had certain conflicts in the CBD field while he was running the agency. The financial disclosure statement that he submitted prior to his confirmation as commissioner showed that he received more than $1.8 million in 2016 and the first two months of 2017 from investments made through T.R. Winston, where he was a managing director.

That is Runnels’ investment banking firm. Gottlieb was a director of Kure Corp., a privately held company in Charlotte that sold e-cigarettes and vaping liquids and also was eyeing the CBD market. T.R. Winston and Sumichrast’s Stone Street Partners raised millions in capital for Kure. Sumichrast was vice chairman and also was a significant shareholder.



Coffman launched the CBD business in 2017 under the name Cure Based Development LLC.

Stories about Coffman in newspapers and trade publications portray him as a serial entrepreneur who in earlier years marketed herbal supplements, drew comics and hawked towels that Carolina Panthers fans waved at NFL games.

In addition, he published a regional adult-entertainment magazine, ran a mail-order adult video business from his home and was a part owner of at least two adult bookstores.

He launched AEBN in 1999. The company says on its website that its library includes 100,000 movies, and that its video-on-demand service has more than 10 million subscribers worldwide. It was the first to stream content to television sets.



Our investigation found that Coffman also was one of the operators of Netwinner LLC, which was launched in 2006 and ran an online site where people could play games and watch ads in return for financial rewards.

Netwinner originally sent checks to players, then switched to gift cards and later to prepaid credit cards. In May 2008, citing financial hardship, it changed its prize system and said players no longer could convert their points to money.

Instead, their points went toward entries in a raffle with far fewer winners.

The Better Business Bureau in Charlotte put Netwinner atop its “Dirty Half Dozen” list that year, noting that the company had 58 unanswered complaints, and 236 total complaints over the previous three years.



Coffman and some of his partners in the CBD, adult video and e-cigarette businesses operate through a network of limited liability companies that tend to obscure their connections, as well as their financial interests.

We found multiple points of overlap between cbdMD, AEBN, Netwinner and the Blu e-cigarette business.

For example, corporation filings listed Coffman as registered agent for Casual Advertising LLC and AdStreams LLC, two entities involved in the operation of Netwinner.

Matt Coapman, who was identified in Netwinner’s press releases as senior vice president of development, previously was global marketing manager at Datatech Global LLC. That is one of the entities behind AEBN.

Datatech Global once was listed as the registrant for AEBN’s main internet domain, and some of its ancillary domains (including, and more).

Coapman later became marketing manager for the Blu e-cigarette business, which was launched in November 2008., an adult-entertainment trade publication, described AEBN as a partner with Blu in the release of the e-cigarette, while noting that they were separate companies.

William F. “Billy” Raines III, who became a member of cbdMd’s board of directors earlier this year, currently is chief executive of Datatech Global. He previously was CEO of another limited liability company that manufactured the e-cigarettes.

Instead of noting Raines’ involvement with the adult-video business in its SEC filings, cbdMD simply said that Datatech Global was a privately held technology company that “focuses on online sales and marketing.’’

The merger agreement between Level Brands and the CBD business listed Coffman with a Datatech Global email address. That same document showed that six of 10 entities that received the original 15.2 million shares issued in the deal were LLCs that used AEBN’s headquarters address as their own.

Although the document listed the people who manage or control those LLCs, it did not say who actually would become the beneficial owners of the stock.



cbdMd’s forerunner, Cure Based Development, was established in August 2017

A financial statement in a shareholder filing on Level Brands’ acquisition showed that the CBD business had just $354 in revenue in first five months of operation, and $323,197 in losses.

It had $4 million in sales for first nine months of 2018 but still was unprofitable, posting a $568,895 loss for that period. According to the filings, Cure Based Development paid $48,579 to Data Tech Systems LLC, for office space and administrative and information-technology services. That is another entity connected to AEBN.

A financial statement showed that Cure Based Development had $256,850 in cash at end of September 2018, plus $533,862 due from a payment processor. That was after getting more than $2 million through notes issued to another Coffman entity and other backers.



As we noted previously, SEC filings show that Stone Street Partners sold all 475,834 of its remaining shares in the company in February and March, collecting $1.9 million. That left Sumichrast with 270,600 shares held by another entity, Washington Capital LLC.

That is less than 1 percent of the total now outstanding. But cbdMD also said in a merger-related filing that Sumichrast had a warrant to buy a stake in CBD Holding LLC, which is controlled by Coffman and was one of the main owners of Cure Based Development.

Sumichrast got the warrant in December, after the merger with Cure Based Development closed. According to SEC filings, he exercised it in January, at a price of just $90, That was three months before shareholders approved the issuance of the first 15.2 million shares used to acquire the CBD business.

According to SEC filings, the price was $90. As a result, Sumichrast could get as many as 2.1 million additional shares, at a total price of just $90. He already has been credited with 787,500 of those shares via his interest in CBD Holding.

They vest over five years, and are currently held within the LLC, pending future distribution. Those shares would have a current market value of more than $3 million.

SEC filing show that other beneficiaries of the CBD acquisition included:

–  Runnels, the investment banker who teamed with Sumichrast to create or finance several other small public companies whose shares have declined sharply from their highs. That list includes a biotech company called Neuralstem Inc. (Nasdaq: CUR) and a digitial-marketing company called Social Reality Inc (Now SRAX Inc., (Nasdaq: SRAX). Social Reality also paid Ireland for brand-building efforts. Runnels was an early investor in Level Brands, and provided capital to the CBD business. SEC filings show that he controlled 600,00 shares of Level Brands, through a family trust, in early 2018. He also manages TRW Growth Fund LLC, which got an additional 250,000 shares through the CBD deal.

– Abraham “Avi”’ Mirman, the former chief executive of Lilis Energy Inc. (AMEX: LLEX), which listed Runnels and Sumichrast among its early funders and shareholders. Mirman is a former managing director of Runnels’ investment firm, T.R. Winston & Co.. A filing related to Level Brands’ CBD acquisition showed that he also got 250,000 shares in the deal. The SEC brought charges against Mirman in 2017 in connection with an alleged pump-and-dump scheme at another small public company, Liberty Silver Corp. (now Bunker Hill Mining Corp., CSE: BNKR). Mirman is fighting the charges. Two other defendants, promoter Robert D.B. Genovese and former brokerage owner Antastasios “Tommy” Belesis, settled with regulators, agreeing to pay a total of $5.4 million in disgorgement, penalties and interest.

SEC filings show that Runnels’ fund and Mirman each provided the CBD business with $500,000 in financing last year, not long before it sold out to Level Brands. That debt was converted to stock at $2 a share when the deal closed.

Mirman told Sharesleuth that the bridge loan was necessary to effectuate the merger.

It is unclear why Coffman, with his adult video empire and a share of the $135 million that Lorillard Inc. paid to acquire the Blu e-cigarette business in 2012, would need cash from others to see the CBD business through until the merger.

The shares issued to Runnels’ fund and Mirman have a market value of more than $2 million now, or twice what they put in roughy a year ago.



We noted that the share sales earlier this year by Stone Street Partners and three entities managed by Sterling or Winters were private transactions at a below-market price of $4 a share.

The timing, and the matching price per share, suggest that all were sold as part of a negotiated exit.

We noted that an entity called Justice Family Office LLC, managed by the wife of Coffman’s longtime business partner A. Todd Justice, filed a Form 13G with the SEC the day after the Ireland group reported selling more than 1 million shares.

Justice Family Office reported owning 866,000 shares, or 8.5 percent of the total outstanding. That is the exact number of shares sold by two LLCs managed by Ireland’s lieutenants, Sterling and Winters, through a trust that also sold stock that day.

The shares purchased by Justice Family Office were separate from the 650,400 shares it received a few days later for its stake in the CBD business.

The merger agreement included in cbmMD’s SEC filings listed Todd Justice as one of the managers of the CBD business, along with Coffman, Dunayer, and Thomas E. Wicker, another of Coffman’s longtime business partners.

We also noted that Shannon Justice, who corporation filings show as the  manager of Justice Family Office, is senior national account manager for cbdMD.

Those ties raise questions about why cbdMD did not provide any details about the nature of the share sales iin its SEC filings, since it appears that one group of insiders sold shares to another.

Our investigation also found that three other cbdMD insiders – Chief Financial Officer Mark S. Elliott and directors Seymour Siegel and Gregory C. Morris – previously were associated with Premier Alliance Group Inc.

That Charlotte-based company became Root9B Holdings Inc., a cybersecurity firm, in 2015.  Its shares doubled from early May to July of 2017, then tumbled from more than $10 to less than $1 by mid-August.

The Nasdaq halted trading in the stock in September 2017, shortly after the company announced that a lender was foreclosing on its assets. Root9B wound up selling its business to a private company and its stock was delisted.

Although Elliott, Premier Alliance’s former CEO, had left the company well before its collapse, Siegel and Morris still were directors as of June 2017.



As we mentioned earlier, cbdMD went public in 2017 as Level Brands.  It did so via Regulation A+, a relatively recent initiative that lets private companies raise as much as $50 million from the general public in a 12-month period.

Regulation A+ was part of the JOBS Act, intended to make it easier for startups raise capital and create new employment opportunities.

Level Brands listed Ireland as chairman emeritus in its SEC filings, even while noting that she had never headed its board of directors and was not one of the company’s founders. And although Ireland also had the title of chief brand strategist, she was not among Level Brands’ top executives or biggest individual shareholders at the time of its IPO.

The company raised $12 million, selling 2 million shares at $6 each. It had 7.8 million shares outstanding after the offering, with Sumichrast, the Ireland group and Runnels controlling nearly a third of them.

SEC filings listed Sterling and Winters as controlling more than 1 million shares,  through an entity called the Sterling Winters Living Trust, and through the two LLCs over which the trust had voting power.

Most, if not all, of the shares were issued as part of the original licensing deal with Ireland. SEC filings show that they were sold on April 16 of this year, for around $4.2 million.

Level Brands also had a multi-year licensing agreement with one of Ireland’s companies, Kathy Ireland Worldwide. SEC filings show that that Kathy Ireland Worldwide received a total of $1.1 million in cash under that deal, which is supposed to run until 2028.

Level Brands made the final $300,000 payment last December, the same month that it closed on its acquisition of the CBD business.



Level Brands gave the appearance of a fast-growing company in its first two fiscal years.

It reported $8.4 million in revenue for the 12 months that ended Sept. 30, 2018, and a net loss of $412,075. That compared with revenue of $4.5 million and a net loss of $1.7 million in the previous fiscal year.

However, SEC filings show that nearly $7 million of the revenue the company  booked for those two years came in the form of equity in its licensing partners and other customers.

Declines in the value of those securities led the company to book $2.5 million in unrealized losses in its 2018 fiscal year. That hit, combined with its red ink from operations, produced a “comprehensive loss” of $2.9 million, or seven times its reported net loss.

cbdMD’s latest quarterly financial report shows that it booked a further $1.7 million in unrealized losses on its equity securities in the first nine months its current fiscal year.



One of Level Brands’ first deals was with Kure, which had raised $4.7 million from investors in 2015 through a placement managed by Runnels’ and Sumichrast’s firms.

Level Brands agreed to advise Kure on promotion, branding and marketing, and on the possibility of its own IPO under Regulation A+. It also entered into a separate agreement that called for the introduction of an Ireland-branded vaping juice.

SEC filings say Level Brands’ compensation was $600,000 in cash.

That partnership was the start of a series of transactions that brought Level Brands millions of dollars in stock but produced little, if any, economic benefit for the other participants.

In December 2017, Kure formed an alliance with another Level Brands client, SG Blocks Inc. (Nasdaq: SGBX). The plan called for the creation of 100 Kure vaping lounges, housed in SG Blocks’ repurposed shipping containers.

Level Brands got 800,000 shares of Kure’s common stock, valued at 50 cents each, and provided Kure with a $500,000 line of credit to purchase the initial shipping containers.

Level Brands also got 50,000 shares of SG Block, which it valued at $245,000.

Level Brands made an initial foray into the CBD business in January 2018, through a marketing deal with a Canadian company called Isodiol International Inc. (OTC: ISOLF). The deal called for Isodiol to develop five CBD products to be marketed under the Kathy Ireland Health & Wellness brand. SEC filings say Level Brands got $125,000 in cash plus 1.7 million shares of Isodiol’s common stock, which it valued at $2 million.

The deal also called for the payment of additional shares on the last day of each quarter, in an amount equal to $750,000. A few months later, Isodiol acquired Kure, and took over its partnership with SG Blocks.

The vaping-lounge plan failed to materialize, however, in part because Isodiol ran into financial problems. Its stock has fallen 95 percent since the original deal, and it unwound its Kure acquisition earlier this year as part of a broader restructuring.

The reversal of the merger meant that cbdMD took back the Kure shares it originally swapped for Isodiol shares. According to SEC filings, those shares are now valued at roughly half the original figure.

Shares of SG Blocks also have declined sharply since it entered into the partnership with Kure, going from just under $5 to just over 40 cents. cbdMD got out before the downtrend accelerated, selling its shares in late 2018, for about $25,000 less than their carrying value.



Level Brands’ deal with Kure wasn’t the only one with a company that had previous ties to Sumichrast.

In May 2017, it signed a deal with Formula Four Beverages Inc., a British Columbia-based company that markets OxiGen, a bottled water that it says contains 100 times more oxygen than other waters.

Kathy Ireland became the company’s chief branding advisor and brand ambassador.

We noted that Formula Four’s executive chairman, Scott Ogilvie, is a director of  Neuralstem and Inspyr Therapeutics Inc. (OTC: GNSZ). The latter company previously was known as GenSpera Inc.

Sumichrast and Runnels had provided financing to both companies.

Level Brands got a warrant to purchase 1.6 million shares of Formula Four’s common stock at a price of $400. It said in the registration statement for its IPO that it valued the warrant in the privately held company at 57 cents a share, or more than $900,000 total.

Formula Four is privately held, and it is unclear what that warrant would be worth today. The company’s OxiGen water is distributed in most major U.S. markets through grocers, health food stores and other outlets.



Our earlier stories in 2008 noted that Sumichrast had been chief financial officer of a company called Czech Industries Inc. at the time its public offering was used a fraud vehicle by Stratton Oakmont.

Those stories noted that Stratton Oakmont’s owner, Belfort, had hidden ties to a Canadian stock promoter and market-manipulator named Irving Kott.

Kott secretly gained control of J.B. Oxford Holdings Inc., a now-defunct brokerage based in Beverly Hills, Calif. That was around the same time that Stratton Oakmont and two spinoff brokerages lost their clearing firm, leaving them with no way to finalize trades.

According to a later 48-count indictment against Kott, he agreed that J.B. Oxford would clear trades for the brokerages provided that two of his associates were given allotments of shares and warrants in their fraudulent offerings, including the Czech Industries deal.

What follows is a condensed version of key sections from our 2008 stories



Czech Industries originally owned hotels and other businesses in Eastern Europe. It acquired an Austrian securities firm in 1996 and changed its name to Eastbrokers International Inc. to better reflect its new focus.

Sumichrast was executive vice president and chief financial officer at that time. He became vice chairman in 1997, and later became chairman and chief executive .

After acquiring additional brokerages in the United States, the company renamed itself Global Capital. By the end of 1999, the company was struggling financially and needed fresh capital..

According to a letter detailing the results of the Nasdaq investigation into Global Capital, two financial felons named Regis M. Possino and Sherman V. Mazur acquired “a significant undisclosed interest” in the company that year.

At one point, the letter said, that undisclosed interest was equal to 18 percent of the brokerage company’s outstanding common stock.

SEC filing show that Global Capital raised $2 million through an unusual financing transaction in November 1999. In that deal, it issued a new series of preferred stock to a separate Sumichrast company called Belle Holdings Inc.

Nasdaq investigators found that Belle Holdings got that cash by issuing notes to a company headed by a California lawyer named Reid Breitman. Under their agreement, the notes could be converted into the stock that Belle Holdings had just acquired.

Breitman got the money for his end of the deal from two other entities, one controlled by Possino and another that empoyed Mazur.  Global Capital raised a further $2 million in March 2000 through the same mechanism.

At the time of the transactions, Possino was a disbarred lawyer who had been convicted in 1978 of offering to sell 350 pounds of marijuana to undercover officers. He also had been convicted in 1995 of one count of wire fraud in connection with a scheme to use inflated stock to help prop up an insurance company’s finances.

Mazur had pleaded guilty in 1993 to tax fraud and bankruptcy fraud charges in connection with the collapse of the real-estate investment company he ran. He was sentenced to six years in prison and fined $250,000.

Possino and Mazur both were indicted again in 2013. Federal prosecutors said they were ringleaders of two separate but overlapping market-manipulation schemes that took more than $30 million from investors.

Possino spent roughly three years behind bars awaiting trial. He eventually pleaded guilty to two counts of conspiracy to commit securities fraud, and was sentenced to time served. The Justice Department dropped the charges against Mazur after a judge ruled that wiretap evidence the FBI collected against him was improperly obtained.

According to the Nasdaq letter summarizing its investigation, Global Capital  also agreed in December 1999 to exchange shares in one of its  brokerage affiliates,, for shares of four small public companies. They were: Integrated Communications Networks Inc., eSat Inc., Digs Inc. and ECS Industries Inc.

SEC filings show that all four of those companies counted Possino or members of Mazur’s family among their biggest shareholders. Nasdaq said the buyer of the EBOnline shares was a Swiss entity whose signatory appeared to be Raoul Berthaumieu, who had served prison time in the 1990s for a check-kiting scheme.

The Nasdaq’s investigation summary also noted that, in March 2000, Global Capital bought more than $5.1 million in stock in Digs, ECS Industries, Omni Nutraceuticals Inc. and Hartcourt Companies Inc.

As in the previous transaction, all four companies had ownership ties to Possino or Mazur. Nasdaq said in its letter that Global Capital bought most, if not all of the shares in private transactions from sellers linked to Possino, Mazur and Breitman.

The stock of all four companies was virtually worthless by the end of 2000.

In that same period, the shares of all of those companies — and Global Capital — were being pitched to foreign investors by telemarketing boiler rooms operating from Europe, Asia and other overseas locales.

Although it was not mentioned in the Nasdaq report, Sharesleuth later learned that Kott – the Canadian promoter with ties to Stratton Oakmont and J.B. Oxford – also acquired a direct or indirect interest in Global Capital.

In May 2001, Global Capital hired the former CEO of J.B. Oxford as its chief operating officer. Four months later, the brokerage got a consultant contract with Intasys Corp., a Canadian telecommunications company with close ties to Kott.

In September 2001, Global Capital issued a “strong buy” recommendation on Intasys’ stock, with a one-year-month price target of $8 a share, and a two-year target of $18. It was trading around $2 at the time.

Three months later, Nasdaq took its action against Global Capital and delisted its shares. It gave up its brokerage license in 2002 and faded from view.



After that, Sumichrast worked as a consultant for other publicly traded companies. One of his first clients was Recom Managed Systems, which later became Signalife, and finally Heart Tronics.

The company was born in 2001 as an publicly listed shell. SEC filings show that it was controlled by some of the same people who later provided a second shell that became House of Taylor.

In September 2002, Recom acquired technology for a wearable heart-monitoring device from an entity controlled by the wife of Mitchell J. Stein, a lawyer based in California. Her company, ARC Finance Group LLC, got more than 80 percent of Recom’s stock.

Recom hired Crown Reef Holdings Inc., a company run by Sumichrast and a partner, Ralph O. Olson, as a consultant in March 2003. Its payment was a warrant to buy 900,000 shares at 50 cents a share (adjusted for a later split).

At the time, Recom had no revenue and less than $200,000 in cash. It reported no sales in 2003, 2004, 2005 or the first nine months of 2006, despite claiming to have gained FDA approval to market its heart monitor.

It is unclear what services Crown Reef Holdings performed for the company.

A former Recom CEO said in court testimony that Sumichrast and Olson promoted the stock to brokers and investors, and that Olson traded the company’s shares to help prop up the price and volume.

Recom’s stock was trading at a split-adjusted price of around $1 a share when the consulting contract began. The price nearly tripled in the next month, and kept climbing, peaking at $8.90 a share in April 2004.

Crown Reef exercised its warrant and began selling shares near that high point. Although the filings do not show the full disposition of those shares, we found documents covering the actual or planned sale of 500,000 of them.

We estimated those sales would have generated more than $2 million.

In February 2005, Recom awarded a new business advisory contract to another Sumichrast and Olson company, Lomond International Inc. The deal gave Lomond a warrant to buy an additional 500,000 shares at $2 each.

SEC filings suggested that ARC Finance disposed of only a small percentage of its shares over the years, even as the price sank. According to a December 2005 report, ARC still owned 22.6 million shares, down from the 22.9 million it held in early 2004.

But the SEC’s complaint in the fraud case said that, starting that same month, Stein began covertly dumping shares, ultimately collecting $5.8 million in proceeds..

The SEC brought fraud charges in 2011 against Stein, Heart Tronics, two of its executives and three other people it said played roles in various fraud schemes, which included false press releases, sham product orders and improper share issuances.

The SEC said the schemes generated at least $8 million in proceeds. Stein later was indicted on parallel criminal charges. He was convicted and is serving a 150-month prison sentence.



Sumichrast also led an group that packaged four U.S. shell companies for reverse mergers with China-based partners.

The first of those shells became China Fire & Security Group Inc. (formerly Nasdaq: CFSG). It also was the subject of a Sharesleuth investigation in 2008.

We found that some of the people who filed SEC forms disclosing the planned sale of nearly $30 million in stock in the newly public company were not the legal holders, and were recruited to conceal the real owners’ identities.

China Fire ultimately was acquired by a U.S. private equity firm for $9 a share. That was less than half of its peak market price, but still represented a healthy premium over the share price the day before the deal was announced.

A second shell was transformed into China Bio Energy Holding Group Co. The company, which said it would produce biofuels from black locust trees, later changed its name to China Integrated Energy Inc. (formerly Nasdaq: CBEH).

It turned out there was less to that company than advertised. An investigation by short sellers that included time-lapse video showed that it faked activity at an idle biofuels plant for the benefit of foreign investors.

China Integrated Energy’s stock price – which topped $12 in the second quarter of 2010 – declined steadily after that negative exposure. Its shares fell below $1 by the end of  2011 and were delisted from the Nasdaq.

The SEC revoked the company’s registration in 2014, so its stock no longer trades.

Two more shells controlled by Sumichrast and his parters became QKL Stores Inc. (formerly Nasdaq: QKLS) and Shengkai Innovations Inc. (formerly Nasdaq: VALV). They, too, found their way to the Nasdaq but eventually were delisted.

The operators of the Over the Counter Market currently have warnings on both stocks, noting that QKL Stores is delinquent in its filings and that Shengkai Innovations appears to be “dark or defunct.”

The latest share price for QKL Stores, which peaked at $8.75 in third quarter of 2010, was less than 3 cents; the latest price for Shengkai Innovations, which peaked at $10.50 in that same period, was less than a penny.



Five members of the group that invested in Sumichrast’s Chinese reverse-merger deals were involved in House of Taylor, either as officers, directors, shareholders or investment bankers.

SEC filings show that Lomond International, the same company that was a consultant to Heart Tronics, got 900,000 shares of House of Taylor when the jewelry company went public in 2005. That made it the sixth biggest holder.

House of Taylor’s shares went from a high of $7.50 in January 2006 to less than a penny in 2008.

By that time, the stock had been delisted from the AMEX, Taylor and Ireland had terminated their licensing deals with the company, and its main lender was liquidating its assets.

Our investigation in 2008 found that Lomond International and certain other early House of Taylor investors transferred at least 1.6 million of their shares to recipients whose names never appeared in its SEC filings.

One was Crown Reef Holdings, the Sumichrast-controlled firm that had been a consultant to the heart-monitor company. It filed a form with the SEC disclosing the planned sale of 209,000 shares, which would have been worth around $800,000 at the time.

Another was an entity called Manchester Holdings, ostensibly controlled by Sumicrast’s sister-in-law, a paralegal in South Carolina. It said in its SEC filing that it was planning to sell 380,000 shares, worth around $1.9 million.

A third recipient was an entity headed by Mitchell Wine, who was an investor and board member at J.B. Oxford when Kott secretly controlled the brokerage. He disclose plans to sell 275,000 shares, worth more than $1 million.

His mother, Esther Wine, also submitted a form to the SEC disclosing her intention to sell 50,000 shares. Her husband, Harold Wine, had a history of involvement with Kott-connected companies dating back several decades.

Kott died in 2009.

In 2013, a company called Research Solutions Inc. (OTC: RSSS) filed a registration statement covering the resale of shares from an earlier offering. It listed Sumichrast, Runnels, Harold Wine and another member of the Wine family among the sellers. That was the last time the Wines showed up alongside Sumichrast in any SEC filing.




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