Planet 13 sues Casa Verde for fraud in sprawling cannabis financial dispute

Planet 13 sues Casa Verde for fraud in sprawling cannabis financial dispute

A financial battle royale among at least eight different cannabis stakeholders – which has been building to a crescendo since it began in May – reached a new level in January with multistate operator Planet 13 Holdings (CSE:PLTH)(OTCQX:PLNH) filing a fraud lawsuit for $16.5 million against high-profile California marijuana investment firm Casa Verde Capital, which counts rapper Snoop Dogg among its co-founders.

The suit also targets the lower-profile El Capitan Advisors, a Santa Barbara-based cannabis investment firm registered with the Securities and Exchange Commission. El Capitan CEO Andrew Nash and his wife conspired with Casa Verde to defraud its clients of millions of dollars, according to the new legal action filed Jan. 22 in Los Angeles County Superior Court.

The two firms teamed up to misrepresent their respective successes in cannabis investing in order to lure new clients such as Planet 13 into trusting them to manage tens of millions of dollars in client assets, the suit alleged.

Planet 13 executives entered into a management agreement with El Capitan Advisors in 2021 largely at the urging of Casa Verde, and entrusted roughly $21 million to El Capitan.

Now Planet 13 claims in its case that El Capitan Advisors – which purported to have over $10 billion in assets under its management – was a “sham” that was “designed to allow Casa Verde to exit the fraudulent scheme with a golden parachute” by “looting $35 million from El Capitan before it collapsed” last year.

In addition to its $16.5 million plus damages, Planet 13 is asking a California court for a special-purpose receiver to run El Capitan until funds are returned to clients, along with a temporary restraining order and a preliminary injunction.

Andrew Nash

Casa Verde has denied wrongdoing in the case and has instead pointed the finger at El Capitan, saying that its firm has been “a victim of Andrew Nash’s alleged fraud,” a company spokesperson wrote in an email to Green Market Report.

“Casa Verde did not participate in and was not aware of any of the fraud or other misdeeds alleged by Planet 13,” Casa Verde spokesperson David Colton wrote. “It is important to note that Casa Verde offered to cooperate with Planet 13, but Planet 13 refused and decided instead to sue Casa Verde, which is disappointing.”

Nash did not return inquiries seeking comment for this story.

Planet 13 fraud lawsuit El Cap

The Lead Up

The situation began attracting attention from some in the cannabis financial sector last year when Casa Verde Capital filed its lawsuit against El Capitan Advisors after the two longtime business partners had an apparent falling out.

That lawsuit, filed in L.A. County Superior Court on May 16, laid out that the relationship between Casa Verde and El Capitan dating back to 2018, when Casa Verde invested $1 million into El Capitan in exchange for 1 million shares in the company and a seat on its board of directors.

$35 million for a $1 million investment?

Last spring, for unclear reasons, El Capitan’s Nash reportedly approached Casa Verde with an offer to buy back the one million shares for $35 million cash. The two parties signed a deal to that effect on April 7, but El Capitan never paid up, despite two separate payment deadlines of April 14 and May 24, with half of the $35 million due on each date.

Before the second payment deadline even arrived, Casa Verde sued for breach of contract, on May 16. In July, Casa Verde obtained a default judgment for $35.7 million against El Capitan, and it began the collection process.

That’s when things began to get complicated.

Casa Verde vs El Cap

In subsequent court filings, Nash tried to offer several defenses for not paying Casa Verde, including that he and his son had been seriously ill at various times during 2023. He also said the share repurchase idea didn’t start with him, but came from Casa Verde CEO Karan Wadhera. In a September filing, Nash said he realized after signing the share repurchase deal that “its terms were going to materially impact El Capitan’s valuation negatively,” and would “cause excessive and unreasonable expense to El Capitan.”

Whatever the reason, Casa Verde levied a collection against El Capitan’s accounts after winning the default judgment, and in August El Capitan’s accounts were turned over to the Orange County Sheriff’s Office.

That’s not your money!

That, however, set off a chain reaction that led to Planet 13’s January lawsuit, because the funds seized by Casa Verde didn’t belong to El Capitan, but rather to several of its clients, including Planet 13.

That led to an immediate outcry not just from Planet 13, but also from other clients who had money invested with El Capitan, including Gro Capital LLC, Texas Original Holdings, Kind Op Corp., and Mercantile International Banking Corp., according to court records. Each of those companies has filed with the L.A. Superior Court to become party to the initial Casa Verde action because, they contend, the money Casa Verde obtained wasn’t El Capitan’s to give.

Planet 13 had by far the most to lose of all the El Capitan clients that have thus far come forward, with others reporting investments of about $100,000 apiece. Planet 13 has thus far obtained a “partial settlement” and retrieved $3.4 million of its money, according to a press release last month, with another $2.1 million still in custody at the sheriff’s office, and another $16.5 million still unaccounted for.

At least one of Planet 13’s accounts with El Capitan was held by BridgeBank, a division of Western Alliance Bank, according to court records. El Capitan also led Planet 13 to believe it had opened accounts on its behalf at Banc of California and Bank of Montreal (BMO), the most recent lawsuit states.

As of Oct. 2023, Planet 13 said it believed that its $21 million was broken up with $5.5 million in an account at Western Alliance Bank, another $8.2 million at BMO, and $8.2 million at Banc of California, the company’s lawsuit stated.

“Nothing was as it appeared, however,” the suit asserted.

Fraud Claims

Once the dustup over whose money was whose began in September, Planet 13’s legal team kicked into high gear, immediately contested the levies by Casa Verde, and started its own internal investigation.

That investigation found that Nash and Wadhera had been deceiving Planet 13 arguably from the get-go.

“Utilizing an intricate web of fake bank statements and repeated lies, (El Capitan and Casa Verde) convinced Planet 13 to transfer $16.5 million into what Planet 13 thought were legitimate fiduciary accounts, surreptitiously converted Planet 13’s money to their own use, and then concealed the fact that Planet 13’s money was gone,” the Planet 13 suit charged.

That led to the fraud lawsuit in January, in which Planet 13 first accused Nash of lying about what had happened to Planet 13’s money, and then stated Nash outright confessed to stealing the money with Casa Verde’s help.

Nash allegedly confesses

“In November 2023, after Planet 13 uncovered unmistakable evidence that El Capitan had supplied fake bank statements purporting to identify the location of Planet 13’s funds, Mr. Nash confessed that Planet 13’s money had been stolen and that El Capitan had concealed the theft from Planet 13 in the hope that it would never be uncovered,” Planet 13’s new lawsuit charged.

Nash also, in a November deposition for Planet 13, “provided his name and address but asserted his Fifth Amendment privilege against self-incrimination as to every other question posed,” according to the suit.

Karan Wadhera

According to the suit, there was no functional distinction between Casa Verde and El Capitan, given that Casa Verde’s CEO, Wadhera, held one of just two board of directors seats at El Capitan (Wadhera resigned his board seat in December). The other seat belonged to Nash.

Contrary to El Capitan’s assertions that it was managing billions in client assets, Planet 13 asserts that the firm had been “insolvent since at least March 2023,” based on conversations with Nash last fall.

“Despite touting billions in funds under management, Mr. Nash admitted to Planet 13 that El Capitan was unable to return approximately $21 million held for Planet 13 — less than one percent of El Capitan’s alleged portfolio,” the suit stated.

Nash even on a Nov. 15 phone call offered to return all of Planet 13’s money out of his own personal family accounts.

“He stated that he would return Planet 13’s money within 30 days. That did not happen,” the lawsuit asserted.

The suit goes on to charge that Wadhera must have also known about El Capitan’s financial precariousness, given his seat on the board, and that he also must have known that El Capitan would default on Casa Verde’s demand for $35 million because El Capitan didn’t have that much in the bank.

“Casa Verde and Mr. Wadhera knew that the opposite was true – El Capitan was undercapitalized and involved in fraud and concealment in an effort to maintain the appearance that everything was operating as expected and that clients should continue to trust El Capitan with their money,” the suit states.

The red flags are waving

The lawsuit also cites a “whistleblower” named Kirk Barry, the owner of Clarion Compliance, whom Nash hired and then fired after Barry informed him of numerous “red flags” at the investment firm.

Barry “uncovered that Mr. Nash and the El Capitan team were pushing billions of dollars around without any corporate controls,” the lawsuit charged. “According to Mr. Barry, the compliance program at El Capitan was in shambles and did not exist in any meaningful way.”

The suit also alleged that the share repurchase agreement between Casa Verde and El Capitan was “a sham” that had zero basis in actual market value, since 1 million shares at $35 million would put El Capitan’s worth at $175 million.

“In reality, Casa Verde was attempting to exit El Capitan with as much money as it could grab, hoping to escape before it was revealed that El Capitan and Casa Verde had defrauded their clients,” the suit asserts.

Casa Verde says it’s not at fault

Not true, Casa Verde’s Colton wrote to Green Market Report.

Rather, the valuation undergirding the $35 million share repurchase deal was “derived from the financials and representations provided by management,” which in turn is based on assets managed, which are figures on file with the SEC, Colton wrote.

“It is disappointing that, in our efforts to execute a sale that did not materialize and to collect upon our successful court judgment, we are now being subjected to legal action from Planet 13, who never would have uncovered alleged wrongdoing at El Cap but for our lawsuit,” Colton wrote.

Colton further asserted that Casa Verde has not won out from the default judgment, but like Planet 13 is still locked in litigation.

“We have already spent considerable time and effort to litigate against El Capitan,” Colton wrote. “We are committed to defending against Planet 13’s unfounded arguments seeking to lay blame for Mr. Nash’s behavior at Casa Verde’s feet.”

Hearings are set in the Planet 13 fraud lawsuit against Casa Verde and El Capitan for Feb. 9 and May 21.

A non-jury trial is scheduled to begin in the Casa Verde lawsuit against El Capitan on April 29.

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