The Massachusetts Securities Division has charged Frederick V. McDonald Jr., a Massachusetts investment adviser representative, for his alleged role in a failed medical marijuana scheme.
McDonald oversaw the solicitation of millions of dollars from more than 100 investors in order to fund various medical marijuana ventures, although no licenses were acquired in Massachusetts and no dispensary was opened.
The complaint alleges that McDonald took advantage of his advisory relationship with at least one client in order to pursue side marijuana projects, while hiding important information from investors. Regulators claim that he provided only minimal information about the various marijuana ventures, while using his position of trust to access investor funds to support his own projects.
McDonald serves as the CEO of US Advisory Group Inc. and allegedly funded several of his ventures through one high net-worth client who has lost more than $3 million. The regulators claim that investors collectively lost more than $8 million and saw no returns on their investments.
“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 says.
McDonald and his partners planned to open a medical marijuana dispensary, but the complaint alleges that lack of transparency and communication led to funding issues. He and his partners jointly raised money for the venture, but when his partners began to dispute existing agreements, the relationship collapsed, and they subsequently failed to obtain a lease or license.
It is further alleged that McDonald and his partners deliberately hid the identity of one individual who acted as an agent and fundraiser for the potential dispensary, since the discovery of their criminal record could have led to denial of a license.
“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 states.
McDonald is accused of failing to disclose key risk factors in the cannabis industry, withholding information about his own conflicting interests in the investments he was recommending, concealing crucial information from the investors, and breaching his fiduciary duty to his client.
Also charged in the complaint are McDonald’s various companies and corporations, including US Advisory Group, Commonwealth Pain Management Connections LLC, and Kettle Black of MA LLC.
Massachusetts is seeking censure, an order permanently barring McDonald and US Advisory Group from registration in Massachusetts, disgorgement of profits, requirement that respondents make offers of rescission and provide restitution to compensate investors, and an administrative fine.