INTRODUCTION

Medbox, Inc. (now Notis Global, Inc.), a marijuana business management

company, allegedly reported misleading information regarding its financial position by

engaging into fraudulent schemes to inflate its revenues and manipulating its stocks.

Medbox described itself as a “leader in the marijuana consulting industry,” and purported

to sell “vending machines capable of dispensing marijuana on the basis of biometric

identification. The company attracted some investors through its press releases saying

“We are the leader and one of only a few legitimate companies catering to the medical

marijuana ancillary service industry. We are light years ahead in all phases on being a

transparent company, and the standard for all companies operating in the medical

marijuana ancillary service industry to emulate.” In reality, Medbox is suffering from a

loss and according to the company’s latest earnings statement filed in October, Notis

Global’s financial position had stabilized somewhat from 2015 when the company

reported a loss of $50.5 million. In the sixths months ending June 30, 2016, the company

had revenue of roughly $474,000 and a net loss of about $6.3 million.

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 COMPANY PROFILE AND BRIEF HISTORY

Medbox, Inc. (the “Company”) is a Nevada corporation formed on

June 2010. Medbox provides specialized services to the marijuana industry and sells

associated patented products, including its medical vaporization devices. The Company

works with clients who currently operate or seek to enter into the retail, cultivation and

dispensary marijuana markets in those states where approved. They seek to obtain

licenses to operate dispensaries, cultivations centers and manufacturing facilities through

Medbox or an affiliated company. The company contract with unaffiliated third-party

operators to manage the day-to-day operations of these facilities and assign them the right

to manage and operate the facilities in exchange for a percentage of operating income or

a fixed fee based on applicable state law. They also provide ongoing consulting services

to independent operators. In addition, through the company’s wholly owned subsidiary,

Vaporfection International, Inc. (“VII”), the Company sells a line of vaporizer and

accessory products online and through distribution partners. The Company is

headquartered in Los Angeles, California.

THE PERPETRATORS

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Medbox (NOTIS Global)

Medbox is now known as Notis Global, Inc., is a Nevada Corporation with

its principal place of business in Los Angeles, California. In January 2014, Medbox filed

a Form 10 with the SEC in order to register its common stock under Section 12(g) of the

Exchange Act.

Vincent Mehdizadeh

Vincent Mehdizadeh, age 38, resides in Pacific Palisades, California.

Mehdizadeh held a succession of positions at Medbox: senior consultant, from December

2012 to May 10, 2013; chairman of the board and chief operating officer, from May 10,

2013 to April 10, 2014; acting principal financial officer, from October 1, 2013 to

February 13, 2014; senior strategist and founder, from April 10, 2014 to October 13,

2014; and founder and senior advisor, from October 13, 2014 to January 21, 2015.

Bruce Bedrick

Bruce Bedrick, age 48, resides in Delray Beach, Florida. Bedrick was

Medbox’s chief executive officer from December 2011 through July 2014, and a member

of the company’s board of directors from December 2011 through August 2014. He

continued to act as a consultant to the company until the end of October 2014.

Yocelin Legaspi

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 Yocelin Legaspi, age 37, is a resident of Los Angeles, California. Legaspi

was Mehdizadeh’s fiancée.

New-Age

New-Age is a California corporation that Mehdizadeh formed in July 2012.

Within days of forming New-Age, Mehdizadeh installed Legaspi as the company’s

nominal chief executive officer, secretary, and chief financial officer.

THE FRAUDULENT ACTIVITIES

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 Between August 2012 and December 2014, Medbox's stock price

ranged from $2.50 to $205 per share. In August 2011 Medbox acquired Prescription

Vending Machines, Inc., a company owned by Mr. Mehdizadeh. Between November

2011 and August 2012 Mr. Mehdizadeh gained control of Medbox by acquiring the

majority of its outstanding shares, a total of 10.8 million shares of common stock

plus 3.8 million shares of preferred stock.

Mehdizadeh and Bedrick take control of Medbox

Medbox was initially incorporated as Rabatco, Inc., and later became

Mindfuleye, Inc. In August 2011, Mindfuleye, Inc. changed its name to Medbox. In

December 2011, Medbox acquired Prescription Vending Machines, Inc. (“Prescription

Vending Machines”), a company owned by Mehdizadeh. Through two transactions – one

in November 2011, the other in August 2012 – Mehdizadeh gained control of Medbox by

buying the majority of its outstanding shares from one of its prior directors, who departed

from the company in August 2012. In all, Mehdizadeh purchased more than 10.8 million

shares of Medbox’s common stock and 3 million shares of Medbox’s preferred stock.

Medbox hired Bedrick as its chief executive officer in December 2011. Bedrick was a

trained chiropractor. He had also partnered with Mehdizadeh, in the past, to obtain

dispensary licenses in the state of Arizona.

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Medbox’s and Mehdizadeh’s Scheme to Inflate Revenue through New-Age’s

Improper Sale of Restricted Medbox Shares

From July 2012 to May 2015, defendants Medbox and Mehdizadeh engaged in a

scheme to inflate Medbox’s reported revenues through sham transactions with a shell

company formed by Mehdizadeh, all financed by the undisclosed and improper sale of

restricted Medbox shares. Mehdizadeh knew that this was all a fraudulent scheme to

inflate Medbox’s revenue.

 Bogus Purchase of Medbox shares by New-Age

Mr. Mehdizadeh formed New-Age in July 2012. Five days later, he

installed Legaspi – his fiancée at the time – as the company’s chief executive officer,

corporate secretary, and chief financial officer. Mehdizadeh took no official title with the

company. He nonetheless controlled New-Age.

The next month, Mr. Mehdizadeh acquired 226,000 shares of Medbox

pursuant to a stock purchase agreement. Instead of transferring the shares to his own

name, Mr. Mehdizadeh transferred the shares directly to New-Age. Documents

drafted by Mr. Mehdizadeh created the false impression that New-Age had either

paid $552,000, or provided the equivalent value in services, in exchange for the

stock. At the end of 2012 Medbox's stock was trading at approximately $61.00 per

share, "making the 226,000 shares that Mehdizadeh transferred to New-Age, for no

consideration, worth nearly $13.8 million."

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  New-Age sells its Medbox shares

Between February and April 2013 New-Age sold all 226,000 Medbox shares

that it owned at a significant discount to the market price ($11.50-$22.80 per share).

The proceeds of these sales exceeded $3.1 million. Mr. Mehdizadeh made numerous

false statements in connection with these transactions. According to the Complaint,

Mr. Bedrick knew, or was reckless or negligent in not knowing, of Mr. Mehdizadeh's

involvement in New-Age's sale of Medbox stock.

 New-Age funnels the sale proceeds back to Medbox

The proceeds of New-Age's sale of Medbox stock were then transferred back

to Mr. Mehdizadeh and Medbox as follows:

New-Age paid Medbox $1 million for another 100,000 shares of restricted

Medbox stock,

New-Age paid Medbox $1,371,000 for Medbox accounts receivable, which

were never collected, and

New-Age sent $640,000 to an escrow account so that Mr. Mehdizadeh could

purchase a luxury home.

As a result, New-Age's corporate bank account was depleted by the end

of April 2013.

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More bogus transactions between New-Age and Medbox

On January 17, 2013 New-Age agreed to two share purchase

transactions with Medbox: (1) the 100,000 shares noted above ($10/share), and (2) a

purchase of 71,429 shares at $70 per share. Mr. Bedrick authorized the issuance of

171,429 Medbox shares to New-Age. Although the net value of these transactions

was over $6 million, New-Age only paid Medbox $1 million for its stock purchase.

Despite this discrepancy, Medbox issued a press release in February 2013 touting a

"$6 million equity transaction" with a "private investment firm." This press release

was drafted by Mr. Mehdizadeh and approved by Mr. Bedrick. Documentary

evidence, as pleaded in the Complaint, demonstrated that Mr. Bedrick was aware that

the statements in the press release were false.

New-Age buys Medbox’s questionable receivables for $1.37 million

In March and April 2013, New-Age paid $1.37 million to Medbox to

ostensibly have 13 of Medbox’s purported accounts receivable assigned to New-Age. The

receivables generally arose from Medbox’s contracts with customers to secure dispensary

licenses, to build out dispensaries, and for the sale of Medbox machines. Contrary to

what one would expect in an arms-length accounts receivable financing transaction, New-

Age paid Medbox full value for every one of the accounts receivable, rather than at a

discount. New-Age’s $1.37 million purchase of accounts receivable from Medbox was

never documented in a written contract. New-Age performed no due diligence on the

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accounts receivable. New-Age’s decision to purchase these accounts receivable made

little sense from New-Age’s standpoint. Many of the receivables were either subject to

contracts expressly prohibiting their assignment. Or they arose from contract rights that

had expired as of the time that New-Age purchased them in March and April 2013

because the contracts contained terms stating that they lapsed after one year. Medbox

recognized that $1.37 million as revenue in violation of Generally Accepted Accounting

Principles (“GAAP”). In nearly every case, Medbox treated New-Age’s payments as a

credit to each of the accounts receivable sold. These false entries were recorded as if the

$1.37 million in payments on accounts receivable had been made by the customers

associated with the receivables, rather than New-Age, a shell entity controlled and

funded by Mehdizadeh. No revenue could have been recognized by Medbox under

GAAP for any of the customer contracts underlying the accounts receivable that had

been assigned to New-Age. For each of the 13 customer contracts underlying the

accounts receivable purchased by New-Age, revenue recognition was prohibited under

GAAP for at least one of the following reasons: (i) Medbox had entered into a

settlement agreement cancelling the customer’s obligation to pay; (ii) having not

received a dispensary license, the customer was entitled to a refund and its contract with

Medbox was cancelled; (iii) Medbox never delivered the Medbox machines called for

by the customer’s sales contract; (iv) with the customer having ceased operations, the

customer’s contract entitled it to a full refund; and/or (v) Medbox never built out the

dispensary called for by the customer’s contract Mehdizadeh knew, or was reckless in not

knowing, that the receivables sold to New-Age were in fact uncollectible. He drafted or

signed the contracts that gave rise to each of the purported receivables and also

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communicated with each of the Medbox customers about problems with the contract.

Following New-Age's purchase of Medbox's accounts receivable,

Medbox issued press releases touting the money it received from New-Age as

"revenue.

The pattern repeats: New-Age buys Medbox shares, sells them, funnels the proceeds

back to Medbox, and Medbox reports it as revenue

In early 2014 Mr. Mehdizadeh and Mr. Bedrick repeated the pattern of

selling Medbox stock to New-Age, and then selling it again and funneling the

proceeds back to Medbox as revenue. First, New-Age purchased dispensary rights for

a facility in Benson, Arizona (Benson Deal) from Medbox for $650,000, which

Medbox recognized as revenue for the first quarter of 2014. The problem with this

transaction was that Medbox did not have the rights it purported to sell to New-Age.

Similarly, New-Age agreed to pay Medbox $500,000 up front for exclusive rights to

place Medbox machines in the Denver, Colorado market, plus $100,000 per machine

installed. New-Age paid approximately $400,000 toward this contract. According to

the Complaint, this deal "made little economic sense. It required New-Age to pay a

substantial upfront sum for the supposedly exclusive right to install Medbox

machines in Denver (Denver Deal), even though New-Age owned no dispensaries in

Denver, had no license to operate a dispensary in Denver, and had no guarantee that

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it would ever be able to break into the Denver market." As with the Benson, Arizona

deal, Medbox recognized $500,000 from this deal as 2014 first-quarter revenue.

Mehdizadeh’s and Bedrick’s Lies to Medbox’s Auditors

Mehdizadeh misled Medbox’s auditor in connection with his 2012, 2013

and first quarter 2014 audit or quarterly review work when he signed January and March

2014 management representation letters falsely representing that: (i) Medbox’s financial

statements were fairly presented in conformity with GAAP; (ii) there were no material

transactions that had not been properly recorded in the books and records underlying the

financial statements; (iii) he had no knowledge of any fraud or suspected fraud involving

Medbox’s management that would have a material effect on the company’s financial

statements; and (iv) related-party transactions and related accounts receivable or payable

had been properly recorded or disclosed in the financial statements. Mehdizadeh knew

that the foregoing statements and omissions to Medbox’s auditors were false and did not

make those false statements and omissions through ignorance, mistake, or accident.

Mehdizadeh further acted unreasonably in making those false statements and omissions

to Medbox’s auditors. Bedrick misled Medbox’s auditor in connection with his audit of

the financial statements filed with Medbox’s January 21, 2014 Form 10, March 31, 2014

Form 10/A, May 13, 2014 Form 10/A, May 15, 2014 Form 10-Q, and June 27, 2014

Form 10-Q/A when he signed March and May 2014 management representations letters

falsely representing that he had no knowledge of any fraud or suspected fraud involving

management or allegations of fraud or suspected fraud affecting the company. Bedrick

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knew, or was reckless in not knowing, that the foregoing statements and omissions to

Medbox’s auditors were false and did not make those false statements and omissions

through ignorance, mistake, or accident. Bedrick further acted unreasonably in making

those false statements and omissions to Medbox’s auditors.

Bedrick’s False SOX Certifications

In accordance with Section 302 of SOX and Exchange Act Rule 13a-14,

Bedrick signed certifications which Medbox attached to its May 15, 2014 Form 10-Q and

June 27, 2014 Form 10-Q/A for the first quarter of 2014. In his certification, Bedrick

falsely represented that the report did not contain any untrue statement or omission of a

material fact and that the financial statements in the report fairly presented in all material

respects the financial condition and results of the operation of the issuer. Bedrick knew,

or was reckless in not knowing, that his SOX certifications were materially false and

misleading, and he acted unreasonably in making those certifications. That is because at

the time he signed those SOX certifications, Bedrick not only knew of potential fraud

involving Mehdizadeh, but was also aware of clear and repeated red flags indicating that

Medbox’s New-Age-related transactions were a sham. Bedrick knew that the Benson and

Denver deals were included in the revenue reported in the first quarter 2014 filings that

he certified. In fact, in February 2014 Bedrick specifically asked Mehdizadeh what

Medbox revenues for the first quarter would look like without a deal for the Benson

dispensary.

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Bedrick’s Stock Sales During the SOX Section 304 Period

Medbox was required to prepare an accounting restatement of its Form 10

and its first quarter 10-Q as a result of Bedrick’s and/or Mehdizadeh’s misconduct, as

alleged above. Bedrick realized profits from the sale of Medbox’s stock during the

statutory time periods set forth in SOX Section 304(a), which are the 12-month periods

following Medbox’s filing of the reports for which a restatement was required as a result

of misconduct: here, (i) January 21, 2014 to January 21, 2015 (corresponding to

Medbox’s restatement of its January 21, 2014 Form 10); and (ii) May 15, 2014 to May

15, 2015 (corresponding to Medbox’s restatement of its May 6-15, 2014 Form 10-Q).

During the statutory time periods established by SOX Section 304(a), Bedrick sold

1,353,692 shares of Medbox for a total profit of $4,475,924.73. Bedrick has not

reimbursed Medbox for the profits realized from the sale of Medbox’s stock that he

received or obtained during the statutory time periods established by SOX Section

304(a). The SEC has not exempted Bedrick, under SOX Section 304(b), from the

application of SOX Section 304(a).

Unregistered offers and sales by Mehdizadeh and Medbox through

After forming New-Age in July 2012, Mehdizadeh operated a boiler room

at Medbox’s headquarters from July 2012 through late December 2012 which sold

Medbox shares over the phone to investors that Mehdizadeh had identified by buying

lead lists, and with whom the company had no pre-existing relationship. In the course of

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operating the boiler room, Mehdizadeh: hired Sales people to conduct cold calls out of

the boiler room; approved the script that his salesmen used during their cold call

campaign; purchased and distributed lead lists to the sale personnel; set the price at which

the salespeople sold Medbox shares; paid the sales staff a salary and commissions based

on how much Medbox stock they sold; and directly communicated with some of the

investors about their investment in Medbox. Mehdizadeh also sought to hide Medbox’s

connection to the boiler room by having New-Age nominally employ one of his

salesmen. Medbox took no apparent steps to determine whether its investors were

actually accredited. Medbox sold shares to unaccredited investors. Medbox publicly

stated in SEC and OTC filings that it did not engage in general solicitation or advertising

to sell securities. Even after these boiler room operations ended, Medbox continued to

sell its shares in private placements through February 2014. Between July 2012 and

February 2014, Medbox sold over 3 million shares in private placements for stock sales

proceeds of over $8.9 million. These stock sales were made through interstate commerce

because they involved the solicitation of investors over the phone, the use of email, and

the wiring of funds to Medbox’s bank account. Medbox did not register with the SEC any

of the securities that Medbox and Mehdizadeh offered or sold in the foregoing private

placements. Medbox and Mehdizadeh accordingly engaged in the offer and sale of

investments without Medbox registering those securities with the SEC, and the offers and

sales were not exempt from registration.

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Material misrepresentations, sales of unregistered securities, and un-authorized

broker-dealer activity

Each of the transactions discussed above gave rise to materially

misleading statements in both press releases and SEC filings. Similarly, records

related to these transactions were presented to an auditor along with a letter from Mr.

Mehdizadeh representing (among other things) that "Medbox's financial statements

were fairly presented in conformity with GAAP." These same misleading statements

were made by Mr. Bedrick in Medbox's SOX certifications.

In addition to the illusory transactions between Medbox and New-Age,

the SEC alleged that each of the named Defendants offered and sold securities

without registration or exemption. Lastly, the SEC alleged that Mehdizadeh acted as

an unregistered broker-dealer "by operating a boiler room" to sell Medbox stock.

Mehdizadeh ran a sales force directed at actively soliciting investors to purchase Medbox

stock. He set the price at which the sales force sold the stock, and paid them

commissions. Mehdizadeh also controlled the issuance of the Medbox shares to investors

by receiving and processing subscription agreements from investors, directing lawyers to

draft board resolutions approving the issuances, and communicating with the transfer

agent about the issuances. Accordingly, Mehdizadeh regularly participated in Medbox’s

offer and sale of securities at key points in the chain of distribution. Mehdizadeh was not

associated with a registered broker or dealer at the time of the foregoing misconduct.

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 By engaging in this conduct: (i) Medbox, Mehdizadeh and Bedrick

violated the antifraud provisions of the Securities Act and the Exchange Act; Bedrick

and Mehdizadeh misled the company’s auditors in violation of Rule 13b2-2 of the

Exchange Act; Bedrick falsely certified Medbox’s SEC filings in violation of Rule

13a-14 of the Exchange Act; Medbox violated the reporting provisions of the

Exchange Act, with Mehdizadeh and Bedrick aiding and abetting those violations;

Medbox violated the books and records and internal controls provisions of Sections

13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, with Mehdizadeh aiding and

abetting those violations; Medbox, Mehdizadeh, New-Age and Legaspi violated the

securities registration provisions of Section 5 of the Securities Act; and Mehdizadeh

violated the broker-dealer registration provisions of Section 15 of the Exchange Act.

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 AFTERMATH

The Securities and Exchange Commission (SEC) charged California-based

marijuana consulting company Medbox and its founder with "falsely touting “record”

revenue numbers to investors and claiming to be a leader in the marijuana industry while

some of its earnings came from sham transactions with a secret affiliate".

Investors were misled into believing that Medbox was a leader in the

burgeoning marijuana industry when the company was just round-tripping money from

illegal stock sales to boost revenue. The Medbox stock price ranged from a low of $2.50

to an all-time high of $205 between August 2012 and December 2014.

Medbox’s then-CEO Bruce Bedrick is also charged in going along with the

scheme and personally profiting noting within the complaint that even though Bedrick

was made aware of the financial shenanigans he chose to stay with the company and not

correct the course of events. New-Age and Mehdizadeh’s then-fiancée Yocelin Legaspi is

are also charged with unlawfully selling unregistered securities.

Mehdizadeh had settled its charges by just paying a fine of $12M while the

litigation with the others still continues. Mehdizadeh and Medbox, which has since

changed its name to Notis Global, have agreed to settle the SEC’s charges. Notis Global

has installed new management and continues to operate. The new Chief Executive

Officer Jeffrey Goh addressed the issue back in May of 2016 writing, “I am very aware

of the outstanding issues and shareholder concerns regarding possible securities law

violations, which arose under the Company's prior management.” Goh went on to say,

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“While I cannot change the past, I and our entire team are fully committed to moving the

Company forward toward higher revenue generation, and in pursuing positive EBITDA

as a long-term goal.”

Notis Global was founded as a company that made point-of-sale vending

machines to distribute marijuana in medical dispensaries. The company has since moved

on to become a management outfit, which operates and invests in cannabis businesses.

According to the company’s latest earnings statement filed in October, Notis Global’s

financial position had stabilized somewhat from 2015 when the company reported a loss

of $50.5 million. In the sixths months ending June 30, 2016, the company had revenue of

roughly $474,000 and a net loss of about $6.3 million.

CONCLUSION

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 Professionalism and Ethics must be the center of every business. Every

business aims to be successful that others are even willing to do anything that what it

takes in order for them to stay on top and inferior among others. Some people are even

blinded by money and other luxurious thing that they are willing to do anything just to

get what they want. One of the best examples is Mehdizadeh, the former founder of

Medbox. Reporting false revenues, deceiving its shareholders and investors and even

forming a shell company to perform his fraudulent plans for the sake of money shows

what kind of person he really is. It is a bit unfair that after all of those activities, he just

paid a fine of 12 million dollars and didn’t even go to jail. He should’ve suffered more.

He didn’t even pay for his wrong doings. I was a bit disappointed and thought maybe

because that man have connections that’s why he was able to avoid going to jail. Indeed,

justice is just for the rich people!

For me, Bedrick, the CEO even made a bigger mistake compared to

Mehdizadeh. He was the first one to discover what Mehdizadeh has been doing but he

kept a blind eye. He is the only one who can report Mehdizadeh to the authorities, he

should’ve stopped it but he didn’t say anything and the worst part is he even connived

with Mehdizadeh to commit those fraudulent activities. What a tandem right? What a

perfect match! Now, Bedrick is still on investigation but for me, Bedrick should be liable

for the things that he has done. He needs to be punished; he needs to go to jail. He should

be ready for the consequences of the things that he has done. They caused a lot of damage

not just to the business but also to the investors and shareholders who just want to invest

and earn. Mehdizadeh, Bedrick, and Legaspi should pay the price.

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 RECOMMENDATION

The company is partially at fault in giving their full trust to those people who

committed the fraudulent activities. This fraud case only happened because the firm

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trusted so much to a single person. They thought the firm is doing well because of the

manipulated documents but without even confirming and knowing what really is

happening inside the company.

No one should fully trust a person especially when money is involved. The

company trusted Mehdizadeh so much that they didn’t even thoroughly checked the

transactions that Medizadeh entered into.

It would be better for the Medbox Company (Notis Global) to have a stronger

internal control in the company. Check every transaction that takes place and do not fully

trust one another. It is the only way to avoid the fraud that happened in the firm.

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 REFERENCES

Summary of SEC v. Notis Global et. al. - Part 1 - the Complaint

https://www.lexcannabis.net/news/2017/11/12/summary-of-complaint-in-sec-v-notis-

global-et-al

https://www.forbes.com/sites/debraborchardt/2017/03/10/sec-charges-marijuana-

company-medbox-and-founder-in-pot-stock-scam/#5bbad0b667bd

https://seekingalpha.com/filing/2804629

http://labusinessjournal.com/news/2017/mar/10/former-billionaire-cannabis-

entrepreneur-settles-s/

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