SEC v. CanaFarma Hemp Products Corp.; Vitaly Fargesen; and Igor Palatnik, No. 1:21-cv-08211, Southern District of New York (Oct. 6, 2021) — Complaint

RICHARD R. BEST
REGIONAL DIRECTOR
Sanjay Wadhwa
Thomas P. Smith, Jr.
Lee A. Greenwood
John C. Lehmann
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
Brookfield Place
200 Vesey Street, Suite 400
New York, New York 10281-1022
212-336-1060 (Greenwood)
[email protected]

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

SECURITIES AND EXCHANGE COMMISSION,

                                             Plaintiff,

                        -against-

CANAFARMA HEMP PRODUCTS CORP.,
VITALY FARGESEN, and IGOR PALATNIK,

                                             Defendants.

COMPLAINT

21 Civ. 8211

JURY TRIAL DEMANDED

Plaintiff Securities and Exchange Commission (“Commission”), for its Complaint against
Defendants CanaFarma Hemp Products Corp. (“CanaFarma” or the “Company”), Vitaly Fargesen
(“Fargesen”), and Igor Palatnik (“Palatnik”) (collectively, “Defendants”), alleges as follows:
SUMMARY
1. Defendants perpetrated an investment offering fraud through which they raised
millions of dollars from investors for a start-up hemp company called CanaFarma on the basis of
misrepresentations about how investor money would be used as well as misrepresentations about
the Company’s business prospects.

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2. CanaFarma’s stated business plan was to grow hemp at farms in New York and to
sell hemp-based products such as chewing gum that it would market directly to consumers.
3. From March 2019 through at least October 2020 (the “Relevant Period”),
Defendants raised approximately $15 million from more than 60 investors around the world,
including investors in the United States and in this District.
4. Though investors were told their money would be used to fund CanaFarma’s
business operations, beginning in at least April 2019, Fargesen and Palatnik—“vice presidents” on
paper but the controlling persons of the Company in reality—misappropriated at least $4 million of
investor funds from these raises, either for personal use or for purposes unrelated to CanaFarma’s
business.  Defendants concealed this misappropriation from potential investors through the use of
doctored financial projections backed up by phony agreements and invoices that were intended to
make the payments appear as if they were for legitimate corporate expenses.
5. Additionally, Defendants made or disseminated to investors numerous other material
misrepresentations and omissions about the Company and its business prospects.  For example,
through both written materials and oral presentations, Fargesen and Palatnik told potential investors
that CanaFarma was a “fully integrated” company that was processing the hemp from its farms and
using the resulting hemp oil in its products when, in reality, it had not processed any of this hemp
and its products used hemp oil from third parties.  Defendants provided financial information to
investors that misstated historical revenue numbers and included baseless projections about future
revenue that were unsupported by the Company’s own internal forecasts.  And, Defendants touted
the quality of CanaFarma’s management team, which was purportedly led by its CEO, Executive-1,
while failing to state that, in reality, Executive-1 was CEO in name only, making no substantive
decisions and taking direction from Fargesen and Palatnik.

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6. Investors paid as much as $0.50 for each share of CanaFarma stock they bought
through Defendants’ securities offerings.  Today, those shares are worth a fraction of what these
investors paid.
VIOLATIONS
7. By virtue of the foregoing conduct and as alleged further herein, Defendants have
violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)] and
Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and
Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
8. Unless Defendants are restrained and enjoined, they will engage in the acts, practices,
transactions, and courses of business set forth in this Complaint or in acts, practices, transactions,
and courses of business of similar type and object.
NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT
9. The Commission brings this action pursuant to the authority conferred upon it by
Securities Act Sections 20(b) and 20(d) [15 U.S.C. §§ 77t(b) and 77t(d)] and Exchange Act Section
21(d) [15 U.S.C. § 78u(d)].
10. The Commission seeks a final judgment:  (a) permanently enjoining Defendants
from violating the federal securities laws and rules this Complaint alleges they have violated;
(b) ordering Defendants to disgorge the ill-gotten gains they received with prejudgment interest
thereon pursuant to Exchange Act Sections 21(d)(3), 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3),
78u(d)(5), and 78u(d)(7)]; (c) ordering Defendants to pay civil money penalties pursuant to Securities
Act Section 20(d) [15 U.S.C. § 77t(d)] and Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)];
(d) permanently prohibiting Defendants Fargesen and Palatnik from serving as an officer or director
of any company that has a class of securities registered under Exchange Act Section 12 [15 U.S.C.
§ 78l] or that is required to file reports under Exchange Act Section 15(d) [15 U.S.C. § 78o(d)],

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pursuant to Securities Act Section 20(e) [15 U.S.C. § 77t(e)] and Exchange Act Section 21(d)(2) [15
U.S.C. § 78u(d)(2)]; (e) permanently prohibiting Defendants Fargesen and Palatnik from
participating in any offering of a penny stock, pursuant to Securities Act Section 20(g) [15 U.S.C.
§ 77t(g)] and Exchange Act Section 21(d)(6) [15 U.S.C. § 78u(d)(6)]; and (f) ordering any other and
further relief the Court may deem just and proper.
JURISDICTION AND VENUE
11. This Court has jurisdiction over this action pursuant to Securities Act Section 22(a)
[15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa].
12. Defendants, directly and indirectly, have made use of the means or instrumentalities
of interstate commerce or of the mails in connection with the transactions, acts, practices, and
courses of business alleged herein.
13. Venue lies in this District under Securities Act Section 22(a) [15 U.S.C. § 77v(a)] and
Exchange Act Section 27 [15 U.S.C. § 78aa].  During the Relevant Period, CanaFarma maintained
offices in Manhattan that Fargesen and Palatnik used for CanaFarma business and investor
meetings.  Additionally, certain acts, practices, transactions, and courses of business alleged in this
Complaint occurred within this District, including Defendants’ meetings with potential investors and
their sales of CanaFarma securities to at least 11 investors located in Manhattan as part of the
fraudulent offerings that are the subject of this Complaint.
DEFENDANTS
14. CanaFarma is a Canadian corporation with offices in Vancouver, Canada,
Morganville, New Jersey, and, during the Relevant Period, Manhattan.  CanaFarma incorporated in
June 2017 under the name KYC Technology Inc. (“KYC”).  In March 2020, as part of a reverse
merger, KYC acquired CanaFarma Corp. (“CF Corp.”), a privately-held Delaware corporation, and
thereafter changed its name to CanaFarma.  Beginning in March 2020 and thereafter, CanaFarma

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became listed on the Canadian Stock Exchange (“CSE”) (ticker: CNFA.CN) and the Frankfurt
Stock Exchange (“FSE”) (tickers: 4K9.F, 4K9.MU, and 4K9.BE), and is quoted on an unsolicited
basis on OTC Markets (ticker: CNFHF).
15. Fargesen, age 52, resides in Englishtown, New Jersey.  Fargesen is a co-founder of
CanaFarma along with Palatnik, with whom Fargesen has worked on various business ventures for
more than 20 years.  During the Relevant Period, Fargesen was Senior Vice President of Strategic
Planning at CanaFarma and, at various points, a member of the board of directors.  In an indictment
unsealed today, October 5, 2021, Fargesen was criminally charged by the U.S. Attorney’s Office for
the Southern District of New York (“USAO SDNY”) with securities fraud, wire fraud, and
conspiracies to commit both securities fraud and wire fraud in connection with the CanaFarma
investment offering fraud described herein.  See United States v. Vitaly Fargesen and Igor Palatnik, 21 Cr.
602 (S.D.N.Y.) (the “Criminal Case”).
16. Palatnik, age 47, resides in Marlboro, New Jersey.  Palatnik is a co-founder of
CanaFarma along with Fargesen, with whom Palatnik has worked on various business ventures for
more than 20 years.  During the Relevant Period, Palatnik was Senior Vice President of Product
Acquisition at CanaFarma and, at various points, a member of the board of directors.  Palatnik has
also been charged in the indictment in the Criminal Case with securities fraud, wire fraud, and
conspiracies to commit both securities fraud and wire fraud in connection with the CanaFarma
investment offering fraud described herein.

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FACTS
I. BACKGROUND ON CANAFARMA

A. Founding of the Company
17. Fargesen and Palatnik founded CanaFarma, which would be a “farm-to-table” hemp
company that would grow its own hemp, process that hemp into hemp oil, and then sell products
containing that hemp oil directly to consumers.
18. Fargesen and Palatnik founded a private United States company first (CF Corp.) with
the intention of then merging that private company into a Canadian shell company in order to
enable the resulting company to be listed on stock exchanges both internationally and, ultimately, in
the United States.  This type of transaction is referred to as a “reverse merger.”
19. Fargesen and Palatnik incorporated CF Corp. in March 2019.  At that time, Fargesen
was the president of CF Corp., while Fargesen and Palatnik were each 50% owners and directors.
20. Using a strawman (a friend of Fargesen’s), in or about March 2019, Fargesen and
Palatnik purchased a Canadian shell (KYC) from Canadian Bank-1.
21. As of at least April 21, 2019, Fargesen and Palatnik each owned 10 million shares of
CF Corp.
B. Doctored Financial Projections
22. In or about late 2018, Fargesen and Palatnik contacted Executive-2 and Executive-3
to see if they would assist with the sales and marketing side of a hemp-based company, which
became CanaFarma.
23. Fargesen and Palatnik told Executive-2 and Executive-3 that they (Fargesen and
Palatnik) had prior experience taking companies public, they had identified a public shell to be used
for this process, and they had secured investor commitments.

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24. Executive-2 and Executive-3 used an existing company they controlled, Company-1,
to provide these sales and marketing services to CanaFarma.
25. During the Relevant Period, Executive-2 and Executive-3 both served as Senior Vice
Presidents of Sales and Marketing at CanaFarma.
26. Company-1 provided sales and marketing services to CanaFarma pursuant to an
agreement between Company-1 and CF Corp. dated as of April 22, 2019.
27. The agreement between Company-1 and CF Corp. contained a financial model
showing the projected revenue and expenses of CanaFarma over its first two years (the “Model”).
Included in these expenses was a projected marketing budget for Company-1.
28. Executive-2 and Executive-3 prepared initial drafts of the Model, which projected
approximately $25 million in revenue for CanaFarma for its first year of operations.
29. At the direction of Fargesen, however, the Model was changed to add approximately
$1.35 million to the “set-up” and other near-term costs for the sales and marketing efforts of
Company-1.
30. Fargesen directed that these changes be made in order to disguise an expected series
of payments to Fargesen and Palatnik and not for legitimate corporate expenses.
31. Fargesen and Palatnik used the financial projections included in the Model to solicit
potential investors in CanaFarma, including potential investors located in the United States, as is
described more fully below.
C. Fargesen and Palatnik Controlled CanaFarma
32. Fargesen and Palatnik maintained complete control over CanaFarma during the
Relevant Period.  This meant, among other things, that Fargesen and Palatnik led and directed all
fundraising from investors, all corporate decisions, and all disbursements of funds from Company
bank accounts.

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33. Fargesen and Palatnik hired Executive-1 as the Company’s CEO in March 2019.
34. Fargesen and Palatnik told Executive-1 and others at CanaFarma that Executive-1
would act as a mere figurehead CEO and would not make any actual decisions.
35. CanaFarma maintained bank accounts at two banks during the Relevant Period—
U.S. Bank-1 and U.S. Bank-2.
36. Fargesen and Palatnik opened the CanaFarma bank account at U.S. Bank-1 in March
2019 and were the only two people with signature authority on the account.
37. Executive-1 opened the CanaFarma bank account at U.S. Bank-2 in April 2019.
38. Though Executive-1 initially had signature authority on the CanaFarma bank account
at U.S. Bank-2, Palatnik directed Executive-1 first to add Palatnik as a signer on the account on or
about May 14, 2019, and then to remove Executive-1 as a signer on or about June 19, 2019.
D. Products and Hemp Farms
39. CanaFarma primarily sold a chewing gum containing hemp oil directly to customers
during the Relevant Period.
40. CanaFarma did not manufacture this product itself; rather, it obtained the product
pursuant to a license agreement with a third party (Licensor-1), and then sold that product under its
own brand name (“Yooforic”).
41. CanaFarma leased two hemp farms during the Relevant Period.
42. The first hemp farm, which CanaFarma leased from April to December 2019, was
located in Dutchess County, New York.
43. The second hemp farm, which CanaFarma leased from February 2020 through the
end of the Relevant Period, was located near Syracuse, New York.
44. Using investor funds, CanaFarma made a total of at least $3.5 million in combined
payments for hemp “grows” at these two hemp farms in 2019 and 2020.

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45. Though these farms grew and harvested hemp, CanaFarma did not process any of
this hemp into hemp oil and, accordingly, did not use any of this hemp in any of its products during
the Relevant Period.
46. Instead, the hemp grown as part of the 2019 and 2020 grows that CanaFarma funded
was kept in storage, unused.
47. Licensor-1 used hemp oil purchased from a different source—that is, not the hemp
grown at the farms licensed by CanaFarma—to produce Yooforic.
48. On or about April 17, 2019, Fargesen told an individual with whom Fargesen and
Palatnik were discussing CanaFarma’s business that CanaFarma was making payments to the first
hemp farm “just for the story.”  Palatnik was also present for this conversation.
49. CanaFarma began generating revenue from the sales of its product in June 2019.
50. During its first six months of generating revenue—June 2019 through November
2019—CanaFarma generated a total of approximately $3.1 million in revenue.
51. In September 2019, CanaFarma generated approximately $832,000 in revenue, the
most revenue it generated in a single month during the Relevant Period.
52. By February 2020, however, CanaFarma’s monthly revenue dropped to
approximately $68,000.
53. Thereafter, CanaFarma’s monthly revenue continued to drop, to approximately
$44,000 in March 2020 and only approximately $26,000 by June 2020.
54. Fargesen and Palatnik were aware of CanaFarma’s monthly revenue numbers during
the Relevant Period.
II. CanaFarma’s Securities Offerings
55. During the Relevant Period, CanaFarma raised approximately $15 million from
investors around the world, including in the United States, through two securities offerings.

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56. First, between March and November 2019, CF Corp. raised approximately $11.3
million from investors through private sales of shares of CF Corp. (the “First Offering”).
57. Second, in June 2020, CanaFarma raised more than $3.7 million from investors
through private sales of shares of CanaFarma (the “Second Offering”).
58. Between the two offerings, in March 2020, KYC completed its reverse merger with
CF Corp. and became listed on the CSE and the FSE.
59. At the time of the reverse merger, Fargesen and Palatnik still owned 10 million
shares of CF Corp.
60. After the reverse merger, Fargesen and Palatnik each owned 8,727,749 shares of
CanaFarma.
61. More than 60 investors located in seven states and ten countries invested in either
the First Offering or the Second Offering, including at least 11 investors located in Manhattan.
62. Executive-1, Fargesen, or Palatnik typically sent prospective investors in both
offerings a subscription agreement, a business plan or investor presentation, and a shorter summary
of the Company’s business and the investment opportunity (the “Investment Materials”).
63. When Executive-1 sent the Investment Materials by email to a potential investor,
Executive-1 typically wrote that Executive-1 did so at the request of Fargesen or Palatnik.
64. In communications with potential investors, including in emails sending the
Investment Materials, Executive-1 represented that Executive-1 was the CEO of CanaFarma.
65. Fargesen and Palatnik then met or spoke with potential investors to pitch the
Company and the investment opportunity.  Certain of these meetings took place in Manhattan,
including at CanaFarma’s offices.

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66. Fargesen and Palatnik principally drafted the portions of the Investment Materials
that described the offerings (which included setting the Company’s valuation and price per share)
and CanaFarma’s structure and business.
67. The Investment Materials provided to potential investors in both the First Offering
and the Second Offering stated that CanaFarma had offices in Manhattan and listed a Manhattan
office address as the address for Executive-1, to whom an investor was required to return a signed
subscription agreement.
68. Investors in the First Offering paid either $0.10 or $0.25 per share.
69. Investors in the Second Offering paid approximately $0.50 per share (or $0.63 per
share in Canadian dollars).
III. Misappropriation of Investor Funds
70. The Investment Materials provided to potential investors in both the First Offering
and the Second Offering either state explicitly or imply that investor funds would be (and previously
had been) used for CanaFarma business purposes.
71. For example, one version of the summary document sent to investors in the First
Offering stated that the money raised from investors “will be used primarily for the funding of
additional grow facilities and as the marketing dollars to fuel our direct response marketing engine.”
72. Similarly, in a later version of the subscription agreement used in the First Offering,
investors were told that CanaFarma would use their money for “general working capital purposes
and for expenses incurred in connection with listing the Company’s common stock on the [CSE.]”
73. Investment Materials provided to certain investors in the First Offering stated that
CanaFarma had already raised $6 million or $7 million for the Company.
74. Investment Materials provided to investors in the Second Offering stated that
CanaFarma had already raised $12 million for the Company.

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75. In reality, however, Fargesen and Palatnik misappropriated at least $4 million from
CanaFarma bank accounts during the Relevant Period.
76. In each of the following four examples, Fargesen and Palatnik either transferred the
funds themselves or directed others to transfer the funds out of CanaFarma bank accounts (which
were funded primarily with money from investors) to another entity, Direkt Finance, LLC
(“Direkt”),  or to CanaFarma’s largest shareholder, Shareholder-1.
77. Palatnik was and is the sole owner and member of Direkt.
78. Not only did Defendants not disclose any of these payments to subsequent investors
(including in the Investment Materials), but they either disguised the payments in the budgets and
projections provided to investors or reversed the payments months later.
A. Example 1
79. Between April 25, 2019, and July 19, 2019, Fargesen and Palatnik misappropriated
more than $1.35 million invested in the First Offering through a series of transfers that ended with
transfers to Direkt.
80. Fargesen and Palatnik transferred these funds out of CanaFarma’s bank account at
U.S. Bank-1 using a combination of wire transfers and checks (which were signed by Fargesen).
81. In order to disguise the payments as part of the marketing budget for Company-1,
Fargesen directed that the Model include approximately $1.35 million in additional set-up and
marketing costs for Company-1.
82. Fargesen and Palatnik then directed others at CanaFarma to prepare false invoices
that broke the payments into multiple tranches and indicated that the initial payments by CanaFarma
(to Company-1) were for legitimate marketing services.
83. Fargesen and Palatnik also instructed that the payments be routed through multiple
bank accounts—including the bank account for Company-1—before reaching Direkt.

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84. Bank records for Direkt show that Fargesen and Palatnik used these funds not for
legitimate marketing expenses but instead for personal expenses, for checks written to themselves,
or to fund their personal bank accounts.
B. Example 2
85. Between September 26, 2019, and October 31, 2019, Fargesen and Palatnik
transferred a total of $2 million from CanaFarma’s bank account at U.S. Bank-1 (which primarily
held funds from investors in the First Offering) to Shareholder-1’s company.
86. Fargesen and Palatnik caused CanaFarma to make these payments to Shareholder-1’s
company because Shareholder-1 requested that the Company return a portion of Shareholder-1’s
family’s multimillion dollar investment in the Company.
87. Shareholder-1 did not, however, return the CanaFarma shares that CanaFarma had
issued in exchange for this investment.
88. At the direction of Palatnik, Executive-1 signed a sham consulting agreement on
behalf of CanaFarma with Shareholder-1’s company, which purported to serve as the basis for the
$2 million in payments made by CanaFarma to Shareholder-1’s company.
89. Executive-1 signed this agreement on or about October 19, 2019, which was after
CanaFarma had already transferred $1.5 million of the $2 million to Shareholder-1’s company.  The
agreement was dated as of September 23, 2019, three days before the first payment.
90. In or about May 2020, Fargesen and Palatnik admitted to others at CanaFarma that
true purpose of the $2 million in payments to Shareholder-1’s company was to return a portion of
Shareholder-1’s family’s investment.  Fargesen and Palatnik also admitted to others at CanaFarma
that they (Fargesen and Palatnik) knew that Shareholder-1’s company submitted documents to the
Company concerning services that were never provided in order to substantiate the payments.

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91. After CanaFarma’s auditors and others at CanaFarma raised questions about these
payments, on June 15, 2020, Shareholder-1’s company sent $1,665,000 back to CanaFarma.
92. Shareholder-1’s company retained the balance of these funds—$335,000—as
payment for purported social media marketing work that Shareholder-1’s company did not actually
perform.
C. Example 3
93. Between January 24, 2020, and February 28, 2020, Fargesen and Palatnik
misappropriated an additional $374,000 from CanaFarma bank accounts, which were primarily
funded with investor money from the First Offering.
94. Fargesen and Palatnik transferred these funds out of CanaFarma’s bank account at
U.S. Bank-1 by wire transfer.  The wire transfers themselves state that the payments were for a
“roadshow.”
95. Fargesen and Palatnik stated to others at CanaFarma that these payments
represented prepayments for a CanaFarma investor roadshow to take place in Europe.
96. In reality, bank records for Direkt show Fargesen and Palatnik used these funds for
personal expenses (including the purchase of a luxury car) or to fund their personal bank accounts.
97. No roadshow, let alone one in Europe, ever took place.
D. Example 4
98. In July 2020, CanaFarma’s monthly sales revenue was approximately $33,000.
99. In August 2020, Fargesen, Palatnik, and Shareholder-1 agreed to a “revenue
recycling” scheme to inflate CanaFarma’s sales revenues that were reported to investors.
100. Specifically, Fargesen, Palatnik, and Shareholder-1 agreed that (a) Fargesen and
Palatnik would transfer funds out of CanaFarma’s bank accounts to companies controlled by
Shareholder-1 overseas, as payment for fictitious services, and (b) other companies controlled by

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Shareholder-1 would then send the funds back to CanaFarma at a later date as purported sales
revenue from product sales that did not in fact occur.
101. On or about September 17, 2020, at the direction of Palatnik, CanaFarma transferred
a total of $350,000 out of its bank account at U.S. Bank-2 through two separate wire transfers to two
companies controlled by Shareholder-1.  These transfers were primarily funded with investor funds
from the Second Offering.
102. In October 2020, CanaFarma received a total of $376,250 back from a third
company controlled by Shareholder-1.
103. CanaFarma did not disclose in any of the Investment Materials that it would use
investor funds for phantom transactions intended to create the appearance of higher sales revenues.
IV. Additional Material Misrepresentations and Omissions to Investors
104. The Investment Materials provided to investors falsely stated that CanaFarma had an
“integrated” business that included the processing of hemp into hemp oil that was then used in the
Company’s products (i.e., Yooforic-branded products such as chewing gum).
105. For example, in the business plan provided to potential investors in the First
Offering, CanaFarma stated that it was “the only producer in the CBD market with its own . . .
Processing facility.”  In the summary provided along with that business plan, CanaFarma stated that
it was a “fully integrated cannabis company addressing the entire cannabis spectrum from seed to
delivery of consumer products.”
106. In another investor presentation provided to potential investors in the First Offering,
CanaFarma described its business as “vertically integrated – cultivation, processing and sales of
hemp oil infused products.”  Fargesen was listed as the CanaFarma contact person in this investor
presentation.

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107. Similarly, in an investor presentation provided to potential investors in the Second
Offering, CanaFarma described its “Vertical Integrated Hemp Business” as follows:  “From seed to
counter, our fully integrated hemp business helps us promote in-demand hemp oil infused products
that continue to fuel the direct response marketing engine.”  The investor presentation then includes
“processing” as one of the ways CanaFarma’s business was “integrated.”
108. This investor presentation also stated that CanaFarma “independently grows,
produces, promotes, sells, and ships our own products,” and that the Company had as a “notable
resource” its own “Fully Certified, Clean Processing Facility.”
109. In addition to written materials, during investor presentations, Fargesen orally gave
potential investors in at least the First Offering the impression that CanaFarma grew and processed
its own hemp and then used the resulting hemp oil in its products.
110. In reality, CanaFarma did not process any of the hemp that was grown at the farms it
leased during the Relevant Period, and none of the products it sold contained hemp oil from the
hemp grown at these farms.
111. By the time of the Second Offering, CanaFarma’s first hemp grow remained
unprocessed and was sitting unused in storage.
112. The business plan sent to potential investors in the First Offering contained a
section with purported “Testimonials” given by some of the “first users” of “the Company’s
superior differentiated product.”
113. In reality, these testimonials were not related to CanaFarma’s product (Yooforic
chewing gum) at all; rather, they were testimonials for another hemp-based product that CanaFarma
never sold.
114. Fargesen and Palatnik included these misleading testimonials in the business plan.

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115. The Investment Materials provided to potential investors contained
misrepresentations and omissions about past and projected sales revenues.
116. For example, Investment Materials for the First Offering “guaranteed” $25 million
and projected as much as $100 million in first-year revenue for CanaFarma.
117. In reality, the CanaFarma employees directly responsible for the product
development and marketing work that drove these revenue projections had projected (but did not
guarantee) $25 million in first-year revenue.
118. Additionally, as described in the Investment Materials for the First Offering, the
revenue projections were based on a marketing budget of $3 million that would be used “to pay the
affiliate networks for the sales that they generate.”
119. As described above, however, this $3 million marketing budget included $1.35
million that Fargesen and Palatnik misappropriated from the Company, which was not used for
marketing work.
120. Not only was this misappropriation not disclosed to potential investors, but the
Investment Materials for the First Offering stated that the Company used a “pay for performance”
marketing model where it “does not incur a marketing expense unless actual sales are made.”
121. In the Second Offering, an investor presentation stated that CanaFarma had
surpassed $4 million in revenue in either its first six months of sales or its “first quarter,” and that in
March 2020, the Company was “[n]ow achieving nearly $1,000,000 per month revenue.”
122. None of these statements were true.  In reality, CanaFarma achieved approximately
$3.1 million in revenue in its first six months of sales and only approximately $44,000 in revenue in
March 2020.  CanaFarma never reached $1 million in monthly revenue during the Relevant Period.

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123. Because Fargesen and Palatnik were aware of CanaFarma’s monthly revenue
numbers during the Relevant Period, they knew or were reckless in not knowing that these
statements to potential investors in the Second Offering were false and misleading.
124. The Investment Materials provided to potential investors in both offerings touted
the high quality of CanaFarma’s management team, suggesting it was headed by Executive-1 as CEO
and that Fargesen and Palatnik were mere officers who reported to Executive-1.
125. In reality, Executive-1 simply signed documents and took direction as to all aspects
of the business from Fargesen and Palatnik.
126. The Investment Materials did not disclose that Executive-1 was acting as a mere
figurehead CEO, nor did Defendants otherwise disclose that information to investors.
127. The Investment Materials provided to potential investors in at least the First
Offering also stated that the owners of Licensor-1—the third-party from which CanaFarma was
licensing its hemp oil chewing gum—were part of the CanaFarma organization.
128. For example, organizational charts contained in the Investment Materials provided
to potential investors in the First Offering described the owners of Licensor-1 as part of the
Company’s “Management Team” and indicated that they reported to Palatnik.
129. In reality, neither the owners of Licensor-1 nor Licensor-1 itself were part of
CanaFarma at all.
V. The CanaFarma Shares Sold to Investors Qualified as a Penny Stock
130. The shares of CanaFarma stock sold to investors in both the First Offering and the
Second Offering qualified as a penny stock as defined by Exchange Act Section 3(a)(51) of the
Exchange Act and Rule 3a51-1 thereunder:  (a) CanaFarma stock was not an “NMS stock,” as
defined in 17 C.F.R. § 242.600(b)(47); (b) CanaFarma stock traded below five dollars per share
during the Relevant Period; (c) CanaFarma had net tangible assets and average revenue below the

19
thresholds of Rule 3a51-1(g)(1); and (d) CanaFarma did not meet any of the other exceptions
contained in Rule 3a51-1.
131. As of today, October 5, 2021, CanaFarma is trading at approximately $0.07 per share
on OTC Markets.
FIRST CLAIM FOR RELIEF
Violations of Securities Act Section 17(a)
(All Defendants)

132. The Commission re-alleges and incorporates by reference here the allegations in
paragraphs 1 through 131.
133. Defendants, directly or indirectly, singly or in concert, in the offer or sale of
securities and by the use of the means or instruments of transportation or communication in
interstate commerce or the mails, (i) knowingly or recklessly have employed one or more devices,
schemes or artifices to defraud, (ii) knowingly, recklessly, or negligently have obtained money or
property by means of one or more untrue statements of a material fact or omissions of a material
fact necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading, and/or (iii) knowingly, recklessly, or negligently have engaged in one or
more transactions, practices, or courses of business which operated or would operate as a fraud or
deceit upon the purchaser.
134. By reason of the foregoing, Defendants, directly or indirectly, singly or in concert,
have violated and, unless enjoined, will again violate Securities Act Section 17(a) [15 U.S.C. § 77q(a)].
SECOND CLAIM FOR RELIEF
Violations of Exchange Act Section 10(b) and Rule 10b-5 Thereunder
(All Defendants)

135. The Commission re-alleges and incorporates by reference here the allegations in
paragraphs 1 through 131.

20
136. Defendants, directly or indirectly, singly or in concert, in connection with the
purchase or sale of securities and by the use of means or instrumentalities of interstate commerce, or
the mails, or the facilities of a national securities exchange, knowingly or recklessly have (i) employed
one or more devices, schemes, or artifices to defraud, (ii) made one or more untrue statements of a
material fact or omitted to state one or more material facts necessary in order to make the
statements made, in light of the circumstances under which they were made, not misleading, and/or
(iii) engaged in one or more acts, practices, or courses of business which operated or would operate
as a fraud or deceit upon other persons.
137. By reason of the foregoing, directly or indirectly, singly or in concert, have violated
and, unless enjoined, will again violate Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule
10b-5 thereunder [17 C.F.R. § 240.10b-5].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court enter a Final
Judgment:
I.
Permanently enjoining Defendant CanaFarma and its agents, servants, employees, and
attorneys and all persons in active concert or participation with any of them from violating, directly
or indirectly, Securities Act Section 17(a) [15 U.S.C. § 77q(a)] and Exchange Act Section 10(b) [15
U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5];
II.
Permanently enjoining Defendant Fargesen and his agents, servants, employees, and
attorneys and all persons in active concert or participation with any of them from violating, directly
or indirectly, Securities Act Section 17(a) [15 U.S.C. § 77q(a)] and Exchange Act Section 10(b) [15
U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5];

21
III.
Permanently enjoining Defendant Palatnik and his agents, servants, employees, and attorneys
and all persons in active concert or participation with any of them from violating, directly or
indirectly, Securities Act Section 17(a) [15 U.S.C. § 77q(a)] and Exchange Act Section 10(b) [15
U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5];
IV.
Ordering Defendants to disgorge all ill-gotten gains they received directly or indirectly, with
prejudgment interest thereon, as a result of the alleged violations, pursuant to Exchange Act
Sections 21(d)(3), 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 78u(d)(5), and 78u(d)(7)];
V.
Ordering Defendants to pay civil monetary penalties under Securities Act Section 20(d)
[15 U.S.C. § 77t(d)] and Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)];
VI.
Permanently prohibiting Defendants Fargesen and Palatnik from serving as an officer or
director of any company that has a class of securities registered under Exchange Act Section 12 [15
U.S.C. § 78l] or that is required to file reports under Exchange Act Section 15(d) [15 U.S.C. §
78o(d)], pursuant to Securities Act Section 20(e) [15 U.S.C. § 77t(e)] and Exchange Act Section
21(d)(2) [15 U.S.C. § 78u(d)(2)];
VII.
Permanently prohibiting Defendants Fargesen and Palatnik from participating in any
offering of a penny stock, including engaging in activities with a broker, dealer, or issuer for
purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny
stock, under Securities Act Section 20(g) [15 U.S.C. § 77t(g)] and Exchange Act Section 21(d)(6) [15
U.S.C. § 78u(d)(6)]; and

22
VIII.
Granting any other and further relief this Court may deem just and proper.

Dated:  New York, New York
October 5, 2021
/s/            Richard            R.            Best
RICHARD R. BEST
REGIONAL DIRECTOR
Sanjay Wadhwa
Thomas P. Smith, Jr.
Lee A. Greenwood
John C. Lehmann
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
Brookfield Place
200 Vesey Street, Suite 400
New York, New York 10281-1022
212-336-1060 (Greenwood)
[email protected]

RICHARD R. BEST 
REGIONAL DIRECTOR 
Sanjay Wadhwa 
Thomas P. Smith, Jr. 
Lee A. Greenwood 
John C. Lehmann 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
New York Regional Office 
Brookfield Place  
200 Vesey Street, Suite 400 
New York, New York 10281-1022 
212-336-1060 (Greenwood) 
[email protected]  
 
UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 

 
SECURITIES AND EXCHANGE COMMISSION, 
 
                                             Plaintiff, 
 
                        -against- 
 

CANAFARMA HEMP PRODUCTS CORP., 
VITALY FARGESEN, and IGOR PALATNIK,    
  
                                             Defendants. 
 
 

 
 
COMPLAINT 

   
21 Civ. 8211 

 
   

JURY TRIAL DEMANDED 
  

           
          

 
Plaintiff Securities and Exchange Commission (“Commission”), for its Complaint against 

Defendants CanaFarma Hemp Products Corp. (“CanaFarma” or the “Company”), Vitaly Fargesen 

(“Fargesen”), and Igor Palatnik (“Palatnik”) (collectively, “Defendants”), alleges as follows: 

SUMMARY 

1. Defendants perpetrated an investment offering fraud through which they raised 

millions of dollars from investors for a start-up hemp company called CanaFarma on the basis of 

misrepresentations about how investor money would be used as well as misrepresentations about 

the Company’s business prospects. 

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2. CanaFarma’s stated business plan was to grow hemp at farms in New York and to 

sell hemp-based products such as chewing gum that it would market directly to consumers.   

3. From March 2019 through at least October 2020 (the “Relevant Period”), 

Defendants raised approximately $15 million from more than 60 investors around the world, 

including investors in the United States and in this District.   

4. Though investors were told their money would be used to fund CanaFarma’s 

business operations, beginning in at least April 2019, Fargesen and Palatnik—“vice presidents” on 

paper but the controlling persons of the Company in reality—misappropriated at least $4 million of 

investor funds from these raises, either for personal use or for purposes unrelated to CanaFarma’s 

business.  Defendants concealed this misappropriation from potential investors through the use of 

doctored financial projections backed up by phony agreements and invoices that were intended to 

make the payments appear as if they were for legitimate corporate expenses.   

5. Additionally, Defendants made or disseminated to investors numerous other material 

misrepresentations and omissions about the Company and its business prospects.  For example, 

through both written materials and oral presentations, Fargesen and Palatnik told potential investors 

that CanaFarma was a “fully integrated” company that was processing the hemp from its farms and 

using the resulting hemp oil in its products when, in reality, it had not processed any of this hemp 

and its products used hemp oil from third parties.  Defendants provided financial information to 

investors that misstated historical revenue numbers and included baseless projections about future 

revenue that were unsupported by the Company’s own internal forecasts.  And, Defendants touted 

the quality of CanaFarma’s management team, which was purportedly led by its CEO, Executive-1, 

while failing to state that, in reality, Executive-1 was CEO in name only, making no substantive 

decisions and taking direction from Fargesen and Palatnik.  

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6. Investors paid as much as $0.50 for each share of CanaFarma stock they bought 

through Defendants’ securities offerings.  Today, those shares are worth a fraction of what these 

investors paid. 

VIOLATIONS 

7. By virtue of the foregoing conduct and as alleged further herein, Defendants have 

violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)] and 

Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and 

Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

8. Unless Defendants are restrained and enjoined, they will engage in the acts, practices, 

transactions, and courses of business set forth in this Complaint or in acts, practices, transactions, 

and courses of business of similar type and object.   

NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT 

9. The Commission brings this action pursuant to the authority conferred upon it by 

Securities Act Sections 20(b) and 20(d) [15 U.S.C. §§ 77t(b) and 77t(d)] and Exchange Act Section 

21(d) [15 U.S.C. § 78u(d)].  

10. The Commission seeks a final judgment:  (a) permanently enjoining Defendants 

from violating the federal securities laws and rules this Complaint alleges they have violated; 

(b) ordering Defendants to disgorge the ill-gotten gains they received with prejudgment interest 

thereon pursuant to Exchange Act Sections 21(d)(3), 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 

78u(d)(5), and 78u(d)(7)]; (c) ordering Defendants to pay civil money penalties pursuant to Securities 

Act Section 20(d) [15 U.S.C. § 77t(d)] and Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)]; 

(d) permanently prohibiting Defendants Fargesen and Palatnik from serving as an officer or director 

of any company that has a class of securities registered under Exchange Act Section 12 [15 U.S.C. 

§ 78l] or that is required to file reports under Exchange Act Section 15(d) [15 U.S.C. § 78o(d)], 

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pursuant to Securities Act Section 20(e) [15 U.S.C. § 77t(e)] and Exchange Act Section 21(d)(2) [15 

U.S.C. § 78u(d)(2)]; (e) permanently prohibiting Defendants Fargesen and Palatnik from 

participating in any offering of a penny stock, pursuant to Securities Act Section 20(g) [15 U.S.C. 

§ 77t(g)] and Exchange Act Section 21(d)(6) [15 U.S.C. § 78u(d)(6)]; and (f) ordering any other and 

further relief the Court may deem just and proper. 

JURISDICTION AND VENUE 

11. This Court has jurisdiction over this action pursuant to Securities Act Section 22(a) 

[15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa].  

12. Defendants, directly and indirectly, have made use of the means or instrumentalities 

of interstate commerce or of the mails in connection with the transactions, acts, practices, and 

courses of business alleged herein. 

13. Venue lies in this District under Securities Act Section 22(a) [15 U.S.C. § 77v(a)] and 

Exchange Act Section 27 [15 U.S.C. § 78aa].  During the Relevant Period, CanaFarma maintained 

offices in Manhattan that Fargesen and Palatnik used for CanaFarma business and investor 

meetings.  Additionally, certain acts, practices, transactions, and courses of business alleged in this 

Complaint occurred within this District, including Defendants’ meetings with potential investors and 

their sales of CanaFarma securities to at least 11 investors located in Manhattan as part of the 

fraudulent offerings that are the subject of this Complaint. 

DEFENDANTS 

14. CanaFarma is a Canadian corporation with offices in Vancouver, Canada, 

Morganville, New Jersey, and, during the Relevant Period, Manhattan.  CanaFarma incorporated in 

June 2017 under the name KYC Technology Inc. (“KYC”).  In March 2020, as part of a reverse 

merger, KYC acquired CanaFarma Corp. (“CF Corp.”), a privately-held Delaware corporation, and 

thereafter changed its name to CanaFarma.  Beginning in March 2020 and thereafter, CanaFarma 

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became listed on the Canadian Stock Exchange (“CSE”) (ticker: CNFA.CN) and the Frankfurt 

Stock Exchange (“FSE”) (tickers: 4K9.F, 4K9.MU, and 4K9.BE), and is quoted on an unsolicited 

basis on OTC Markets (ticker: CNFHF).   

15. Fargesen, age 52, resides in Englishtown, New Jersey.  Fargesen is a co-founder of 

CanaFarma along with Palatnik, with whom Fargesen has worked on various business ventures for 

more than 20 years.  During the Relevant Period, Fargesen was Senior Vice President of Strategic 

Planning at CanaFarma and, at various points, a member of the board of directors.  In an indictment 

unsealed today, October 5, 2021, Fargesen was criminally charged by the U.S. Attorney’s Office for 

the Southern District of New York (“USAO SDNY”) with securities fraud, wire fraud, and 

conspiracies to commit both securities fraud and wire fraud in connection with the CanaFarma 

investment offering fraud described herein.  See United States v. Vitaly Fargesen and Igor Palatnik, 21 Cr. 

602 (S.D.N.Y.) (the “Criminal Case”). 

16. Palatnik, age 47, resides in Marlboro, New Jersey.  Palatnik is a co-founder of 

CanaFarma along with Fargesen, with whom Palatnik has worked on various business ventures for 

more than 20 years.  During the Relevant Period, Palatnik was Senior Vice President of Product 

Acquisition at CanaFarma and, at various points, a member of the board of directors.  Palatnik has 

also been charged in the indictment in the Criminal Case with securities fraud, wire fraud, and 

conspiracies to commit both securities fraud and wire fraud in connection with the CanaFarma 

investment offering fraud described herein. 

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FACTS 

I. BACKGROUND ON CANAFARMA 
 

A. Founding of the Company 

17. Fargesen and Palatnik founded CanaFarma, which would be a “farm-to-table” hemp 

company that would grow its own hemp, process that hemp into hemp oil, and then sell products 

containing that hemp oil directly to consumers.   

18. Fargesen and Palatnik founded a private United States company first (CF Corp.) with 

the intention of then merging that private company into a Canadian shell company in order to 

enable the resulting company to be listed on stock exchanges both internationally and, ultimately, in 

the United States.  This type of transaction is referred to as a “reverse merger.” 

19. Fargesen and Palatnik incorporated CF Corp. in March 2019.  At that time, Fargesen 

was the president of CF Corp., while Fargesen and Palatnik were each 50% owners and directors.  

20. Using a strawman (a friend of Fargesen’s), in or about March 2019, Fargesen and 

Palatnik purchased a Canadian shell (KYC) from Canadian Bank-1.   

21. As of at least April 21, 2019, Fargesen and Palatnik each owned 10 million shares of  

CF Corp. 

B. Doctored Financial Projections 

22. In or about late 2018, Fargesen and Palatnik contacted Executive-2 and Executive-3 

to see if they would assist with the sales and marketing side of a hemp-based company, which 

became CanaFarma.   

23. Fargesen and Palatnik told Executive-2 and Executive-3 that they (Fargesen and 

Palatnik) had prior experience taking companies public, they had identified a public shell to be used 

for this process, and they had secured investor commitments. 

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24. Executive-2 and Executive-3 used an existing company they controlled, Company-1, 

to provide these sales and marketing services to CanaFarma.   

25. During the Relevant Period, Executive-2 and Executive-3 both served as Senior Vice 

Presidents of Sales and Marketing at CanaFarma. 

26. Company-1 provided sales and marketing services to CanaFarma pursuant to an 

agreement between Company-1 and CF Corp. dated as of April 22, 2019.   

27. The agreement between Company-1 and CF Corp. contained a financial model 

showing the projected revenue and expenses of CanaFarma over its first two years (the “Model”).  

Included in these expenses was a projected marketing budget for Company-1.   

28. Executive-2 and Executive-3 prepared initial drafts of the Model, which projected 

approximately $25 million in revenue for CanaFarma for its first year of operations.   

29. At the direction of Fargesen, however, the Model was changed to add approximately 

$1.35 million to the “set-up” and other near-term costs for the sales and marketing efforts of 

Company-1. 

30. Fargesen directed that these changes be made in order to disguise an expected series 

of payments to Fargesen and Palatnik and not for legitimate corporate expenses. 

31. Fargesen and Palatnik used the financial projections included in the Model to solicit 

potential investors in CanaFarma, including potential investors located in the United States, as is 

described more fully below.   

C. Fargesen and Palatnik Controlled CanaFarma 

32. Fargesen and Palatnik maintained complete control over CanaFarma during the 

Relevant Period.  This meant, among other things, that Fargesen and Palatnik led and directed all 

fundraising from investors, all corporate decisions, and all disbursements of funds from Company 

bank accounts.   

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33. Fargesen and Palatnik hired Executive-1 as the Company’s CEO in March 2019.   

34. Fargesen and Palatnik told Executive-1 and others at CanaFarma that Executive-1 

would act as a mere figurehead CEO and would not make any actual decisions.   

35. CanaFarma maintained bank accounts at two banks during the Relevant Period—

U.S. Bank-1 and U.S. Bank-2. 

36. Fargesen and Palatnik opened the CanaFarma bank account at U.S. Bank-1 in March 

2019 and were the only two people with signature authority on the account. 

37. Executive-1 opened the CanaFarma bank account at U.S. Bank-2 in April 2019.   

38. Though Executive-1 initially had signature authority on the CanaFarma bank account 

at U.S. Bank-2, Palatnik directed Executive-1 first to add Palatnik as a signer on the account on or 

about May 14, 2019, and then to remove Executive-1 as a signer on or about June 19, 2019. 

D. Products and Hemp Farms 

39. CanaFarma primarily sold a chewing gum containing hemp oil directly to customers 

during the Relevant Period.   

40. CanaFarma did not manufacture this product itself; rather, it obtained the product 

pursuant to a license agreement with a third party (Licensor-1), and then sold that product under its 

own brand name (“Yooforic”). 

41. CanaFarma leased two hemp farms during the Relevant Period.   

42. The first hemp farm, which CanaFarma leased from April to December 2019, was 

located in Dutchess County, New York.   

43. The second hemp farm, which CanaFarma leased from February 2020 through the 

end of the Relevant Period, was located near Syracuse, New York. 

44. Using investor funds, CanaFarma made a total of at least $3.5 million in combined 

payments for hemp “grows” at these two hemp farms in 2019 and 2020. 

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45. Though these farms grew and harvested hemp, CanaFarma did not process any of 

this hemp into hemp oil and, accordingly, did not use any of this hemp in any of its products during 

the Relevant Period.  

46. Instead, the hemp grown as part of the 2019 and 2020 grows that CanaFarma funded 

was kept in storage, unused.  

47. Licensor-1 used hemp oil purchased from a different source—that is, not the hemp 

grown at the farms licensed by CanaFarma—to produce Yooforic. 

48. On or about April 17, 2019, Fargesen told an individual with whom Fargesen and 

Palatnik were discussing CanaFarma’s business that CanaFarma was making payments to the first 

hemp farm “just for the story.”  Palatnik was also present for this conversation. 

49. CanaFarma began generating revenue from the sales of its product in June 2019. 

50. During its first six months of generating revenue—June 2019 through November 

2019—CanaFarma generated a total of approximately $3.1 million in revenue. 

51. In September 2019, CanaFarma generated approximately $832,000 in revenue, the 

most revenue it generated in a single month during the Relevant Period. 

52. By February 2020, however, CanaFarma’s monthly revenue dropped to 

approximately $68,000. 

53. Thereafter, CanaFarma’s monthly revenue continued to drop, to approximately 

$44,000 in March 2020 and only approximately $26,000 by June 2020. 

54. Fargesen and Palatnik were aware of CanaFarma’s monthly revenue numbers during 

the Relevant Period. 

II. CanaFarma’s Securities Offerings 

55. During the Relevant Period, CanaFarma raised approximately $15 million from 

investors around the world, including in the United States, through two securities offerings.   

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56. First, between March and November 2019, CF Corp. raised approximately $11.3 

million from investors through private sales of shares of CF Corp. (the “First Offering”).   

57. Second, in June 2020, CanaFarma raised more than $3.7 million from investors 

through private sales of shares of CanaFarma (the “Second Offering”).   

58. Between the two offerings, in March 2020, KYC completed its reverse merger with 

CF Corp. and became listed on the CSE and the FSE.  

59. At the time of the reverse merger, Fargesen and Palatnik still owned 10 million 

shares of CF Corp. 

60. After the reverse merger, Fargesen and Palatnik each owned 8,727,749 shares of 

CanaFarma. 

61. More than 60 investors located in seven states and ten countries invested in either 

the First Offering or the Second Offering, including at least 11 investors located in Manhattan. 

62. Executive-1, Fargesen, or Palatnik typically sent prospective investors in both 

offerings a subscription agreement, a business plan or investor presentation, and a shorter summary 

of the Company’s business and the investment opportunity (the “Investment Materials”).   

63. When Executive-1 sent the Investment Materials by email to a potential investor, 

Executive-1 typically wrote that Executive-1 did so at the request of Fargesen or Palatnik. 

64. In communications with potential investors, including in emails sending the 

Investment Materials, Executive-1 represented that Executive-1 was the CEO of CanaFarma. 

65. Fargesen and Palatnik then met or spoke with potential investors to pitch the 

Company and the investment opportunity.  Certain of these meetings took place in Manhattan, 

including at CanaFarma’s offices. 

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66. Fargesen and Palatnik principally drafted the portions of the Investment Materials 

that described the offerings (which included setting the Company’s valuation and price per share) 

and CanaFarma’s structure and business.   

67. The Investment Materials provided to potential investors in both the First Offering 

and the Second Offering stated that CanaFarma had offices in Manhattan and listed a Manhattan 

office address as the address for Executive-1, to whom an investor was required to return a signed 

subscription agreement.   

68. Investors in the First Offering paid either $0.10 or $0.25 per share. 

69. Investors in the Second Offering paid approximately $0.50 per share (or $0.63 per 

share in Canadian dollars). 

III. Misappropriation of Investor Funds 

70. The Investment Materials provided to potential investors in both the First Offering 

and the Second Offering either state explicitly or imply that investor funds would be (and previously 

had been) used for CanaFarma business purposes. 

71. For example, one version of the summary document sent to investors in the First 

Offering stated that the money raised from investors “will be used primarily for the funding of 

additional grow facilities and as the marketing dollars to fuel our direct response marketing engine.” 

72. Similarly, in a later version of the subscription agreement used in the First Offering, 

investors were told that CanaFarma would use their money for “general working capital purposes 

and for expenses incurred in connection with listing the Company’s common stock on the [CSE.]” 

73. Investment Materials provided to certain investors in the First Offering stated that 

CanaFarma had already raised $6 million or $7 million for the Company. 

74. Investment Materials provided to investors in the Second Offering stated that 

CanaFarma had already raised $12 million for the Company. 

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75. In reality, however, Fargesen and Palatnik misappropriated at least $4 million from 

CanaFarma bank accounts during the Relevant Period.   

76. In each of the following four examples, Fargesen and Palatnik either transferred the 

funds themselves or directed others to transfer the funds out of CanaFarma bank accounts (which 

were funded primarily with money from investors) to another entity, Direkt Finance, LLC 

(“Direkt”),  or to CanaFarma’s largest shareholder, Shareholder-1.    

77. Palatnik was and is the sole owner and member of Direkt. 

78. Not only did Defendants not disclose any of these payments to subsequent investors 

(including in the Investment Materials), but they either disguised the payments in the budgets and 

projections provided to investors or reversed the payments months later. 

A. Example 1 

79. Between April 25, 2019, and July 19, 2019, Fargesen and Palatnik misappropriated 

more than $1.35 million invested in the First Offering through a series of transfers that ended with 

transfers to Direkt.   

80. Fargesen and Palatnik transferred these funds out of CanaFarma’s bank account at 

U.S. Bank-1 using a combination of wire transfers and checks (which were signed by Fargesen).   

81. In order to disguise the payments as part of the marketing budget for Company-1, 

Fargesen directed that the Model include approximately $1.35 million in additional set-up and 

marketing costs for Company-1. 

82. Fargesen and Palatnik then directed others at CanaFarma to prepare false invoices 

that broke the payments into multiple tranches and indicated that the initial payments by CanaFarma 

(to Company-1) were for legitimate marketing services.   

83. Fargesen and Palatnik also instructed that the payments be routed through multiple 

bank accounts—including the bank account for Company-1—before reaching Direkt. 

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84. Bank records for Direkt show that Fargesen and Palatnik used these funds not for 

legitimate marketing expenses but instead for personal expenses, for checks written to themselves, 

or to fund their personal bank accounts.   

B. Example 2 

85. Between September 26, 2019, and October 31, 2019, Fargesen and Palatnik 

transferred a total of $2 million from CanaFarma’s bank account at U.S. Bank-1 (which primarily 

held funds from investors in the First Offering) to Shareholder-1’s company.   

86. Fargesen and Palatnik caused CanaFarma to make these payments to Shareholder-1’s 

company because Shareholder-1 requested that the Company return a portion of Shareholder-1’s 

family’s multimillion dollar investment in the Company.   

87. Shareholder-1 did not, however, return the CanaFarma shares that CanaFarma had 

issued in exchange for this investment.   

88. At the direction of Palatnik, Executive-1 signed a sham consulting agreement on 

behalf of CanaFarma with Shareholder-1’s company, which purported to serve as the basis for the 

$2 million in payments made by CanaFarma to Shareholder-1’s company. 

89. Executive-1 signed this agreement on or about October 19, 2019, which was after 

CanaFarma had already transferred $1.5 million of the $2 million to Shareholder-1’s company.  The 

agreement was dated as of September 23, 2019, three days before the first payment. 

90. In or about May 2020, Fargesen and Palatnik admitted to others at CanaFarma that 

true purpose of the $2 million in payments to Shareholder-1’s company was to return a portion of 

Shareholder-1’s family’s investment.  Fargesen and Palatnik also admitted to others at CanaFarma 

that they (Fargesen and Palatnik) knew that Shareholder-1’s company submitted documents to the 

Company concerning services that were never provided in order to substantiate the payments.   

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91. After CanaFarma’s auditors and others at CanaFarma raised questions about these 

payments, on June 15, 2020, Shareholder-1’s company sent $1,665,000 back to CanaFarma.   

92. Shareholder-1’s company retained the balance of these funds—$335,000—as 

payment for purported social media marketing work that Shareholder-1’s company did not actually 

perform. 

C. Example 3 

93. Between January 24, 2020, and February 28, 2020, Fargesen and Palatnik 

misappropriated an additional $374,000 from CanaFarma bank accounts, which were primarily 

funded with investor money from the First Offering.   

94. Fargesen and Palatnik transferred these funds out of CanaFarma’s bank account at 

U.S. Bank-1 by wire transfer.  The wire transfers themselves state that the payments were for a 

“roadshow.” 

95. Fargesen and Palatnik stated to others at CanaFarma that these payments 

represented prepayments for a CanaFarma investor roadshow to take place in Europe.   

96. In reality, bank records for Direkt show Fargesen and Palatnik used these funds for 

personal expenses (including the purchase of a luxury car) or to fund their personal bank accounts. 

97. No roadshow, let alone one in Europe, ever took place. 

D. Example 4 

98. In July 2020, CanaFarma’s monthly sales revenue was approximately $33,000. 

99. In August 2020, Fargesen, Palatnik, and Shareholder-1 agreed to a “revenue 

recycling” scheme to inflate CanaFarma’s sales revenues that were reported to investors. 

100. Specifically, Fargesen, Palatnik, and Shareholder-1 agreed that (a) Fargesen and 

Palatnik would transfer funds out of CanaFarma’s bank accounts to companies controlled by 

Shareholder-1 overseas, as payment for fictitious services, and (b) other companies controlled by 

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Shareholder-1 would then send the funds back to CanaFarma at a later date as purported sales 

revenue from product sales that did not in fact occur.   

101. On or about September 17, 2020, at the direction of Palatnik, CanaFarma transferred 

a total of $350,000 out of its bank account at U.S. Bank-2 through two separate wire transfers to two 

companies controlled by Shareholder-1.  These transfers were primarily funded with investor funds 

from the Second Offering. 

102. In October 2020, CanaFarma received a total of $376,250 back from a third 

company controlled by Shareholder-1.   

103. CanaFarma did not disclose in any of the Investment Materials that it would use 

investor funds for phantom transactions intended to create the appearance of higher sales revenues. 

IV. Additional Material Misrepresentations and Omissions to Investors 

104. The Investment Materials provided to investors falsely stated that CanaFarma had an 

“integrated” business that included the processing of hemp into hemp oil that was then used in the 

Company’s products (i.e., Yooforic-branded products such as chewing gum). 

105. For example, in the business plan provided to potential investors in the First 

Offering, CanaFarma stated that it was “the only producer in the CBD market with its own . . . 

Processing facility.”  In the summary provided along with that business plan, CanaFarma stated that 

it was a “fully integrated cannabis company addressing the entire cannabis spectrum from seed to 

delivery of consumer products.” 

106. In another investor presentation provided to potential investors in the First Offering, 

CanaFarma described its business as “vertically integrated – cultivation, processing and sales of 

hemp oil infused products.”  Fargesen was listed as the CanaFarma contact person in this investor 

presentation. 

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107. Similarly, in an investor presentation provided to potential investors in the Second 

Offering, CanaFarma described its “Vertical Integrated Hemp Business” as follows:  “From seed to 

counter, our fully integrated hemp business helps us promote in-demand hemp oil infused products 

that continue to fuel the direct response marketing engine.”  The investor presentation then includes 

“processing” as one of the ways CanaFarma’s business was “integrated.” 

108. This investor presentation also stated that CanaFarma “independently grows, 

produces, promotes, sells, and ships our own products,” and that the Company had as a “notable 

resource” its own “Fully Certified, Clean Processing Facility.” 

109. In addition to written materials, during investor presentations, Fargesen orally gave 

potential investors in at least the First Offering the impression that CanaFarma grew and processed 

its own hemp and then used the resulting hemp oil in its products. 

110. In reality, CanaFarma did not process any of the hemp that was grown at the farms it 

leased during the Relevant Period, and none of the products it sold contained hemp oil from the 

hemp grown at these farms. 

111. By the time of the Second Offering, CanaFarma’s first hemp grow remained 

unprocessed and was sitting unused in storage. 

112. The business plan sent to potential investors in the First Offering contained a 

section with purported “Testimonials” given by some of the “first users” of “the Company’s 

superior differentiated product.”   

113. In reality, these testimonials were not related to CanaFarma’s product (Yooforic 

chewing gum) at all; rather, they were testimonials for another hemp-based product that CanaFarma 

never sold. 

114. Fargesen and Palatnik included these misleading testimonials in the business plan. 

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115. The Investment Materials provided to potential investors contained 

misrepresentations and omissions about past and projected sales revenues.   

116. For example, Investment Materials for the First Offering “guaranteed” $25 million 

and projected as much as $100 million in first-year revenue for CanaFarma.   

117. In reality, the CanaFarma employees directly responsible for the product 

development and marketing work that drove these revenue projections had projected (but did not 

guarantee) $25 million in first-year revenue.   

118. Additionally, as described in the Investment Materials for the First Offering, the 

revenue projections were based on a marketing budget of $3 million that would be used “to pay the 

affiliate networks for the sales that they generate.” 

119. As described above, however, this $3 million marketing budget included $1.35 

million that Fargesen and Palatnik misappropriated from the Company, which was not used for 

marketing work. 

120. Not only was this misappropriation not disclosed to potential investors, but the 

Investment Materials for the First Offering stated that the Company used a “pay for performance” 

marketing model where it “does not incur a marketing expense unless actual sales are made.” 

121. In the Second Offering, an investor presentation stated that CanaFarma had 

surpassed $4 million in revenue in either its first six months of sales or its “first quarter,” and that in 

March 2020, the Company was “[n]ow achieving nearly $1,000,000 per month revenue.” 

122. None of these statements were true.  In reality, CanaFarma achieved approximately 

$3.1 million in revenue in its first six months of sales and only approximately $44,000 in revenue in 

March 2020.  CanaFarma never reached $1 million in monthly revenue during the Relevant Period. 

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123. Because Fargesen and Palatnik were aware of CanaFarma’s monthly revenue 

numbers during the Relevant Period, they knew or were reckless in not knowing that these 

statements to potential investors in the Second Offering were false and misleading. 

124. The Investment Materials provided to potential investors in both offerings touted 

the high quality of CanaFarma’s management team, suggesting it was headed by Executive-1 as CEO 

and that Fargesen and Palatnik were mere officers who reported to Executive-1.   

125. In reality, Executive-1 simply signed documents and took direction as to all aspects 

of the business from Fargesen and Palatnik.   

126. The Investment Materials did not disclose that Executive-1 was acting as a mere 

figurehead CEO, nor did Defendants otherwise disclose that information to investors. 

127. The Investment Materials provided to potential investors in at least the First 

Offering also stated that the owners of Licensor-1—the third-party from which CanaFarma was 

licensing its hemp oil chewing gum—were part of the CanaFarma organization. 

128. For example, organizational charts contained in the Investment Materials provided 

to potential investors in the First Offering described the owners of Licensor-1 as part of the 

Company’s “Management Team” and indicated that they reported to Palatnik. 

129. In reality, neither the owners of Licensor-1 nor Licensor-1 itself were part of 

CanaFarma at all. 

V. The CanaFarma Shares Sold to Investors Qualified as a Penny Stock 

130. The shares of CanaFarma stock sold to investors in both the First Offering and the 

Second Offering qualified as a penny stock as defined by Exchange Act Section 3(a)(51) of the 

Exchange Act and Rule 3a51-1 thereunder:  (a) CanaFarma stock was not an “NMS stock,” as 

defined in 17 C.F.R. § 242.600(b)(47); (b) CanaFarma stock traded below five dollars per share 

during the Relevant Period; (c) CanaFarma had net tangible assets and average revenue below the 

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thresholds of Rule 3a51-1(g)(1); and (d) CanaFarma did not meet any of the other exceptions 

contained in Rule 3a51-1. 

131. As of today, October 5, 2021, CanaFarma is trading at approximately $0.07 per share 

on OTC Markets. 

FIRST CLAIM FOR RELIEF 
Violations of Securities Act Section 17(a) 

(All Defendants) 
 

132. The Commission re-alleges and incorporates by reference here the allegations in 

paragraphs 1 through 131. 

133. Defendants, directly or indirectly, singly or in concert, in the offer or sale of 

securities and by the use of the means or instruments of transportation or communication in 

interstate commerce or the mails, (i) knowingly or recklessly have employed one or more devices, 

schemes or artifices to defraud, (ii) knowingly, recklessly, or negligently have obtained money or 

property by means of one or more untrue statements of a material fact or omissions of a material 

fact necessary in order to make the statements made, in light of the circumstances under which they 

were made, not misleading, and/or (iii) knowingly, recklessly, or negligently have engaged in one or 

more transactions, practices, or courses of business which operated or would operate as a fraud or 

deceit upon the purchaser. 

134. By reason of the foregoing, Defendants, directly or indirectly, singly or in concert, 

have violated and, unless enjoined, will again violate Securities Act Section 17(a) [15 U.S.C. § 77q(a)]. 

SECOND CLAIM FOR RELIEF 
Violations of Exchange Act Section 10(b) and Rule 10b-5 Thereunder 

(All Defendants) 
 

135. The Commission re-alleges and incorporates by reference here the allegations in 

paragraphs 1 through 131. 

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136. Defendants, directly or indirectly, singly or in concert, in connection with the 

purchase or sale of securities and by the use of means or instrumentalities of interstate commerce, or 

the mails, or the facilities of a national securities exchange, knowingly or recklessly have (i) employed 

one or more devices, schemes, or artifices to defraud, (ii) made one or more untrue statements of a 

material fact or omitted to state one or more material facts necessary in order to make the 

statements made, in light of the circumstances under which they were made, not misleading, and/or 

(iii) engaged in one or more acts, practices, or courses of business which operated or would operate 

as a fraud or deceit upon other persons. 

137. By reason of the foregoing, directly or indirectly, singly or in concert, have violated 

and, unless enjoined, will again violate Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 

10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that the Court enter a Final 

Judgment: 

I. 

Permanently enjoining Defendant CanaFarma and its agents, servants, employees, and 

attorneys and all persons in active concert or participation with any of them from violating, directly 

or indirectly, Securities Act Section 17(a) [15 U.S.C. § 77q(a)] and Exchange Act Section 10(b) [15 

U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5]; 

II. 

Permanently enjoining Defendant Fargesen and his agents, servants, employees, and 

attorneys and all persons in active concert or participation with any of them from violating, directly 

or indirectly, Securities Act Section 17(a) [15 U.S.C. § 77q(a)] and Exchange Act Section 10(b) [15 

U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5]; 

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III. 

Permanently enjoining Defendant Palatnik and his agents, servants, employees, and attorneys 

and all persons in active concert or participation with any of them from violating, directly or 

indirectly, Securities Act Section 17(a) [15 U.S.C. § 77q(a)] and Exchange Act Section 10(b) [15 

U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5]; 

IV. 

Ordering Defendants to disgorge all ill-gotten gains they received directly or indirectly, with 

prejudgment interest thereon, as a result of the alleged violations, pursuant to Exchange Act 

Sections 21(d)(3), 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 78u(d)(5), and 78u(d)(7)];  

V. 

Ordering Defendants to pay civil monetary penalties under Securities Act Section 20(d) 

[15 U.S.C. § 77t(d)] and Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)]; 

VI. 

Permanently prohibiting Defendants Fargesen and Palatnik from serving as an officer or 

director of any company that has a class of securities registered under Exchange Act Section 12 [15 

U.S.C. § 78l] or that is required to file reports under Exchange Act Section 15(d) [15 U.S.C. § 

78o(d)], pursuant to Securities Act Section 20(e) [15 U.S.C. § 77t(e)] and Exchange Act Section 

21(d)(2) [15 U.S.C. § 78u(d)(2)]; 

VII. 

Permanently prohibiting Defendants Fargesen and Palatnik from participating in any 

offering of a penny stock, including engaging in activities with a broker, dealer, or issuer for 

purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny 

stock, under Securities Act Section 20(g) [15 U.S.C. § 77t(g)] and Exchange Act Section 21(d)(6) [15 

U.S.C. § 78u(d)(6)]; and 

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VIII. 

Granting any other and further relief this Court may deem just and proper. 

 
Dated: New York, New York 

October 5, 2021 

/s/ Richard R. Best      
RICHARD R. BEST 
REGIONAL DIRECTOR  
Sanjay Wadhwa 
Thomas P. Smith, Jr. 
Lee A. Greenwood 
John C. Lehmann 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
New York Regional Office 
Brookfield Place  
200 Vesey Street, Suite 400 
New York, New York 10281-1022 
212-336-1060 (Greenwood) 
[email protected]    
  

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