SEC v. C3 International, Inc.; Steele Clarke Smith III; and Theresa Smith, Central District of California (Sept. 28, 2021) — Complaint

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DEREK BENTSEN (Cal. Bar No. 232550)
Email: [email protected]

TIMOTHY N. ENGLAND (Cal. Bar No. 140332)
Email: [email protected]
STEPHEN T. KAISER
Email: [email protected]

ELIZABETH MARSHALL ANDERSON
Email: [email protected]

100 F Street, NE
Washington, DC 20549
Telephone: (202) 551-6426 (Bentsen)
Facsimile: (202) 772-9282 (Bentsen)

LOCAL COUNSEL
DANIEL O. BLAU (Cal. Bar No. 305008)
Email: [email protected]

444 S, Flower Street, Suite 900
Los Angeles, California 90071
Telephone: (323) 965-3306
Facsimile: (213) 443-1904

Attorneys for Plaintiff
Securities and Exchange Commission

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

U.S. SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

vs.
C3 INTERNATIONAL, INC.,
STEELE CLARKE SMITH III, and
THERESA SMITH,
Defendants.

 Case No.  8:21-cv-1586

COMPLAINT

DEMAND FOR JURY TRIAL

Plaintiff U.S. Securities and Exchange Commission (the “Commission”)
alleges:

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JURISDICTION AND VENUE
1. The Commission brings this action pursuant to Sections 20(b), 20(d),
and 22(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77t(b),
77t(d), and 77v(a)], and Sections 21(d), 21(e), and 27 of the Securities Exchange Act
of 1934 (“Exchange Act”) [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
2. The Court has jurisdiction over this action pursuant to Sections 20(b),
20(d)(1), and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)],
and Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e),
and 78aa].
3. Defendants, directly or indirectly, made use of the means and
instrumentalities of interstate commerce or of the mails in connection with the acts,
transactions, practices, and courses of business alleged in this complaint.
4. Venue is proper in this District pursuant to Section 22(a) of the
Securities Act [15 U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C.
§ 78aa(a)]. Acts, transactions, practices, and courses of business that form the basis
for the violations alleged in this complaint occurred in this District. Defendant C3
International, Inc. has its principal place of business in this District and offers and
sales of securities took place in this District.
SUMMARY OF THE ACTION
5. This case concerns a securities offering fraud carried out by Defendants
Steele Clarke Smith III (“Steele Smith”) and Theresa Smith and their California
company, Defendant C3 International, Inc. (“C3”) (collectively, “Defendants”). From
approximately October 2011 through November 2019, Defendants raised
approximately $2 million from more than 40 investors by selling stock in C3 through
Steele Smith’s material misrepresentations and omissions regarding the company’s
business and its cannabis pill called Idrasil.
6. On C3’s and Idrasil’s websites, in offering materials, on social media
and in investor communications, C3 through Steele Smith misrepresented, among

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other things, that Idrasil was patented or patent-pending or trademarked, that most
insurance companies reimbursed for Idrasil, and that investor funds would be used for
business purposes. In addition, C3 and Steele Smith made statements about Steele
Smith’s background, education and legal history, but omitted the material fact of
Steele Smith’s prior criminal conviction. In addition to these false and misleading
statements and omissions, the Smiths misappropriated over $1 million of investor
funds to pay for their own living expenses. In one instance where an investor sent
$100,000 to purchase C3 shares in August 2018, Steele Smith sent $40,000 of it that
same day to a Jeep dealership, as a down payment on an expensive SUV for himself.
7. Theresa Smith aided and abetted Steele Smith’s and C3’s securities
fraud violations by overseeing C3’s business expenses and managing bank accounts
through which investor funds were received and misappropriated.
8. In addition, the Defendants offered and sold C3 stock without filing a
registration statement with the Commission or otherwise satisfying an exemption.
The Smiths and C3 continue to offer C3 securities to investors on the company’s
websites and over social media.
9. In this action, the Commission seeks permanent injunctions prohibiting
future violations of the federal securities laws by Defendants and conduct-based
injunctions permanently enjoining Steele Smith and Theresa Smith from
participating, directly or indirectly, in the issuance, purchase, offer, or sale of any
security. The Commission also seeks an order barring Steele Smith and Theresa
Smith from acting as officers or directors of any issuer whose securities are registered
or which is required to file reports with the Commission, an order for all Defendants
to disgorge their ill-gotten gains plus prejudgment interest, and an order imposing
civil penalties on all Defendants.
THE DEFENDANTS
10. C3 International, Inc. (“C3”) is a private, California-based corporation
formed in November 2011 with its purported principal place of business in Garden

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Grove, California.
11. Steele Clarke Smith III (“Steele Smith”), age 53, is believed to
currently reside in Garden Grove, California. He is the co-founder of C3 and C3
Patients Association. He is currently listed as the CEO, Secretary, CFO, and Director
of C3 according to the certificate filed with the California Secretary of State.
12. Theresa Smith, age 60, is believed to currently reside in Garden Grove,
California and is the wife of Steele Smith. She is the co-founder of C3 and is its
President.
RELATED ENTITY
13. C3 Patients Association (“C3PA”) was formed by Steele and Theresa
Smith in October 2010 as a nonprofit member association organized for the purpose
of providing members with medical marijuana under the California Compassionate
Use Act of 1996 and the Medical Marijuana Program Act of 2003, which recognized
the right of patients and caregivers to associate collectively or cooperatively to
cultivate medical marijuana in a nonprofit organization. From approximately 2010-
2015, C3PA sold cannabis products, including Idrasil, and billed insurance
companies for reimbursement. C3PA ceased operations in approximately 2015.
FACTS
A. Defendants Offered and Sold C3’s Securities by Means of Material
Misstatements and Omissions
14. Beginning in at least October 2011 and continuing through at least
November 2019, Defendants offered and sold C3 stock to investors. The company
promoted the offering through its Idrasil website, its C3 website and offering
documents publicly posted there. In addition, Steele Smith, or others acting at his
direction, provided documents including C3 business summaries and financial
projections to prospective investors, and made oral and written statements to them.
Defendants also promoted the C3 offering through social media sites.
15. C3’s offering raised approximately $2 million from at least 40 investors.

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16. The contents of C3’s and the Idrasil website, the social media accounts,
and all    documents provided to investors, including business summaries and financial
projections, were drafted, reviewed, and approved by Steele Smith, who had ultimate
authority over the statements. Theresa Smith also reviewed the statements.
17. In the C3 offering, Steele Smith, and through him C3, made material
misrepresentations and omissions to investors and potential investors.
1. Steele Smith and C3 Made Misrepresentations About C3’s
Intellectual Property and Business
18. Throughout the C3 offering, one of the key features that Steele Smith
and C3 touted in C3’s business summaries and on C3’s website was that Idrasil was
either “patented” or “patent pending.”
19. C3’s website described Idrasil as “patent pending” from the website’s
inception in 2014 until at least 2018, as did business summaries provided to investors
from at least 2012 through 2014.
20. Steele Smith and C3 also represented to investors that Idrasil was
patented. In a   document provided to investors as early as 2012, Steele Smith stated
that Idrasil had a “[p]atent valid through 2037.” When early investors received a tour
of C3’s cannabis growing facility, Steele Smith would pull out a piece of paper in his
office and say that it was a patent for Idrasil. He also described to investors in 2016
that C3 held patents for extracting cannabinoids from a liquid to a solid.
21. These claims were false. Instead, Steele Smith had filed a provisional
patent application in January 2012 with the U.S. Patent and Trademark Office
(“USPTO”).  Provisional patent applications expire after a year if they are not
followed by a related non-provisional patent application. Since Steele Smith never
filed a related non-provisional application, the first application expired and no patent
was ever issued.  Steele Smith admitted in investigative testimony to Commission
staff that he never filed a non-provisional patent application related to Idrasil.
22. Steele Smith and C3 also misrepresented that Idrasil had an approved

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trademark. On the current Idrasil website, the ® (“registered”) symbol appears after
the word “Idrasil.” Companies are only allowed to use the “registered” symbol if a
mark is federally registered with the USPTO.
23. In an investor presentation from 2016, C3 claimed to have the “First
U.S. Trademark . . . Application for Cannabis (Marijuana) Product.  Approved
12/2015.” This was misleading because the only C3 related trademark ever approved
by the USPTO was for “C3” not “Idrasil.” In fact, the USPTO rejected the “Idrasil”
trademark application in April 2015 because “Applicant’s goods and/or services
consist of, or include, items or activities that are prohibited by the [Controlled
Substance Act], namely, cannabis and cannabis extracts.” Steele Smith confirmed in
investigative testimony that he knew that the “Idrasil”   application was denied by the
USPTO.
24. In a document provided to several investors beginning in 2016, C3
claimed that Idrasil was “READY NOW for full-time revenue production” and that
C3 had $3 million “paid and on account” for an FDA phase-I    clinical trial for Idrasil.
Neither statement was true. By 2016, as Steele Smith well knew, C3 had no pills, no
lab, no warehouse or growing operation, no offices and little money. As for money
set aside for a clinical trial, no such payment or account ever existed. In fact, at no
time did C3 have $3 million in cash on hand. In investigative testimony to
Commission staff, Steele Smith admitted that at no point did C3 have money paid
toward a clinical trial.
2. Steele Smith and C3 Misrepresented the Use of Investor
Proceeds and the Smiths Misappropriated Investor Funds
25. From 2011 through at least 2019, Steele Smith (and through him, C3)
stated in the business summaries provided to prospective investors or orally
represented that C3 would use their investment proceeds for business purposes such
as building or expanding growing and lab facilities, launching Idrasil marketing and
sales campaigns, clinical trials and business operations. Contrary to those

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representations, Steele and Theresa Smith diverted and misappropriated a substantial
portion of investor funds for their personal living expenses.
26. Theresa Smith managed the C3 and C3PA bank accounts and reviewed
the account statements. Both she and Steele Smith were authorized users in both
accounts and had ATM or debit cards linked to the accounts. They each used investor
money in the C3 account for cash withdrawals and personal purchases. In addition,
Theresa Smith transferred investor money from the C3 account to the C3PA account
or to the Smiths’ joint personal checking account. Once transferred, Steele and
Theresa Smith used some of that investor money for their own personal use. In total,
the Smiths misappropriated over $1 million of investor funds.
27. Steele Smith, on receiving $100,000 in the C3 account from an investor
in August 2018, used $40,000 of it that same day for a down payment on a Jeep
Grand Cherokee Trackhawk. He then used another $38,000 in investor funds in the
C3 account to pay the monthly loan payments on the SUV until it was repossessed.
28. Steele and Theresa Smith admitted that they used investor funds for their
apartment rent, their food, their dogs’ veterinary and grooming expenses, their hair
salon, their dentist and their personal cars. In an email she wrote in 2018, Theresa
Smith stated that, “everything, including our personal [expenses], needed to run out
of the business account due to our status of having an EBT food card...and state
funded health insurance.... I must continue...to carry a less than $2k balance in my
personal bank account to keep tour [sic] health insurance.”
29. Theresa Smith admitted that, regarding the use of investor funds,
investor disclosures “could have been worded better.”
3. Steele Smith and C3 Made Material Omissions about his
Felony Conviction
30. From about 2014 to the present, Steele Smith, in websites and C3
investor presentations, made statements disclosing his background and history, but
omitted that he was a convicted felon. In 2012, Steel Smith was convicted of

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conspiracy to manufacture at least 1000 marijuana plants in United States v. Smith,
8:07-cr-00264-CJC (C.D. Cal.).
31. This information was material to investors, who understood from Steele
Smith that he was operating C3 in a way that was in compliance with the law.
4. Steele Smith and C3 Made Misrepresentations and Omissions
about C3’s Ability to Get Insurance to Pay for Idrasil
32. On both the C3 (from at least 2014 to the present) and Idrasil (from at
least 2013 to the present)  websites and in business summaries provided to investors,
Steele Smith and C3 repeatedly stated that Idrasil was reimbursable by “most” health
insurance companies [in California]. This was false. For example, in 2014, there were
approximately 24 companies providing group and individual health insurance
coverage in California. But by 2016, C3PA had received reimbursement from a total
of only three health insurance companies and two California worker’s compensation
funds. The Idrasil website included a FAQ from 2014 to present which asked, “What
insurance companies pay for Idrasil?” and answered that C3PA would bill seven
different named companies. However, as Steele Smith admitted, C3PA never
received reimbursement from two of the specifically named companies.
33. In October of 2013, Steele Smith was warned by his bookkeeper that his
statements regarding reimbursement for Idrasil were misleading. The bookkeeper
wrote to him, “I’m ... concerned about and recommend against claiming that Idrasil
is ‘now covered by most Health Insurance’. It is misleading.... It leads an investor to
believe that Idrasil has been accepted for payment by a lot of insurance companies;
or, in your own words, ‘most’, which is more than half. Since this is not true, it is an
unnecessary legal liability.” Steele Smith responded, “Point well taken, thank you.
We’re changing word, from ‘most’ to ‘many’.” But the websites still did not make
this change.
34. In every case where C3PA received reimbursement from a health insurer
or a worker’s compensation fund for Idrasil (claims made on behalf of multiple

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patients), the insurance companies only reimbursed claims for one patient each.
Idrasil was not an approved pharmaceutical by the insurance companies. In fact, it
should not have been reimbursed under their guidelines, and in those situations where
it was reimbursed it was either an outlier situation or an outright mistake.
35. This information was material to the investors, as they expected that the
vast majority of C3’s profits, which would impact their return on investment, would
be derived from insurance company reimbursement for Idrasil.
5. Steele Smith and C3 Misrepresented How Investors Would
Receive Returns on their Investments
36. Steele Smith (and through him, C3) repeatedly made oral and written
misrepresentations to prospective investors about how they would make money on
their investment. Steele Smith told investors, both in writing and in business
summaries, that their shares would pay dividends until the company was acquired by
a large pharmaceutical company, at which point they would be cashed out.
37. In at least 2013 and 2016, Steele Smith orally told prospective investors
that pharmaceutical companies had shown interest in purchasing C3. In financial
projections that he provided to investors, he forecast that C3 would achieve a
minimum of $4.6 million in gross revenue (with later iterations prognosticating
minimums of $10 million or even $100 million in gross revenue) in the next year and
valuing C3’s total equity at over $685 million upon acquisition by a big pharma
company. These financial projections were all materially false and/or misleading as
they lacked any basis in reality. As Steele Smith knew, C3PA never earned more than
$57,000 in any year from Idrasil, and total receipts from 2012-2015 were less than
$200,000.
38. Steele Smith also knew that C3PA had never received enough money
from insurance companies or otherwise to provide investors with dividends. Indeed,
he was aware that the company barely had enough funds to support its operations,
and that C3PA had run out of Idrasil pills by 2015 and had no plans to make more.

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39. No investors ever received any dividends from C3.
40. Further, the prospects of C3 being acquired by a big pharma company
were nil, given that Idrasil was derived from cannabis, a Schedule I illegal substance,
and that (as described above) most insurance companies rejected claims for it. Steele
Smith admitted that he had approached several big pharma companies about either
buying C3 or licensing the rights to sell Idrasil. He never heard back from a single
one.
6. Lulling Statements
41. When investors questioned Steele Smith after they invested about what
happened to their investments and when they would receive any money from C3, he
repeatedly put them off by telling them, in e-mails and text messages, that they would
be bought out at a premium in a short timeframe (usually one to three months).
42. This behavior began in 2015 and continues to the present.
43. He represented that C3 had a “building in escrow”   and that as soon as
the deal closed, he would have the funds to buy out the investor. These statements
were false. C3 never had a building in escrow at any point during the relevant time
period and never had enough cash on hand to go into escrow for the types of
buildings that Steele Smith described to investors.
44. When asked in investigative testimony about specific lulling statements
he made to a particular investor, Steele admitted that he “told her what she wanted to
hear.”
B. Theresa Smith Aided and Abetted Steele Smith’s and C3’s Securities
Fraud Violations
45. Theresa Smith knew, or was reckless in not knowing, of Steele Smith’s
and C3’s primary securities fraud violations, and substantially assisted in them. She
was co-founder with Steele Smith of C3 and C3PA and was C3’s president. She
managed the day to day operations of both companies, including managing their bank
accounts and paying the companies’ expenses. She was therefore financially

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responsible for all the items necessary to reach investors and defraud them, and
collected the fruits of that fraud.
46. She paid for and reviewed the company websites and investor materials
which made those statements. She was aware of the falsity (or reckless in not
knowing it) of at least some of the statements Steele and C3 provided to investors.
For example, she reviewed business summaries where Steele Smith told investors that
their money would be used for business purposes while she, together with Steele,
actively misappropriated investor funds for their personal benefit.
C. Defendants Offered and Sold C3 Stock in Violation of the Securities
Registration Requirements
47. Beginning in at least October 2011 and continuing through at least
November 2019, C3, Steele Smith and Theresa Smith offered and sold C3 stock to
investors. The company promoted the offering in a number of ways, including
through its main website and offering documents publicly posted there. C3’s offering
raised approximately $2 million from at least 40 investors, all but two of whom were
United States citizens. U.S. Investors were mostly from California, but also included
investors in other states including Oregon, Tennessee and Maryland. Investors paid
for the C3 shares, at prices ranging from $1 to $100, with U.S. dollars through wires
or checks. In exchange for their funds, C3 sent nearly all investors stock certificates
that showed the number of shares purchased.
48. Defendants pooled the investor deposits in a bank account belonging to
C3. Steele Smith told investors that Defendants would use their money for business
purposes such as building or expanding cannabis growing and lab facilities, launching
Idrasil marketing and sales campaigns, clinical trials and business operations, which,
if successful, would cause a reasonable person to expect an increase in the value of
the shares.
49. Defendant Steele Smith and C3 orally and in documents assured
prospective investors that they would receive dividends from their investments, and

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that eventually C3 would be purchased by a major pharmaceutical company for not
less than $1 billion, which would provide a   1,000x return on investment.
50. The C3 shares offered and sold by Defendants are securities. Under the
federal securities laws, C3, Steele Smith, and Theresa offered and sold these
securities from at least October 2011 through November 2019. Defendants never filed
a registration statement with the Commission for the offer and sale of C3 securities.
51. No exemptions from registration applied to the C3 offering. The C3
offering involved a general solicitation of investors and was made to investors
throughout the United States. Defendants took no steps to verify investors’ accredited
status.
52. C3 is liable for these registration violations as the issuer of its stock.
During the offering, investors sent funds to C3’s bank account to purchase the stock.
53. Steele Smith, a co-founder and CEO, is liable for these registration
violations because he directly offered and sold C3 stock. He was the public face of
C3 and directly promoted the C3 offering online through the C3 website, social media
accounts, conferences, and interviews to cannabis company-focused media. He
reviewed and approved the offering documents that were posted on C3’s website to
solicit investors. He also had authority over the content of C3’s website.
54. Theresa Smith is liable for these registration violations because she
indirectly offered and sold the C3 stock and was a necessary participant and
substantial factor in its offer and sale. As a co-founder and President of C3, Theresa
Smith played an instrumental role in the offering as she paid for C3’s advertisements,
websites and offering materials without which the offering could not have been
conducted. She also collected the money from the investors and placed it into C3’s
bank account, which she directly controlled.

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FIRST CLAIM FOR RELIEF
Fraud in Connection with the Purchase or Sale of Securities
Violations of Section 10(b) of the Exchange Act and Rule 10b-5
(Against Defendants Steele Smith and C3)
55. The Commission realleges and incorporates by reference paragraphs 1
through 54 above.
56. Defendants Steele Smith and C3, in selling C3 securities to investors,
made misstatements as to: (1) C3’s intellectual property and business, including
statements regarding patents and trademarks, (2) their use of investor proceeds, (3)
C3’s ability to get insurance to pay for Idrasil and (4) as to C3’s revenue and
projections and how investors would receive a return on their investment. They also
made material omissions regarding Defendant Steele Smith’s criminal history.
Defendant Steele Smith and through him, C3, knew or were reckless in not knowing
that their statements were false and/or misleading at the time they were made, or that
their omissions contained material facts necessary to render the statements made not
misleading.
57. By engaging in the conduct described above, Steele Smith and C3,
directly or indirectly, in connection with the purchase or sale of securities, by the use
of means or instrumentalities of interstate commerce, or the mails, with scienter:
(a) Employed devices, schemes, or artifices to defraud;
(b) Made untrue statements of material facts or omitted to state
material facts necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading; and
(c) Engaged in acts, practices, or courses of business which operated
or would operate as a fraud or deceit upon other persons,
including purchasers and sellers of securities.
58. By reason of the foregoing, Steele Smith and C3 violated, and unless

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restrained and enjoined will continue to violate, Section 10(b) of the Exchange Act
[15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
SECOND CLAIM FOR RELIEF
Fraud in the Offer or Sale of Securities
Violations of Sections 17(a)(1), (2), and (3) of the Securities Act
(Against Defendants Steele Smith and C3)
59. The Commission realleges and incorporates by reference paragraphs 1
through 54 above.
60. Defendant Steele Smith and through him C3, in the offer or sale of C3
securities to investors, made misstatements as to (1) C3’s intellectual property and
business, including statements regarding patents and trademarks, (2) their use of
investor proceeds, (3) C3’s ability to get insurance to pay for Idrasil and (4) as to
C3’s revenue and projections and how investors would receive a return on their
investment. They also made material omissions regarding Defendant Steele Smith’s
criminal history. Defendant Steele Smith and through him, C3, knew or were reckless
in not knowing that their statements were false and/or misleading at the time they
were made, or that their omissions contained material facts necessary to render the
statements made not misleading. Defendants Steele Smith and C3 obtained money by
means of the fraud, as C3 received the investors’ funds from the sales C3 stock, and
Steele Smith misappropriated some of the investor funds.
61. By engaging in the conduct described above, Defendants Steele Smith
and C3, directly or indirectly, in the offer or sale of securities, by use of the means or
instruments of transportation or communication in interstate commerce or by use of
the mails:
(a)  With scienter, employed devices, schemes, or artifices to defraud;
(b)  With scienter or negligence, obtained money or property by means
of untrue statements of a material fact or by omitting to state a
material fact necessary in order to make the statements made, in

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light of the circumstances under which they were made, not
misleading; and
(c)  With scienter  or negligence, engaged in transactions, practices, or
courses of business which operated or would operate as a fraud or
deceit upon the purchaser.
62. By reason of the foregoing, Steele Smith and C3 violated, and unless
restrained and enjoined will continue to violate, Section 17(a) of the Securities Act
[1 5 U.S.C. § 77q(a)].
THIRD CLAIM FOR RELIEF
Aiding and Abetting
Violations of Section 17(a) of the Securities Act
(Against Defendant Theresa Smith)
63. The Commission realleges and incorporates by reference paragraphs 1
through 54 above.
64. Through the conduct described above, Steele Smith and C3 violations
Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
65. Defendant Theresa Smith knowingly or recklessly provided substantial
assistance to Steele Smith and C3’s violations of Section 17(a) of the Securities Act.
She managed the day to day operations of C3 and C3PA, including managing their
bank accounts and paying the companies’ expenses. She was therefore financially
responsible for all the items necessary to reach investors and defraud them, and
collected the fruits of that fraud. She paid for and reviewed the company websites and
investor materials which made false statements to investors. She was aware of the
falsity (or reckless in not knowing it) of at least some of the statements Steele Smith
and C3 provided to investors. For example, she reviewed documents where Steele
told investors that their money would be used for business purposes while she,
together with Steele, actively misappropriated investor funds for their personal
benefit.

COMPLAINT
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66. Pursuant to Section 15(b) of the Securities Act [15 U.S.C. § 77o(b)],
Theresa Smith is deemed to be violation of Section 17(a) of the Securities Act to the
same extent as Steele Smith and C3 and, unless enjoined, will again aid and abet
violations of those provisions.
FOURTH CLAIM FOR RELIEF
Aiding and Abetting
Violations of Section 10(b) of the Exchange Act and Rule 10b-5
(Against Defendant Theresa Smith)
67. The Commission realleges and incorporates by reference paragraphs 1
through 54 above.
68. Through the conduct described above, Steele Smith and C3 violated
Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder
[17 C.F.R. § 240.10b-5].
69. Defendant Theresa Smith knowingly or recklessly provided substantial
assistance to Steele Smith and C3’s violations of Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder. She managed the day to day operations of C3 and C3PA,
including managing their bank accounts and paying the companies’ expenses. She
was therefore financially responsible for all the items necessary to reach investors and
defraud them, and collected the fruits of that fraud. She paid for and reviewed the
company websites and investor materials which made false statements to investors.
She was aware of the falsity (or reckless in not knowing it) of at least some of the
statements Steele Smith and C3 provided to investors. For example, she reviewed
documents where Steele told investors that their money would be used for business
purposes while she, together with Steele, actively misappropriated investor funds for
their personal benefit.
70. Pursuant to Section 20(e) of the Exchange Act [15 U.S.C. § 78t],
Theresa Smith is deemed to be in violation of Section 10(b) of the Exchange Act and
Rule 10b-5 to the same extent as Steele Smith and C3 and, unless enjoined, will again

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aid and abet violations of those provisions.
FIFTH CLAIM FOR RELIEF
Unregistered Offer and Sale of Securities
Violations of Sections 5(a) and 5(c) of the Securities Act
(Against All Defendants)
71. The Commission realleges and incorporates by reference paragraphs 1
through 54 above.
72. Defendant C3, as the issuer of the securities, directly offered and sold
securities in the form of C3 stock.
73. Defendants Steele Smith and Theresa Smith, directly and indirectly,
offered and sold C3 stock, and were necessary participants and substantial factors in
C3’s offers and sales of C3 stock.
74. By virtue of the foregoing, (a) without a registration statement in effect
as to that security, Defendants, directly and indirectly, made use of the means and
instruments of transportation or communications in interstate commerce and of the
mails to sell securities through the use of means of a prospectus, and (b) made use of
the means and instruments of transportation or communication in interstate commerce
and of the mails to offer to sell through the use of a prospectus, securities as to which
no registration statement had been filed.
75. By reason of the foregoing, Defendants directly or indirectly violated,
and unless restrained and enjoined, will continue to violate, Section 5 of the
Securities Act [15 U.S.C. § 77e].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court enter a Final
Judgment finding that Defendants committed the securities law violations alleged in this
Complaint and:
I.
Permanently enjoin Steele Smith, Theresa Smith and C3 from directly or

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indirectly violating Sections 5 and 17(a) of the Securities Act [15 U.S.C. §§ 77e,
77q(a)], and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5
[17 C.F.R. § 240.10b-5] thereunder;
II.
Permanently enjoin C3, Steele Smith and Theresa Smith from, directly or
indirectly, including, but not limited to, through any entity owned or controlled by
them, participating in the issuance, purchase, offer, or sale of any security; provided,
however, that such injunction shall not prevent the Smiths from purchasing or selling
securities listed on a national securities exchange for their own personal accounts;
III.
Enter an Order pursuant to Section 20(e) of the Securities Act and Section
21(d)(2) of the Exchange Act barring Steele Clarke Smith III from acting as an officer
or director of any issuer whose securities are registered with the Commission pursuant
to Section 12 of the Exchange Act or which is required to file reports with the
Commission pursuant to Section 15(d) of the Exchange Act.
IV.
Order that each of the Defendants disgorge any and all ill -gotten gains, together
with pre-judgment and post-judgment interest, derived from the securities law
violations set forth in this Complaint;
V.
Order Defendants to pay civil penalties under Section 20(d) of the Securities Act
[15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)];
VI.
Retain jurisdiction of this action in accordance with the principles of equity and
the Federal Rules of Civil Procedure in order to implement and carry out the terms of
all orders and decrees that may be entered, or to entertain any suitable application or
motion for additional relief within the jurisdiction of this Court; and

COMPLAINT
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VII.
Grant such other and further relief as this Court may determine to be just and
necessary.
In accordance with Fed. R. Civ. P. 38 and C.D. Cal. L.R. 38-1, Plaintiff U.S.
Securities and Exchange Commission hereby demands a jury trial on all issues so
triable.
Dated: September 28, 2021

/s/  Derek Bentsen
Derek S. Bentsen
Timothy N. England
Stephen T. Kaiser
Elizabeth Marshall Anderson
Daniel O. Blau
Attorneys for Plaintiff
U.S. Securities and Exchange
Commission

COMPLAINT 1  
 

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DEREK BENTSEN (Cal. Bar No. 232550) 
Email: [email protected] 
TIMOTHY N. ENGLAND (Cal. Bar No. 140332) 
Email: [email protected] 
STEPHEN T. KAISER 
Email: [email protected] 
ELIZABETH MARSHALL ANDERSON 
Email: [email protected] 
100 F Street, NE 
Washington, DC 20549 
Telephone: (202) 551-6426 (Bentsen) 
Facsimile: (202) 772-9282 (Bentsen) 
 
LOCAL COUNSEL 
DANIEL O. BLAU (Cal. Bar No. 305008) 
Email: [email protected] 
444 S, Flower Street, Suite 900 
Los Angeles, California 90071 
Telephone: (323) 965-3306 
Facsimile: (213) 443-1904 
 
Attorneys for Plaintiff 
Securities and Exchange Commission 
 

UNITED STATES DISTRICT COURT 

CENTRAL DISTRICT OF CALIFORNIA 

 

U.S. SECURITIES AND EXCHANGE 
COMMISSION, 

Plaintiff, 
 

vs. 

C3 INTERNATIONAL, INC., 
STEELE CLARKE SMITH III, and 
THERESA SMITH, 

Defendants. 
 

 Case No.  8:21-cv-1586 
 
COMPLAINT 
 
 
DEMAND FOR JURY TRIAL 

 
 
 

Plaintiff U.S. Securities and Exchange Commission (the “Commission”) 

alleges: 

Case 8:21-cv-01586   Document 1   Filed 09/28/21   Page 1 of 19   Page ID #:1

mailto:[email protected]
mailto:[email protected]
mailto:[email protected]
mailto:[email protected]


 

COMPLAINT 2  
 

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JURISDICTION AND VENUE 

1. The Commission brings this action pursuant to Sections 20(b), 20(d), 

and 22(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77t(b), 

77t(d), and 77v(a)], and Sections 21(d), 21(e), and 27 of the Securities Exchange Act 

of 1934 (“Exchange Act”) [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. 

2. The Court has jurisdiction over this action pursuant to Sections 20(b), 

20(d)(1), and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)], 

and Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), 

and 78aa]. 

3. Defendants, directly or indirectly, made use of the means and 

instrumentalities of interstate commerce or of the mails in connection with the acts, 

transactions, practices, and courses of business alleged in this complaint.  

4. Venue is proper in this District pursuant to Section 22(a) of the 

Securities Act [15 U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. 

§ 78aa(a)]. Acts, transactions, practices, and courses of business that form the basis 

for the violations alleged in this complaint occurred in this District. Defendant C3 

International, Inc. has its principal place of business in this District and offers and 

sales of securities took place in this District. 

SUMMARY OF THE ACTION 

5. This case concerns a securities offering fraud carried out by Defendants 

Steele Clarke Smith III (“Steele Smith”) and Theresa Smith and their California 

company, Defendant C3 International, Inc. (“C3”) (collectively, “Defendants”). From 

approximately October 2011 through November 2019, Defendants raised 

approximately $2 million from more than 40 investors by selling stock in C3 through 

Steele Smith’s material misrepresentations and omissions regarding the company’s 

business and its cannabis pill called Idrasil.  

6. On C3’s and Idrasil’s websites, in offering materials, on social media 

and in investor communications, C3 through Steele Smith misrepresented, among 

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COMPLAINT 3  
 

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other things, that Idrasil was patented or patent-pending or trademarked, that most 

insurance companies reimbursed for Idrasil, and that investor funds would be used for 

business purposes. In addition, C3 and Steele Smith made statements about Steele 

Smith’s background, education and legal history, but omitted the material fact of 

Steele Smith’s prior criminal conviction. In addition to these false and misleading 

statements and omissions, the Smiths misappropriated over $1 million of investor 

funds to pay for their own living expenses. In one instance where an investor sent 

$100,000 to purchase C3 shares in August 2018, Steele Smith sent $40,000 of it that 

same day to a Jeep dealership, as a down payment on an expensive SUV for himself. 

7. Theresa Smith aided and abetted Steele Smith’s and C3’s securities 

fraud violations by overseeing C3’s business expenses and managing bank accounts 

through which investor funds were received and misappropriated.  

8. In addition, the Defendants offered and sold C3 stock without filing a 

registration statement with the Commission or otherwise satisfying an exemption. 

The Smiths and C3 continue to offer C3 securities to investors on the company’s 

websites and over social media.  

9. In this action, the Commission seeks permanent injunctions prohibiting 

future violations of the federal securities laws by Defendants and conduct-based 

injunctions permanently enjoining Steele Smith and Theresa Smith from 

participating, directly or indirectly, in the issuance, purchase, offer, or sale of any 

security. The Commission also seeks an order barring Steele Smith and Theresa 

Smith from acting as officers or directors of any issuer whose securities are registered 

or which is required to file reports with the Commission, an order for all Defendants 

to disgorge their ill-gotten gains plus prejudgment interest, and an order imposing 

civil penalties on all Defendants. 

THE DEFENDANTS 

10. C3 International, Inc. (“C3”) is a private, California-based corporation 

formed in November 2011 with its purported principal place of business in Garden 

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Grove, California.  

11. Steele Clarke Smith III (“Steele Smith”), age 53, is believed to 

currently reside in Garden Grove, California. He is the co-founder of C3 and C3 

Patients Association. He is currently listed as the CEO, Secretary, CFO, and Director 

of C3 according to the certificate filed with the California Secretary of State.  

12. Theresa Smith, age 60, is believed to currently reside in Garden Grove, 

California and is the wife of Steele Smith. She is the co-founder of C3 and is its 

President.  

RELATED ENTITY 

13. C3 Patients Association (“C3PA”) was formed by Steele and Theresa 

Smith in October 2010 as a nonprofit member association organized for the purpose 

of providing members with medical marijuana under the California Compassionate 

Use Act of 1996 and the Medical Marijuana Program Act of 2003, which recognized 

the right of patients and caregivers to associate collectively or cooperatively to 

cultivate medical marijuana in a nonprofit organization. From approximately 2010-

2015, C3PA sold cannabis products, including Idrasil, and billed insurance 

companies for reimbursement. C3PA ceased operations in approximately 2015.   

FACTS 

A. Defendants Offered and Sold C3’s Securities by Means of Material 

Misstatements and Omissions 

14. Beginning in at least October 2011 and continuing through at least 

November 2019, Defendants offered and sold C3 stock to investors. The company 

promoted the offering through its Idrasil website, its C3 website and offering 

documents publicly posted there. In addition, Steele Smith, or others acting at his 

direction, provided documents including C3 business summaries and financial 

projections to prospective investors, and made oral and written statements to them. 

Defendants also promoted the C3 offering through social media sites.  

15. C3’s offering raised approximately $2 million from at least 40 investors. 

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16. The contents of C3’s and the Idrasil website, the social media accounts, 

and all documents provided to investors, including business summaries and financial 

projections, were drafted, reviewed, and approved by Steele Smith, who had ultimate 

authority over the statements. Theresa Smith also reviewed the statements.  

17. In the C3 offering, Steele Smith, and through him C3, made material 

misrepresentations and omissions to investors and potential investors.  

1. Steele Smith and C3 Made Misrepresentations About C3’s 

Intellectual Property and Business 

18. Throughout the C3 offering, one of the key features that Steele Smith 

and C3 touted in C3’s business summaries and on C3’s website was that Idrasil was 

either “patented” or “patent pending.”  

19. C3’s website described Idrasil as “patent pending” from the website’s 

inception in 2014 until at least 2018, as did business summaries provided to investors 

from at least 2012 through 2014.  

20. Steele Smith and C3 also represented to investors that Idrasil was 

patented. In a document provided to investors as early as 2012, Steele Smith stated 

that Idrasil had a “[p]atent valid through 2037.” When early investors received a tour 

of C3’s cannabis growing facility, Steele Smith would pull out a piece of paper in his 

office and say that it was a patent for Idrasil. He also described to investors in 2016 

that C3 held patents for extracting cannabinoids from a liquid to a solid.   

21. These claims were false. Instead, Steele Smith had filed a provisional 

patent application in January 2012 with the U.S. Patent and Trademark Office 

(“USPTO”).  Provisional patent applications expire after a year if they are not 

followed by a related non-provisional patent application. Since Steele Smith never 

filed a related non-provisional application, the first application expired and no patent 

was ever issued.  Steele Smith admitted in investigative testimony to Commission 

staff that he never filed a non-provisional patent application related to Idrasil.  

22. Steele Smith and C3 also misrepresented that Idrasil had an approved 

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trademark. On the current Idrasil website, the ® (“registered”) symbol appears after 

the word “Idrasil.” Companies are only allowed to use the “registered” symbol if a 

mark is federally registered with the USPTO.  

23. In an investor presentation from 2016, C3 claimed to have the “First 

U.S. Trademark . . . Application for Cannabis (Marijuana) Product.  Approved 

12/2015.” This was misleading because the only C3 related trademark ever approved 

by the USPTO was for “C3” not “Idrasil.” In fact, the USPTO rejected the “Idrasil” 

trademark application in April 2015 because “Applicant’s goods and/or services 

consist of, or include, items or activities that are prohibited by the [Controlled 

Substance Act], namely, cannabis and cannabis extracts.” Steele Smith confirmed in 

investigative testimony that he knew that the “Idrasil” application was denied by the 

USPTO. 

24. In a document provided to several investors beginning in 2016, C3 

claimed that Idrasil was “READY NOW for full-time revenue production” and that 

C3 had $3 million “paid and on account” for an FDA phase-I clinical trial for Idrasil. 

Neither statement was true. By 2016, as Steele Smith well knew, C3 had no pills, no 

lab, no warehouse or growing operation, no offices and little money. As for money 

set aside for a clinical trial, no such payment or account ever existed. In fact, at no 

time did C3 have $3 million in cash on hand. In investigative testimony to 

Commission staff, Steele Smith admitted that at no point did C3 have money paid 

toward a clinical trial. 

2. Steele Smith and C3 Misrepresented the Use of Investor 

Proceeds and the Smiths Misappropriated Investor Funds 

25. From 2011 through at least 2019, Steele Smith (and through him, C3) 

stated in the business summaries provided to prospective investors or orally 

represented that C3 would use their investment proceeds for business purposes such 

as building or expanding growing and lab facilities, launching Idrasil marketing and 

sales campaigns, clinical trials and business operations. Contrary to those 

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representations, Steele and Theresa Smith diverted and misappropriated a substantial 

portion of investor funds for their personal living expenses.  

26. Theresa Smith managed the C3 and C3PA bank accounts and reviewed 

the account statements. Both she and Steele Smith were authorized users in both 

accounts and had ATM or debit cards linked to the accounts. They each used investor 

money in the C3 account for cash withdrawals and personal purchases. In addition, 

Theresa Smith transferred investor money from the C3 account to the C3PA account 

or to the Smiths’ joint personal checking account. Once transferred, Steele and 

Theresa Smith used some of that investor money for their own personal use. In total, 

the Smiths misappropriated over $1 million of investor funds. 

27. Steele Smith, on receiving $100,000 in the C3 account from an investor 

in August 2018, used $40,000 of it that same day for a down payment on a Jeep 

Grand Cherokee Trackhawk. He then used another $38,000 in investor funds in the 

C3 account to pay the monthly loan payments on the SUV until it was repossessed.  

28. Steele and Theresa Smith admitted that they used investor funds for their 

apartment rent, their food, their dogs’ veterinary and grooming expenses, their hair 

salon, their dentist and their personal cars. In an email she wrote in 2018, Theresa 

Smith stated that, “everything, including our personal [expenses], needed to run out 

of the business account due to our status of having an EBT food card…and state 

funded health insurance…. I must continue…to carry a less than $2k balance in my 

personal bank account to keep tour [sic] health insurance.”  

29. Theresa Smith admitted that, regarding the use of investor funds, 

investor disclosures “could have been worded better.”  

3. Steele Smith and C3 Made Material Omissions about his 

Felony Conviction 

30. From about 2014 to the present, Steele Smith, in websites and C3 

investor presentations, made statements disclosing his background and history, but 

omitted that he was a convicted felon. In 2012, Steel Smith was convicted of 

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conspiracy to manufacture at least 1000 marijuana plants in United States v. Smith, 

8:07-cr-00264-CJC (C.D. Cal.). 

31. This information was material to investors, who understood from Steele 

Smith that he was operating C3 in a way that was in compliance with the law. 

4. Steele Smith and C3 Made Misrepresentations and Omissions 

about C3’s Ability to Get Insurance to Pay for Idrasil 

32. On both the C3 (from at least 2014 to the present) and Idrasil (from at 

least 2013 to the present) websites and in business summaries provided to investors, 

Steele Smith and C3 repeatedly stated that Idrasil was reimbursable by “most” health 

insurance companies [in California]. This was false. For example, in 2014, there were 

approximately 24 companies providing group and individual health insurance 

coverage in California. But by 2016, C3PA had received reimbursement from a total 

of only three health insurance companies and two California worker’s compensation 

funds. The Idrasil website included a FAQ from 2014 to present which asked, “What 

insurance companies pay for Idrasil?” and answered that C3PA would bill seven 

different named companies. However, as Steele Smith admitted, C3PA never 

received reimbursement from two of the specifically named companies.  

33. In October of 2013, Steele Smith was warned by his bookkeeper that his 

statements regarding reimbursement for Idrasil were misleading. The bookkeeper 

wrote to him, “I’m … concerned about and recommend against claiming that Idrasil 

is ‘now covered by most Health Insurance’. It is misleading…. It leads an investor to 

believe that Idrasil has been accepted for payment by a lot of insurance companies; 

or, in your own words, ‘most’, which is more than half. Since this is not true, it is an 

unnecessary legal liability.” Steele Smith responded, “Point well taken, thank you. 

We’re changing word, from ‘most’ to ‘many’.” But the websites still did not make 

this change.  

34. In every case where C3PA received reimbursement from a health insurer 

or a worker’s compensation fund for Idrasil (claims made on behalf of multiple 

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patients), the insurance companies only reimbursed claims for one patient each. 

Idrasil was not an approved pharmaceutical by the insurance companies. In fact, it 

should not have been reimbursed under their guidelines, and in those situations where 

it was reimbursed it was either an outlier situation or an outright mistake. 

35. This information was material to the investors, as they expected that the 

vast majority of C3’s profits, which would impact their return on investment, would 

be derived from insurance company reimbursement for Idrasil. 

5. Steele Smith and C3 Misrepresented How Investors Would 

Receive Returns on their Investments 

36. Steele Smith (and through him, C3) repeatedly made oral and written 

misrepresentations to prospective investors about how they would make money on 

their investment. Steele Smith told investors, both in writing and in business 

summaries, that their shares would pay dividends until the company was acquired by 

a large pharmaceutical company, at which point they would be cashed out.  

37. In at least 2013 and 2016, Steele Smith orally told prospective investors 

that pharmaceutical companies had shown interest in purchasing C3. In financial 

projections that he provided to investors, he forecast that C3 would achieve a 

minimum of $4.6 million in gross revenue (with later iterations prognosticating 

minimums of $10 million or even $100 million in gross revenue) in the next year and 

valuing C3’s total equity at over $685 million upon acquisition by a big pharma 

company. These financial projections were all materially false and/or misleading as 

they lacked any basis in reality. As Steele Smith knew, C3PA never earned more than 

$57,000 in any year from Idrasil, and total receipts from 2012-2015 were less than 

$200,000.  

38. Steele Smith also knew that C3PA had never received enough money 

from insurance companies or otherwise to provide investors with dividends. Indeed, 

he was aware that the company barely had enough funds to support its operations, 

and that C3PA had run out of Idrasil pills by 2015 and had no plans to make more.   

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39. No investors ever received any dividends from C3. 

40. Further, the prospects of C3 being acquired by a big pharma company 

were nil, given that Idrasil was derived from cannabis, a Schedule I illegal substance, 

and that (as described above) most insurance companies rejected claims for it. Steele 

Smith admitted that he had approached several big pharma companies about either 

buying C3 or licensing the rights to sell Idrasil. He never heard back from a single 

one. 

6. Lulling Statements 

41. When investors questioned Steele Smith after they invested about what 

happened to their investments and when they would receive any money from C3, he 

repeatedly put them off by telling them, in e-mails and text messages, that they would 

be bought out at a premium in a short timeframe (usually one to three months).  

42. This behavior began in 2015 and continues to the present.  

43. He represented that C3 had a “building in escrow” and that as soon as 

the deal closed, he would have the funds to buy out the investor. These statements 

were false. C3 never had a building in escrow at any point during the relevant time 

period and never had enough cash on hand to go into escrow for the types of 

buildings that Steele Smith described to investors.  

44. When asked in investigative testimony about specific lulling statements 

he made to a particular investor, Steele admitted that he “told her what she wanted to 

hear.” 

B. Theresa Smith Aided and Abetted Steele Smith’s and C3’s Securities 

Fraud Violations 

45. Theresa Smith knew, or was reckless in not knowing, of Steele Smith’s 

and C3’s primary securities fraud violations, and substantially assisted in them. She 

was co-founder with Steele Smith of C3 and C3PA and was C3’s president. She 

managed the day to day operations of both companies, including managing their bank 

accounts and paying the companies’ expenses. She was therefore financially 

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COMPLAINT 11  
 

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responsible for all the items necessary to reach investors and defraud them, and 

collected the fruits of that fraud.  

46. She paid for and reviewed the company websites and investor materials 

which made those statements. She was aware of the falsity (or reckless in not 

knowing it) of at least some of the statements Steele and C3 provided to investors. 

For example, she reviewed business summaries where Steele Smith told investors that 

their money would be used for business purposes while she, together with Steele, 

actively misappropriated investor funds for their personal benefit. 

C. Defendants Offered and Sold C3 Stock in Violation of the Securities 

Registration Requirements  

47. Beginning in at least October 2011 and continuing through at least 

November 2019, C3, Steele Smith and Theresa Smith offered and sold C3 stock to 

investors. The company promoted the offering in a number of ways, including 

through its main website and offering documents publicly posted there. C3’s offering 

raised approximately $2 million from at least 40 investors, all but two of whom were 

United States citizens. U.S. Investors were mostly from California, but also included 

investors in other states including Oregon, Tennessee and Maryland. Investors paid 

for the C3 shares, at prices ranging from $1 to $100, with U.S. dollars through wires 

or checks. In exchange for their funds, C3 sent nearly all investors stock certificates 

that showed the number of shares purchased. 

48. Defendants pooled the investor deposits in a bank account belonging to 

C3. Steele Smith told investors that Defendants would use their money for business 

purposes such as building or expanding cannabis growing and lab facilities, launching 

Idrasil marketing and sales campaigns, clinical trials and business operations, which, 

if successful, would cause a reasonable person to expect an increase in the value of 

the shares.  

49. Defendant Steele Smith and C3 orally and in documents assured 

prospective investors that they would receive dividends from their investments, and 

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COMPLAINT 12  
 

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that eventually C3 would be purchased by a major pharmaceutical company for not 

less than $1 billion, which would provide a 1,000x return on investment. 

50. The C3 shares offered and sold by Defendants are securities. Under the 

federal securities laws, C3, Steele Smith, and Theresa offered and sold these 

securities from at least October 2011 through November 2019. Defendants never filed 

a registration statement with the Commission for the offer and sale of C3 securities. 

51. No exemptions from registration applied to the C3 offering. The C3 

offering involved a general solicitation of investors and was made to investors 

throughout the United States. Defendants took no steps to verify investors’ accredited 

status.   

52. C3 is liable for these registration violations as the issuer of its stock. 

During the offering, investors sent funds to C3’s bank account to purchase the stock.  

53. Steele Smith, a co-founder and CEO, is liable for these registration 

violations because he directly offered and sold C3 stock. He was the public face of 

C3 and directly promoted the C3 offering online through the C3 website, social media 

accounts, conferences, and interviews to cannabis company-focused media. He 

reviewed and approved the offering documents that were posted on C3’s website to 

solicit investors. He also had authority over the content of C3’s website. 

54. Theresa Smith is liable for these registration violations because she 

indirectly offered and sold the C3 stock and was a necessary participant and 

substantial factor in its offer and sale. As a co-founder and President of C3, Theresa 

Smith played an instrumental role in the offering as she paid for C3’s advertisements, 

websites and offering materials without which the offering could not have been 

conducted. She also collected the money from the investors and placed it into C3’s 

bank account, which she directly controlled.   

 

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COMPLAINT 13  
 

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FIRST CLAIM FOR RELIEF 

Fraud in Connection with the Purchase or Sale of Securities 

Violations of Section 10(b) of the Exchange Act and Rule 10b-5 

(Against Defendants Steele Smith and C3) 

55. The Commission realleges and incorporates by reference paragraphs 1 

through 54 above. 

56. Defendants Steele Smith and C3, in selling C3 securities to investors, 

made misstatements as to: (1) C3’s intellectual property and business, including 

statements regarding patents and trademarks, (2) their use of investor proceeds, (3) 

C3’s ability to get insurance to pay for Idrasil and (4) as to C3’s revenue and 

projections and how investors would receive a return on their investment. They also 

made material omissions regarding Defendant Steele Smith’s criminal history. 

Defendant Steele Smith and through him, C3, knew or were reckless in not knowing 

that their statements were false and/or misleading at the time they were made, or that 

their omissions contained material facts necessary to render the statements made not 

misleading.   

57. By engaging in the conduct described above, Steele Smith and C3, 

directly or indirectly, in connection with the purchase or sale of securities, by the use 

of means or instrumentalities of interstate commerce, or the mails, with scienter:  

(a) Employed devices, schemes, or artifices to defraud;  

(b) Made untrue statements of material facts or omitted to state 

material facts necessary in order to make the statements made, in 

the light of the circumstances under which they were made, not 

misleading; and 

(c) Engaged in acts, practices, or courses of business which operated 

or would operate as a fraud or deceit upon other persons, 

including purchasers and sellers of securities. 

58. By reason of the foregoing, Steele Smith and C3 violated, and unless 

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COMPLAINT 14  
 

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restrained and enjoined will continue to violate, Section 10(b) of the Exchange Act 

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

SECOND CLAIM FOR RELIEF 

Fraud in the Offer or Sale of Securities 

Violations of Sections 17(a)(1), (2), and (3) of the Securities Act 

(Against Defendants Steele Smith and C3) 

59. The Commission realleges and incorporates by reference paragraphs 1 

through 54 above. 

60. Defendant Steele Smith and through him C3, in the offer or sale of C3 

securities to investors, made misstatements as to (1) C3’s intellectual property and 

business, including statements regarding patents and trademarks, (2) their use of 

investor proceeds, (3) C3’s ability to get insurance to pay for Idrasil and (4) as to 

C3’s revenue and projections and how investors would receive a return on their 

investment. They also made material omissions regarding Defendant Steele Smith’s 

criminal history. Defendant Steele Smith and through him, C3, knew or were reckless 

in not knowing that their statements were false and/or misleading at the time they 

were made, or that their omissions contained material facts necessary to render the 

statements made not misleading. Defendants Steele Smith and C3 obtained money by 

means of the fraud, as C3 received the investors’ funds from the sales C3 stock, and 

Steele Smith misappropriated some of the investor funds. 

61. By engaging in the conduct described above, Defendants Steele Smith 

and C3, directly or indirectly, in the offer or sale of securities, by use of the means or 

instruments of transportation or communication in interstate commerce or by use of 

the mails:  

(a)  With scienter, employed devices, schemes, or artifices to defraud;  

(b)  With scienter or negligence, obtained money or property by means 

of untrue statements of a material fact or by omitting to state a 

material fact necessary in order to make the statements made, in 

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COMPLAINT 15  
 

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light of the circumstances under which they were made, not 

misleading; and  

(c)  With scienter or negligence, engaged in transactions, practices, or 

courses of business which operated or would operate as a fraud or 

deceit upon the purchaser. 

62. By reason of the foregoing, Steele Smith and C3 violated, and unless 

restrained and enjoined will continue to violate, Section 17(a) of the Securities Act 

[15 U.S.C. § 77q(a)]. 

THIRD CLAIM FOR RELIEF 

Aiding and Abetting  

Violations of Section 17(a) of the Securities Act  

(Against Defendant Theresa Smith) 

63. The Commission realleges and incorporates by reference paragraphs 1 

through 54 above. 

64. Through the conduct described above, Steele Smith and C3 violations 

Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]. 

65. Defendant Theresa Smith knowingly or recklessly provided substantial 

assistance to Steele Smith and C3’s violations of Section 17(a) of the Securities Act. 

She managed the day to day operations of C3 and C3PA, including managing their 

bank accounts and paying the companies’ expenses. She was therefore financially 

responsible for all the items necessary to reach investors and defraud them, and 

collected the fruits of that fraud. She paid for and reviewed the company websites and 

investor materials which made false statements to investors. She was aware of the 

falsity (or reckless in not knowing it) of at least some of the statements Steele Smith 

and C3 provided to investors. For example, she reviewed documents where Steele 

told investors that their money would be used for business purposes while she, 

together with Steele, actively misappropriated investor funds for their personal 

benefit. 

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COMPLAINT 16  
 

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66. Pursuant to Section 15(b) of the Securities Act [15 U.S.C. § 77o(b)], 

Theresa Smith is deemed to be violation of Section 17(a) of the Securities Act to the 

same extent as Steele Smith and C3 and, unless enjoined, will again aid and abet 

violations of those provisions.  

FOURTH CLAIM FOR RELIEF 

Aiding and Abetting  

Violations of Section 10(b) of the Exchange Act and Rule 10b-5 

(Against Defendant Theresa Smith) 

67. The Commission realleges and incorporates by reference paragraphs 1 

through 54 above. 

68. Through the conduct described above, Steele Smith and C3 violated 

Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder  

[17 C.F.R. § 240.10b-5]. 

69. Defendant Theresa Smith knowingly or recklessly provided substantial 

assistance to Steele Smith and C3’s violations of Section 10(b) of the Exchange Act 

and Rule 10b-5 thereunder. She managed the day to day operations of C3 and C3PA, 

including managing their bank accounts and paying the companies’ expenses. She 

was therefore financially responsible for all the items necessary to reach investors and 

defraud them, and collected the fruits of that fraud. She paid for and reviewed the 

company websites and investor materials which made false statements to investors. 

She was aware of the falsity (or reckless in not knowing it) of at least some of the 

statements Steele Smith and C3 provided to investors. For example, she reviewed 

documents where Steele told investors that their money would be used for business 

purposes while she, together with Steele, actively misappropriated investor funds for 

their personal benefit. 

70. Pursuant to Section 20(e) of the Exchange Act [15 U.S.C. § 78t], 

Theresa Smith is deemed to be in violation of Section 10(b) of the Exchange Act and 

Rule 10b-5 to the same extent as Steele Smith and C3 and, unless enjoined, will again 

Case 8:21-cv-01586   Document 1   Filed 09/28/21   Page 16 of 19   Page ID #:16



 

COMPLAINT 17  
 

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aid and abet violations of those provisions. 

FIFTH CLAIM FOR RELIEF 

Unregistered Offer and Sale of Securities 

Violations of Sections 5(a) and 5(c) of the Securities Act 

(Against All Defendants) 

71. The Commission realleges and incorporates by reference paragraphs 1 

through 54 above. 

72. Defendant C3, as the issuer of the securities, directly offered and sold 

securities in the form of C3 stock.  

73. Defendants Steele Smith and Theresa Smith, directly and indirectly, 

offered and sold C3 stock, and were necessary participants and substantial factors in 

C3’s offers and sales of C3 stock.  

74. By virtue of the foregoing, (a) without a registration statement in effect 

as to that security, Defendants, directly and indirectly, made use of the means and 

instruments of transportation or communications in interstate commerce and of the 

mails to sell securities through the use of means of a prospectus, and (b) made use of 

the means and instruments of transportation or communication in interstate commerce 

and of the mails to offer to sell through the use of a prospectus, securities as to which 

no registration statement had been filed. 

75. By reason of the foregoing, Defendants directly or indirectly violated, 

and unless restrained and enjoined, will continue to violate, Section 5 of the 

Securities Act [15 U.S.C. § 77e]. 

PRAYER FOR RELIEF 

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

Judgment finding that Defendants committed the securities law violations alleged in this 

Complaint and: 

I. 

Permanently enjoin Steele Smith, Theresa Smith and C3 from directly or 

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COMPLAINT 18  
 

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indirectly violating Sections 5 and 17(a) of the Securities Act [15 U.S.C. §§ 77e, 

77q(a)], and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 

[17 C.F.R. § 240.10b-5] thereunder; 

II. 

Permanently enjoin C3, Steele Smith and Theresa Smith from, directly or 

indirectly, including, but not limited to, through any entity owned or controlled by 

them, participating in the issuance, purchase, offer, or sale of any security; provided, 

however, that such injunction shall not prevent the Smiths from purchasing or selling 

securities listed on a national securities exchange for their own personal accounts; 

III. 

Enter an Order pursuant to Section 20(e) of the Securities Act and Section 

21(d)(2) of the Exchange Act barring Steele Clarke Smith III from acting as an officer 

or director of any issuer whose securities are registered with the Commission pursuant 

to Section 12 of the Exchange Act or which is required to file reports with the 

Commission pursuant to Section 15(d) of the Exchange Act. 

IV. 

Order that each of the Defendants disgorge any and all ill-gotten gains, together 

with pre-judgment and post-judgment interest, derived from the securities law 

violations set forth in this Complaint; 

V. 

Order Defendants to pay civil penalties under Section 20(d) of the Securities Act 

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

VI. 

Retain jurisdiction of this action in accordance with the principles of equity and 

the Federal Rules of Civil Procedure in order to implement and carry out the terms of  

all orders and decrees that may be entered, or to entertain any suitable application or 

motion for additional relief within the jurisdiction of this Court; and 

Case 8:21-cv-01586   Document 1   Filed 09/28/21   Page 18 of 19   Page ID #:18



 

COMPLAINT 19  
 

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VII. 

Grant such other and further relief as this Court may determine to be just and 

necessary.  

In accordance with Fed. R. Civ. P. 38 and C.D. Cal. L.R. 38-1, Plaintiff U.S. 

Securities and Exchange Commission hereby demands a jury trial on all issues so 

triable. 

Dated: September 28, 2021  

 /s/  Derek Bentsen 
Derek S. Bentsen 
Timothy N. England 
Stephen T. Kaiser 
Elizabeth Marshall Anderson 
Daniel O. Blau 
Attorneys for Plaintiff 
U.S. Securities and Exchange 
Commission 

 

Case 8:21-cv-01586   Document 1   Filed 09/28/21   Page 19 of 19   Page ID #:19


	A. Defendants Offered and Sold C3’s Securities by Means of Material Misstatements and Omissions
	1. Steele Smith and C3 Made Misrepresentations About C3’s Intellectual Property and Business
	2. Steele Smith and C3 Misrepresented the Use of Investor Proceeds and the Smiths Misappropriated Investor Funds
	3. Steele Smith and C3 Made Material Omissions about his Felony Conviction
	4. Steele Smith and C3 Made Misrepresentations and Omissions about C3’s Ability to Get Insurance to Pay for Idrasil
	5. Steele Smith and C3 Misrepresented How Investors Would Receive Returns on their Investments
	6. Lulling Statements

	B. Theresa Smith Aided and Abetted Steele Smith’s and C3’s Securities Fraud Violations
	C. Defendants Offered and Sold C3 Stock in Violation of the Securities Registration Requirements