How a Failed CBD Funding Sparked a Authorized Battle

After a CBD investment failed, a lawsuit broke out between a serial entrepreneur, a hedge fund manager, and a cannabis manager.

On Wednesday, Patrick Horsman, a Miami-based serial entrepreneur who co-founded private equity firm Integrated Ag, filed a lawsuit against two investors in his cannabidiol company Integrated CBD: Brett Jefferson, president and co-chief investment officer of Hildene Capital, and Ian Lev, executive director of Hy Yield Scientific, a cannabis fertilizer company.

The lawsuit alleges that after Integrated CBD started losing money, Jefferson threatened to contact CNBC’s American Greed program and refer to Horsman as “Patrick the Scam Artist.”

The lawsuit is the latest in a series of Integrated CBD-related claims that raised money for a hemp growing and processing company in 2019. Jefferson filed a lawsuit against Horsman, along with Lev and several others, back in October 2020 through a private entity called BRJ Holdings III. They alleged Horsman lied about the prospect of the investment and used a Paycheck Protection Program loan to buy a private jet.

Integrated AG, the parent company of Integrated CBD, has now filed for bankruptcy.

The complaints all come from cannabidiol, colloquially known as CBD. After Congress passed a law in 2018 allowing hemp to be grown in the U.S., the CBD business boomed, according to Horsman’s lawsuit. The chemical, an active ingredient in marijuana (although it doesn’t produce the “high” levels of THC), has appeared in everything from gummy snacks to dog treats.

Horsman wanted to play and, according to the lawsuit, began looking for investors for his new operating company Integrated CBD in early 2019. As his LinkedIn profile shows, Horsman has been on a long line of ventures and established more than five separate mutual funds.

In his lawsuit, Horsman claims he raised $ 60 million for the CBD company from institutional and accredited individual investors. Jefferson’s BRJ Holdings III loaned Integrated CBD $ 2.5 million through a convertible loan. (Hildene, where Jefferson is serving as co-CIO, was not involved in the investment or legal process at all.)

An additional $ 30 million in funding was reportedly provided by private equity firm Corbin Capital. For his part, Lev invested $ 50,000 in the fund.

But then the CBD business recovered, according to Horsman, whose lawsuit blamed the industry’s tightened regulations for the company’s misfortune.

He claimed Jefferson and Lev were upset after learning the company was running out of money.

According to the complaint, in August 2020, the lawyer for BRJ Holdings III sent a letter to Horsman’s legal team asking them to return all of his money. The next day, Horsman allegedly texted Jefferson to clarify the matter, but said Jefferson was “unresponsive”.

The following week, Jefferson allegedly sent the email to Horsman threatening to contact CNBC. He allegedly added, “Please note that I will also be contacting important media contacts that I need to ensure [sic] knows about your antics … Patrick F — you, we’re going to war !! ”

However, the October complaint from Jefferson’s FRY Holdings III, Lev, and several other parties tells a different story.

They claim that from the start, Horsman and Integrated CBD misrepresented the prospect of the CBD business, how much land they invested, whether it was agricultural, and Horsman’s own expertise on the subject. They also claim that the investments “wrongly” enriched Horsman.

According to the lawsuit, the FRY, Lev and other investors asked about the company’s credit card statements after learning that the company was “collapsing.” They claim their money was used to pay off credit cards in Horsman’s name. In his counter-complaint, Horsman said these payments were for farm equipment and other business-related expenses.

When Lev confronted Horsman, he allegedly said to him, “Why do you care, you’ve only lost 50 grand [sic]. ”

The group, which included Lev and FRJ, also claimed Horsman received a PPP loan for his company despite firing the company’s employees. They claimed he used that payment to buy a private jet on the side called one of his investment firms, Horsman Holdings.

“Our investigation confirmed much of what we feared – that we had been fraudulently and repeatedly misled in connection with this investment,” a Jefferson spokesman said via email. “I am confident that legal process will support our position and am not surprised by Patrick’s desperate attempt to save himself, given what he has to answer.”

For his part, Horsman claims that the loan was not used to pay for the jet but was first garnished by a creditor and then repaid by his company.

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Both lawsuits are still winding their way through an Arizona state court.

The 2020 lawsuit filed against Horsman and several other defendants alleges fraud and constructive fraud against Horsman, as well as civil conspiracy and negligent misrepresentation, unjust enrichment, decoupling and many other allegations against the other parties involved.

Meanwhile, Horsman is suing Jefferson for invasion of privacy through false light, intentional infliction of emotional stress, defamation, and civil RICO, or extortion activities. He is suing Lev for aiding and abetting the civilian RICO. He went on to claim that the two were involved in a civilian conspiracy and that they deliberately spoiled business expectations.

Both lawsuits seek punitive damages from the defendants.