Two New Jersey Men Sentenced For Scheme To Defraud Investors In Hemp Company

Damian Williams, the United States Attorney for the Southern District of New York, announced today that VITALY FARGESEN and IGOR PALATNIK were sentenced to 4 years and 78 months in prison, respectively, by U.S. District Judge Loretta A. Preska for participating in a fraudulent scheme to defraud investors in CanaFarma Corp. and, later, CanaFarma Hemp Products Corp. (together, “CanaFarma”), by soliciting funds based upon false and misleading representations, failing to invest investor’s funds as promised, and secretly misappropriating millions of dollars of CanaFarma funds.  PALATNIK was sentenced on January 11, 2024, and FARGESEN was sentenced today.

U.S. Attorney Damian Williams said: “Vitaly Fargesen and Igor Palatnik orchestrated a sophisticated scheme to obtain millions of dollars from investors by falsely pledging to spend their funds building a legitimate business.  Instead, Fargesen and Palatnik deceived investors about the nature of their business and kept millions of dollars of investor funds for their own personal use.  After they were charged, Fargesen and Palatnik attempted to escape accountability by obstructing this Office’s investigation of their crimes.  Today’s sentence should serve as a reminder that if you steal from investors and cover up your crimes, you will pay a steep price.”

According to the allegations contained in the Indictment and statements made in public filings and public court proceedings:

From in or about March 2019 to in or about March 2020, CanaFarma was a privately held Delaware corporation with offices in New York, New York.  Beginning on or about March 19, 2020, CanaFarma was listed on the Canadian Stock Exchange, and beginning on or about March 23, 2020, CanaFarma was listed on the Frankfurt Stock Exchange.  CanaFarma marketed itself to the investors as a “fully integrated cannabis company addressing the entire cannabis spectrum from seed to delivery of consumer products.”  To the public, FARGESEN was held out as Senior Vice President of Strategic Planning and PALATNIK as Senior Vice President of Product Acquisition at CanaFarma.  In truth, the two men exercised full control of CanaFarma but hid their control from the investing public by, among other things, convincing an experienced businessman to falsely present himself to the market as the CEO of the company.

Using their control of CanaFarma, FARGESEN and PALATNIK devised and carried out a scheme to defraud CanaFarma’s investors by soliciting approximately $14 million in funds, including investments in private shares of CanaFarma, with false and misleading representations concerning the company’s management, products, and financials; failing to invest investor’s funds as promised; and secretly misappropriating at least $4 million of CanaFarma funds for their own benefit.  FARGESEN and PALATNIK effectuated the scheme by, among other things, controlling CanaFarma through a nominal CEO who reported to FARGESEN and PALATNIK, lying to investors regarding CanaFarma’s actual and anticipated operations, attempting to artificially inflate CanaFarma’s reported revenue, making false statements to CanaFarma’s auditors, and misappropriating millions of dollars of investor funds.

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In addition to the prison sentence, FARGESEN, 54, of Manalapan, New Jersey, and PALATNIK, 49, of Morganville, New Jersey, were each ordered to forfeit $1,733,000 and to pay restitution in the amount of $4,703,915.26.

Mr. Williams praised the outstanding work of the Federal Bureau of Investigation.  Mr. Williams also thanked the U.S. Securities and Exchange Commission, which has filed a parallel civil action.

The case is being overseen by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Margaret Graham, Adam Hobson, and Sarah Mortazavi are in charge of the prosecution.