Categories
The SEC is suing Brent Willis, the former CEO of NewAge, for fraud.
The regulator says that Willis told lies, which led to the “growth and success” of NewAge.
The SEC says that Willis lied about “product distribution deals” in “at least 12 press releases, investor conferences, earnings calls, and media interviews.”
In reality, either these distribution deals did not exist or they were much smaller than what was said in public.
One lie is that, at the beginning of 2018, Willis said that NewAge had a deal with the US military to sell their products.
In reality, NewAge never made a deal with the military to sell their products. They also never planned to sell their products at all commissaries and exchanges around the world, and they didn’t even have enough stock to do so.
Willis also took advantage of the CBD trend in MLM at the end of 2018, when he said that NewAge was making “a portfolio of beverages with CBD.”
Willis lied when he said that NewAge had gotten a lot of orders and commitments from retailers and distributors to sell its CBD products and that its CBD products were being sold in stores.
In fact, NewAge never finished making a CBD beverage product, and no retailer ever ordered or committed to buying CBD beverage products from them.
Even though they don’t even have CBD products in development, let alone on the market,
During the NACS trade show in Las Vegas in October 2018, the defendant held a meeting off-site that retailers, distributors, and investors attended. At that meeting, NewAge handed out sell sheets with false and misleading statements that
“Full spectrum” CBD products made by NewAge were made using a “proprietary production process.”
(ii) that the supposed products were made with a “proprietary formula created in-house by New Age Health Sciences”;
(iii) “every batch” of the products is tested by a third party; and
iv) That the supposed products had a “full spectrum nano technology-amplified entourage effect.”
Willis also told the following lies about the New Age:
- XingTea being distributed by 7-Eleven in ~1500 across the US, when in fact the distribution agreement pertained only to ~250 stores in Colorado (2017);
- Aspen Pure Probiotic water being distributed through 2000+ Ahold Delhaize stores, when NewAge didn’t have the inventory to do so and Ahold Delhaize only committed to 74 stores (2017);
- Unified Strategies Group would distribute NewAge beverages through “more than 1 million vending machines, 5,000 micro markets, and over 1,800 client dining facilities throughout the United States”, when the agreement didn’t specify at distribution commitments (2017);
- Coco-Libre and Bucha Live Kombucha was being distributed throughout Loblaws and Sobeys in Canada, when no such distribution agreement existed (2018;
- Bucha Live Kombucha would be distributed by “the largest food and beverage distributor in South Korea to expand to all major retail outlets throughout the country effective immediately”, when all that was sold was licensing with no distribution agreement (2018); and
- Marley beverages was being distributed through Walmart “across the United States … in all Walmart stores”, when the agreement pertained to “less than 7% of Walmart stores” (2019)
The SEC claims that Willis lied to them.
NewAge’s stock price was artificially raised to improve the company’s finances and help himself financially, even though he knew or didn’t care that the statements were false and misleading.
The SEC says Willis was “obsessed” with the fact that NewAge’s share price was going down, which showed how bad the company’s finances were.
In 2017 and 2018, NewAge was in a terrible financial situation.
In 2017, NewAge lost money and had trouble paying for inventory and running costs.
For the year that ended on December 31, 2017, NewAge lost about $3.5 million and only had about $285,000 in cash.
For the first half of 2018, which ended on June 30, 2018, New Age had a net loss of about $3.4 million and only about $213,000 in cash on hand.
Late in 2017, NewAge’s share price dropped a lot because the company couldn’t get national accounts for its existing brands or come up with promising new products.
Things got worse in 2018, and in the end, NewAge had to take out a “high-interest loan” to pay its basic bills.
Willis was frustrated that the company couldn’t get distribution with major retailers, and he put a lot of pressure on his employees, especially his sales staff, to bring the company good news.
And while NewAge was going down, Willis was asking the Board of Directors for a raise in pay.
Willis was also unhappy with his pay at NewAge and asked the company’s board of directors over and over again to raise it, in part to pay off his own tax debts.
Around 2017 or early 2018, the Board told the Defendant that it would look at his pay package again once the company was in a better financial position.
Look at the years 2017 and 2018. This is when Willis told lies, but in the end, he was right about NewAge’s share price.
Willis also gained from the false and misleading statements that were made about him above.
For example, between April and October 2019, the defendant got money or property by selling 425,000 NewAge shares for a net profit of more than $2 million. This was while NewAge’s share price and liquidity were still artificially inflated because of the above lies.
In addition, the Board gave the defendant a big raise in pay starting in 2019. This was because of the above lies, which led to the company’s better financial position, successful stock offerings, and the completion of the Morinda acquisition.
Willis left his job as CEO for good on January 10, 2022.
In September 2022, NewAge would file for Chapter 11 bankruptcy. In addition to Willis’s lies, there was sabotage and blackmail leading up to NewAge’s bankruptcy.
Because of what Willis did, the SEC has accused him of breaking the Securities and Exchange Act more than once.
The government agency wants a court order, the return of illegally gained money, and a civil monetary penalty.
