Author: Doug Cornelius

You can find out more about Doug on the About Doug page

The One Who Thought He Was Above the Law

The headlines for a case against Steven Seagal just write themselves. We was charged by the SEC for violating the anti-touting provisions of the securities laws for putting his celebrity girth behind Bitcoiin2Gen, in an initial coin offering.

The coin launched at about $0.60 in February 2019 and is not just about worthless. As near as I can tell, the selling point of this coin to BitCoin is that it has an extra “i.”

I have some sympathy for Mr. Seagal. He may have thought he was merely hawking some scam coin and not realized he was touting a security. Of course that’s the big problem with coin offerings. Promoters claim they are not securities, but the SEC thinks they are.

The SEC points out that the Bitcoiin offering was was well after the SEC’s DAO report that warned companies about the intersection of ICOs and securities laws. Just because you say it’s not a security over and over again, it does not make it true.

Mr. Seagal was to be paid $250,000 in cash and $750,000 in the Bitcoiins. Although, according to the SEC order, he only ended up with $157,000 in his pocket. That must be a nice supplement to his unpaid position as a special Russian representative to promote humanitarian ties between Russia and the United States.

As a Buddhist, Zen teacher, and healer, Steven lives by the principles that the development of the physical self is essential to protect the spiritual man. He believes that what he does in his life is about leading people into contemplation to wake them up and enlighten them in some manner. These are precisely the objectives of the Bitcoiin2Gen to empower the community by providing a decentralized P2P payment system with its own wallet, mining ecosystem and robust blockchain platform without the need of any third party.

https://bitcoiin2gen.pr.co/163919-zen-master-steven-seagal-has-become-the-brand-ambassador-of-bitcoiin2gen?reheat_cache=1

Mr. Seagal was not the first celebrity to get tagged by the SEC for promoting coin offerings. Professional boxer Floyd Mayweather Jr. and music producer DJ Khaled disgorged their promoter fees and paid penalties in November 2018.

Mr. Seagal accepted the order without admitting or denying the charges. That give the SEC the right to play the Nico Toscani quote: “You guys think you’re above the law. Well, you ain’t above mine.”

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Compliance Bricks and Mortar for February 28

We get a bonus day this year with the once-every-four year appearance of February 29 tomorrow. That means an extra day to catch up on some compliance reading.

Exam Recap: What’s hot during OCIE Exams
by Carl Ayers
Private Funds CFO

Don’t expect the SEC to admit to conducting new sweep exams but sources are telling sister publication RCW that OCIE’s looking at compliance with the liquidity risk management rule and how advisor’s handle sweep accounts.

https://www.privatefundscfo.com/exam-recap-whats-hot-during-ocie-exams (subscription required)

The Supreme Court Takes on SEC Disgorgement
by Daniel Walfish
NYU Law’s Compliance & Enforcement

One of the Securities and Exchange Commission’s core enforcement powers may soon be overhauled or even scrapped entirely. For fifty years the SEC has sought “disgorgement” of the proceeds of unlawful activity as one of its main remedies in federal court, even though there is no explicit statutory authority for doing so. On March 3, 2020, the Supreme Court will hear oral argument in Charles C. Liu and Xin Wang v. SEC, No. 18-1501, in which the Justices have agreed to consider whether courts can order disgorgement as an “equitable remedy” for a violation of the securities laws. This post discusses the case’s legal backdrop, some of the ways the Court could decide it, and some of its potential consequences.

https://wp.nyu.edu/compliance_enforcement/2020/02/22/the-supreme-court-takes-on-sec-disgorgement/

10 TYPES OF PROHIBITED REVENUE SHARING
Cipperman Compliance Services

Although, in theory, sufficient disclosure should allow advisers to receive revenue sharing, in practice, the SEC attacks revenue sharing in all its forms regardless of the extent of the disclosure.  Our conclusion is that the SEC has effectively banned revenue sharing.  As support for our position, below are ten types of revenue sharing outlawed by the SEC (cases hyperlinked).

https://cipperman.com/2020/02/21/the-friday-list-10-types-of-prohibited-revenue-sharing/

Ethisphere Announces the 2020 World’s Most Ethical Companies

Ethisphere’s research supports the conclusion that ethics and financial performance go hand-in-hand. Our annual practice of tracking how the stock prices of publicly traded honorees compare to the Large Cap Index found that listed 2020 World’s Most Ethical Companies outperformed the large cap sector over five years by 13.5 percent. This “Ethics Premium” forms the basis upon which companies can correlate responsible behavior with shareholder value.

https://ethisphere.com/ethisphere-announces-the-2020-worlds-most-ethical-companies/

Why Financial Regulation Keeps Falling Short
By Dan Awrey and Kathryn Judge
The CLS Blue Sky Blog

Modern finance is fast moving, extremely complex, and contributes to pervasive unknowns. Yet the processes governing how finance is regulated are typically slow, highly deliberative, and often reflect deeply ingrained and incredibly optimistic assumptions about our ability to understand the financial system and the potential impact of regulatory intervention. In our new paper, “Why Financial Regulation Keeps Falling Short,” we identify the key drivers of this fundamental mismatch between finance and financial regulation, demonstrate how this mismatch contributes to undesirable policy outcomes, and lay the conceptual foundations for understanding how the processes governing the creation of financial regulations can be improved to help close this gap.

https://clsbluesky.law.columbia.edu/2020/02/25/why-financial-regulation-keeps-falling-short/

A Closer Look at Warren Buffett’s Annual Letter to Berkshire Shareholders
by Kevin M. LaCroix 
The D&O Diary

Like many others, I look forward to Warren Buffett’s annual letter to Berkshire Hathaway shareholders, and like many others, I read his annual letter closely, looking for any investment insights I can glean as well for Buffett’s now-famous homespun brand of wisdom and humor. Although Buffett latest letter to Berkshire shareholders – which was published Saturday morning – does offer readers a little under each of these headings, I think many reading Buffet’s latest letter might have come away a little disappointed, as I discuss further below. 

https://www.dandodiary.com/2020/02/articles/warren-buffett/a-closer-look-at-warren-buffetts-annual-letter-to-berkshire-shareholders/

Ponzi Schemes Surge In 2019 – Coincidence Or Cause For Concern?
PonziTracker

According to Ponzitracker’s research, 60 Ponzi schemes were allegedly uncovered in 2019 that involved a collective $3.245 billion in investor funds. The statistics mark an abrupt reversal to a multi-year downward trend that in 2018 saw the lowest number of alleged Ponzi scheme discoveries in ten years. In addition, the surge in alleged schemes – the largest percentage increase since 2009 – also comes on the heels of a blockbuster year for financial markets in 2019. While it remains to be seen whether the reversal is an anomaly or cause for concern, all of the data points suggest that 2019 was a banner year for Ponzi scheme discoveries and enforcement.

https://www.ponzitracker.com/home/ponzi-schemes-surge-in-2019-anomaly-or-cause-for-alarm

Massachusetts Fiduciary Standard

Massachusetts is showing no patience for the Regulation BI and is imposing its own fiduciary standard on investment advice in the Bay State. The standard goes into effect when published on March 6, with enforcement coming into play on September 1.

The standard in 950 CMR 12.207 will apply to any broker-dealer or agent in Massachusetts. The original proposal included investment advisers and investment adviser representatives. But according to the Adopting Release, the final regulation excluded them because they are already subject to a fiduciary standard.

For broker-dealers, the fiduciary standard extends past the recommendation requirement standard if the broker-dealer has discretionary authority over the account, has an agreement to monitor the account or receives ongoing compensation.

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The One With the Undisclosed Private Fund Fee Scrape

Every compliance officers knows that undisclosed revenue sources at the expense of advisory clients is going to get their firm in trouble. (That’s probably not true. But If you’re a regular reader of Compliance Building, you know that it leads to trouble.) The latest charge comes against Criterion Wealth Management.

The SEC’s complaint alleges that from 2014 to 2017 the defendants recommended that their advisory clients invest more than $16 million in four private real estate investment funds without disclosing that the fund managers had paid them more than $1 million, which was on top of the fees that defendants were already charging their clients directly.

This just a charge by the SEC and Criterion has not had a chance to defend itself. I’m just writing about this case to expose what can get you in trouble with the SEC as a warning of what not to do.

Criterion arranged for investments with two different real estate private fund managers. In some investments, Criterion would get a large portion of the performance promote. In others, Criterion was paid a trailing fee based on it’s clients’ investment in the funds.

The first arrangement results in depressed returns to the clients and created more income for Criterion. The second arrangement created an incentive for Criterion to recommend their clients stay invested in the funds.

Both of those arrangements would be perfectly fine if properly disclosed by Criterion to its clients. Criterion did have a disclosure in its Form ADV.

“Associated persons of [Criterion] are registered securities representatives and investment adviser representatives of [BrokerDealer,] a registered broker-dealer … In these capacities associated persons may recommend securities, insurance, advisory, or other products or services, and receive compensation if products are purchased through [Broker-Dealer.] Thus, a conflict of interest exists between the interests of the associated persons and those of the advisory clients.”

The SEC thought that disclosure was inadequate. It also cited a statement in Item 14 of Form ADV (referrals) that Criterion did not accept compensation from non-clients in connection with its services.

The SEC noted this problem in an exam and issued a deficiency letter.

This is the second lesson from the case. Fix the problems in the deficiency to make the SEC examiners happy. Or else the lawyers get involved.

In response to the deficiency letter, Criterion sent a letter to its clients that the compensation arrangement had created potential conflicts of interest that were not fully disclosed. The SEC wanted more in the letter. The SEC wanted Criterion to state that it had steered its clients to less-favorable classes in the funds because of the compensation arrangement and that this resulted -and continued to result- in lower returns to Criterion’s clients than other fund investors.

I’m sure there was a lot more back and forth about this than is contained in the complaint. But take the lesson.

With the lawyers involved, they found more problems at Criterion. The firm failed to conduct annual reviews for many years and hadn’t updated its compliance manual in eight years. The SEC also claims that when Criterion used a compliance consultant the firm failed to disclose the compensation arrangement to the consultant.

The complaint also claims that Criterion’s two principals had scienter and should be held personally responsible for the alleged misdeeds. One of the principals also had the title of Chief Compliance Officer, so this case also involves CCO liability. I think this clearly puts in the prong 1 category of being involved in the wrongdoing.

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CCO Liability and Failing Qualifications

Cases imposing liability against compliance offices catch my attention. An Illinois court just imposed a fine on the former chief compliance officer of The Nutmeg Group, a registered investment adviser and fund manager. David Goulding had previously agreed to be barred from association with any investment adviser.

David Goulding must have thought things would go differently when his father promoted him at his financial advisory firm from a part-time administrative capacity to the full-time role as the chief compliance officer. The Nutmeg Group had $32 million in assets under management. Mr. Goulding was going to make money…

It’s not clear whether he knew that his father had been convicted of conspiracy to defraud the United States, mail fraud, and illegal transportation of currency in connection with a tax evasion and money laundering scheme that lead to him serving six months in prison and suspension from the practice of law for four years.

As you might expect, things were bad at Nutmeg. Nutmeg did not have complete records of investments, lacked books and records required by law, and had no internal controls to prevent violation of the Investment Advisers Act. Fund assets were commingled with firm assets. Of course, this lead to improper valuations and inaccurate reporting to investors. Assets were improperly transferred.

As the new CCO, Mr. Goulding could fix this?… No.

The following are Mr. Goulding’s failing qualifications:

  • No training, experience, or knowledge of the securities industry
  • Never worked for a broker/dealer, investment company, or investment fund
  • No experience communicating with investors
  • No experience performing or assisting in the valuation of an investment fund
  • No experience with the compliance responsibilities of an investment adviser
  • Education consists of an undergraduate degree in philosophy with a minor in political science.
  • Worked as a personal trainer and in marketing for a health club and Border Books prior to joining the firm.

The court thought “[t]o be blunt, the evidence suggests David literally had no idea what he was doing or what he was getting himself into when he decided to go work for Nutmeg.” (p.16 of Memorandum Opinion and Order)

In the process of some attempt to fix things, he helped perpetuate the wrongdoing at Nutmeg. He sent misleading statements to investors that served to further Nutmeg’s improper activities.

Just his luck after becoming CCO, the firm was subject to examination three months later. That exam quickly uncovered the serious problems at Nutmeg.

Mr. Goulding’s defense was that he did not receive financial benefit from the fraud. That benefit went to his father who agreed to disgorge his profits, plus pay a penalty. David ended up disgorging half his salary as CCO.

Under the SEC’s three prong approach, Mr. Goulding hit the first prong by participating in the fraud. You could argue that he may not even have fully understood what he was doing was wrong. The court found that Mr. Goulding had aided and abetted Nutmeg’s primary violations of the Investment Advisers Act. (p.16 of Memorandum Opinion and Order)

Was this a matter of bad timing? If Mr. Goulding had more time as CCO could he have fixed the problem? Did his father put someone unqualified in the position to help with the fraud? My guess: yes, no, yes.

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NYC Bar Publishes Recommendations on CCO Liability

The New York City Bar is looking out for compliance officers. It published a comprehensive report on liability for financial firm compliance officers and ways the regulators can do a better job relating to compliance officers.

“Financial firm compliance officers serve as essential gatekeepers to prevent, detect, and remediate violations of laws, regulations, and internal policies and rules.  Because of their role, compliance officers are inherently at risk of becoming subject to regulatory investigations and personal liability.  While the intent of such investigations and liability risks may be to strengthen the “gatekeeper” function, they can also discourage appropriate activity by compliance officers, isolate compliance officers from other business processes, or, at the extreme, lead individuals to leave compliance roles for fear of bearing liability for the misconduct of others.  “

The Report makes four proposals for regulators to consider:

  1. Release formal guidance articulating specific factors guiding discretion on charging decisions against chief compliance officers.
  2. Communicate greater detail on the conducting of inspections and investigations of chief compliance officers in existing methods of informal guidance, through providing greater detail in enforcement action releases, or in other public communication methods.
  3. Create an ex ante method of communication between compliance officers and regulatory staff.
  4. Create an ongoing advisory group between regulators and the compliance community to discuss areas of mutual concern.

I’ve complained about item 1 several times. On one hand, regulators state the factors that would put a CCO in danger of liability. Then on the other hand, the enforcement actions completely ignore those factors or come up with new ones. Those two hands are writing different stories.

The SEC Commissioners and senior OCIE staff have usually stated three circumstances that lead to CCO liability:

  1. when the CCO is affirmatively involved in misconduct;
  2. when the CCO engages in efforts to obstruct or mislead the Commission; or
  3. when the CCO exhibits “a wholesale failure to carry out his or her responsibilities

But then you get enforcement actions like the one against Thaddeus North which upheld liability of a CCO because he “failed to make reasonable efforts to fulfill the responsibilities of his position.” That’s not one of those three.

The Report starts off with the proposition that increased CCO liability and uncertainty about the scope of liability may deter people from taking compliance positions. See, e.g., Court E. Golumbic, “The Big Chill”: Personal Liability and the Targeting of Financial Sector Compliance Officers, ; Emily Glazer, The Most Thankless Job on Wall Street Gets a New Worry, WALL ST. J. (Feb. 11, 2016); Dawn Causey, Who Should Have Personal Liability for Compliance Failures?, A.B.A. BANKING J. (Aug. 17, 2015).

The middle of the Report is a collection of enforcement actions against compliance officers in the financial sector. I’m going to go back through that collection. I didn’t see any mention of actions against compliance officers outside the financial sector. But come to think of it, I’m not sure I can recall any actions against compliance officers outside the financial sector that didn’t have the compliance officer involved in the wrongdoing.

I already mentioned the four recommendations from Part III of the Report. That regulators can fix this by getting enforcement to stick to the delineated reasons in the charges and orders against compliance officers who have gone astray.

The Report was prepared by the NYC Bar, and in partnership with the Association for Corporate Growth, American Investment Council and SIFMA.

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Changing the Definition of “Covered Funds” under the Volker Rule

The rule that the late Paul Volker wanted to impose on banks was to stop them from engaging in proprietary trading. If the government was going to provide a back stop, then the banks should not be engaged in risky trading behavior with the protection of the federal government.

Although the Volker Rule sounds easy in concept, it’s been tough to implement and prove compliance. Even harder now that the line between investment bank and commercial bank largely does not exist.

One aspect of the Volker was to also get banks out of the business of sponsoring investment funds. Section 13 of the Bank Holding Company Act of 1956 generally prohibits any banking entity from engaging in proprietary trading or from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with covered funds.

The definition of “covered fund” covered fund covered a hedge fund or private equity fund. For compliance, you need to dive into the definition:

“The terms “hedge fund” and “private equity fund” mean an issuer that would be an investment company, as defined in the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.), but for section 3(c)(1) or 3(c)(7) of that Act “

So it’s the same definition of private fund from the Investment Advisers Act.

What’s proposed to be changed?

  1. Revise certain restrictions in the foreign public funds exclusion to more closely align the provision with the exclusion for similarly situated U.S. registered investment companies.
  2. Permit loan securitizations excluded from the rule to hold a small amount of non-loan assets, consistent with past industry practice, and codify existing staff-level guidance regarding this exclusion.
  3. Be able to invest in and have certain relationships with credit funds that extend the type of credit that a banking entity may provide directly
  4. Exclude venture capital funds from the definition of covered fund
  5. Exclude an entity created and used to facilitate a customer’s exposures to a transaction, investment strategy, or other service.
  6. Exclude wealth management vehicles that manage the investment portfolio of a family, and certain other persons, allowing a banking entity to provide integrated private wealth management services.
  7. Make clear that an “ownership interest” in a fund does not include bona fide senior loans or senior debt instruments interests in the fund

The proposal to exclude venture capital funds sticks out from the others. It may even be the riskiest of these.

The argument for venture capital funds is that they “promote growth, capital formation, and competitiveness.” (See page 60) With the lack of leverage and reliance on other securities, venture capital funds are less interconnected with the broader markets. ” Banking entity investments in qualifying venture capital funds may benefit the broader financial system by improving the flow of financing to small businesses and start-ups and thus may promote and protect the financial stability of the United States.” (see page 60)

For the definition of “venture capital fund” the proposal refers to the SEC’s definition in 203(l)-1, with the limitations on holdings and debt.

This seems like good lobbying by venture capital. Comment period is open for the proposals. Let’s see if sticks.

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SEC Cybersecurity Update

The Securities and Exchange Commission Commission’s Office of Compliance Inspections and Examinations issued examination observations related to cybersecurity and operational resiliency practices taken by SEC registrants.

This compilation of observations is based on OCIE’s observations of broker-dealer, investment advisers, clearing agencies, national securities exchanges and other firms that OCIE has taken a look at. It’s not clear if these observations are from cyber sweeps or the full body of exams.

But it doesn’t matter. The report is full of good things and acts as a roadmap for good practices.

If you noted that the types of firms covered has a lot of variety, you are correct. The Report acknowledges that there is no “one-size fits all” approach to cybersecurity.

[A]ll of these practices may not be appropriate for all organizations, we are providing these observations to assist market participants in their consideration of how to enhance cybersecurity preparedness and operational resiliency.

The report is very concise so I’m not going to list all of the items. Matt Kelly highlights a few of his favorites on cybersecurity. I think the report can be used as a roadmap to review your firm’s cybersecurity.

The SEC is taking things a step further and talking about resiliency. It’s ridiculous to think that any firm can make itself immune to an attack or failure.

[If] an incident were to occur, how quickly can the organization recover and again safely serve clients?

You need a plan. You need an inventory of your services and systems. You need to know how to substitute a system so that you can still deliver services to your clients.

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The One with the Missing Solar Generators

Jeff and Paulette Carpoff had what sounds like a great idea to me: mobile solar generator units. These are solar generators that would be mounted on trailers that could provide emergency power to cellphone towers and lighting at sporting events. Plus there were generous federal tax credits due to the solar nature of the generators.

I’m willing to hand over a check just hearing the idea. Others agreed and gave Carpoff almost $1 billion in investments to create over 17,000 of the generators.

“A million dollars isn’t cool. You know what’s cool? A billion dollars.”

Sean Parker – The Social Network

What’s not cool is that the Carpoffs only had about 6,571 of the generators.

The conspirators pulled off their scheme by selling solar generators that did not exist to investors, making it appear that solar generators existed in locations that they did not, creating false financial statements, and obtaining false lease contracts, among other efforts to conceal the fraud. 

There is a “What is a Security?” twist to the charges. Some of the fake generator investments were structured as sale-leaseback arrangements. The investors paid to purchase generators from DC Solutions, while simultaneously leasing them to DC Distribution. DC Distribution would then sub-lease the Generators to end-users. The investors would profit from the investments due to tax credits, depreciation on the generators, and lease payments. If the purchase of the generator is tied to the lease and exclusive, then there is a line of cases finding that to be an investment contract. Just like the orange grove in Howey. However a bulk of the investments were made to a fund, pooling money for a bulk purchase and lease of generators.

As interesting as I may find this topic in the charges, the conspirators are going to jail and probably have less interest in the arcane corners or securities law.

I’m going to assume that the Carpoffs started the business with good intentions. They did create thousands of these generators and leased at least some of those for legitimate purposes. They seem to have made at least $18 million in revenue. It seems that the business just did not scale. They could find enough end users to satisfy the investment demand.

As with many Ponzi schemes, they weren’t willing to be honest with their investors about the failure and engaged in false and misleading. There was much more money to be made in collect cash from investors than from leasing the generators.

As with any good fraud fraud charges they list out the extravagant items bought by the fraudsters. This comes up short on the itemization.

  • 150 cars
  • dozens of properties
  • 1978 Firebird previously owned by actor Burt Reynolds
  • a minor-league professional baseball team
  • share in a jet service
  • Nascar sponsorship

Jeff and Paulette Carpoff are scheduled to be sentenced by U.S. District Judge John A. Mendez on May 19. Jeff Carpoff faces a maximum statutory penalty of 30 years in prison. Paulette Carpoff faces a maximum statutory penalty of 15 years in prison. The actual sentences, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.

Four defendants have previously pleaded guilty to federal criminal charges related to the fraud scheme since October. Joseph W. Bayliss, 44, of Martinez, and Ronald J. Roach, of Walnut Creek, each pleaded guilty to related charges on Oct. 22, 2019. Robert A. Karmann, 53, of Clayton, pleaded guilty to related charges on Dec. 17, 2019. Ryan Guidry, 53, of Pleasant Hill, pleaded guilty to related charges on Jan. 14, 2020. A seventh co-conspirator is scheduled to plead guilty on Feb. 11. The investigation into the fraud remains ongoing.

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The One with the Fake Pot Ownership

With the growth of marijuana businesses across several states, many see it at a sector ripe for investment with the possibility of big returns. While states approve the sale of marijuana, it’s not entirely legal. Federal law still lists it as a controlled substance. That makes banking difficult and oversight difficult for investors. It also makes it a target for less than scrupulous middlemen.

That’s where we find Guy Griffitthe and Robert Russell. Mr. Russell and his wife had created a company in Washington that held a license to grow marijuana under the state’s recreational cannabis laws.

According to the SEC complaint, Russell cut a deal with Griffithe to offer a stake in his marijuana growing business. That was the first problem.

Under the Washington law for marijuana businesses, ownership is tightly controlled and regulated. Russell couldn’t sell an ownership interest without approval from the state Liquor and Cannabis Board. According to the complaint, Russell and Griffithe tried to structure it as a right to receive profits and not an ownership interest. I don’t think it worked.

That didn’t seem to stop Griffithe from selling interests in the company that bought the interest in the marijuana growing company. The pitch was that the investment would help the marijuana grower to expand by providing capital for equipment, land and physical facilities.

The next problem is that Griffithe didn’t register the securities for sale and didn’t make sure the sale was happening within an exemption. He used a website and openly advertised the sale of the securities.

The third problem was that they spent most of the $4.85 million they raised on non-business purchases. The SEC loves to list out the extravagant purchases made by fraudsters with their ill-gotten cash. This was no exception.

  • 2008 Bentley Continental
  • 2012 Mercedes Benz C Class
  • 2013 Ford Mustang (I’ll assume this was a Boss 302 or Shelby GT500 model)
  • 2015 Porsche Panamera
  • $250,000 towards a 65-foot Pacific Mariner yacht

The final straw was that the marijuana growing business was not actually profitable. According to the SEC, it never made a profit. Meanwhile Griffithe’s marketing material proclaimed a 40% profit margin. They faked the profitability by using some of the investor paid-in capital to make distributions. That turned it into a Ponzi scheme.

Fraudulent investment activity in marijuana business has become so widespread that the SEC has published an Investment Alert: Marijuana Investments and Fraud.

This case points out one of the shortcomings in that SEC alert. It fails to point out the very common limitation on changes of ownership in marijuana businesses. Even if the investment is legitimate, the likely requirement of approvals for the acquisition and later sale will have a big impact on the investment.

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