The U.S. Securities and Exchange Commission has charged a former Garden Grove cannabis company executive with fraudulently selling more than $475,000 in unregistered securities to six investors.
A lawsuit filed late last month in U.S. District Court alleges securities registration violations against Nicolas Arkells, 33, of Lawndale, who was employed as the chief strategy and business development officer for C3 International Inc. from June through December 2018.
Arkells is also listed as a principal with a purported real estate investment firm in Redondo Beach but does not hold any securities licenses and has never been a registered broker, according to the SEC.
The SEC is requesting that Arkells be ordered to pay undisclosed civil penalties and seeks an injunction preventing him from purchasing or selling securities.
In a related, pending case, the SEC in 2021
charged C3 Chief Executive Officer Steele Clarke Smith III and his wife, Theresa Smith, 60, both of Garden Grove, with allegedly defrauding at least 40 investors out of about $2 million.
C3 manufactured and sold Idrasil, a cannabis pill that purportedly has the medicinal and therapeutic benefits of medical cannabis, according to the company’s website.
Idrasil is considered a nutraceutical, a food, or parts of food, that provides medical or health benefits, so it doesn’t need FDA approval, Steele Smith told the Orange County Register in 2011.
At the time, he said his motivation to help those facing serious illness and pain stemmed partly from his own health experience. Diagnosed in 1998 with Zollinger-Ellison, a rare disorder characterized by tumors and ulcers in the stomach and digestive organs, Steele Smith became addicted to prescription painkillers.
Neither Steele Smith nor Arkells could be reached for comment.
On July 31, 2018, Arkells, despite knowing C3 had no business operations, manufacturing facility, products or revenue, provided false and misleading business summaries and financial projections prepared by Steele Smith to prospective investors showing a minimum of $75 million in gross revenue, the lawsuit states.
The following day, Arkells allegedly forwarded a potential financial backer an email from Steel Smith showing that C3 would generate revenue of $54 million in 2018, even though the company was selling no product and the year was more than half over.
“After reviewing these documents and speaking with Steele Smith and defendant, a prospective investor emailed defendant to indicate he would like to invest $100,000 in C3,” says the suit.
The SEC alleges Steele Smith misappropriated the investor’s funds, using about $40,000 as a down payment on a Jeep Trackhawk.
Steele Smith knew that sales of Idrasil never earned more than $57,000 in any year, and that pills were no longer being manufactured, and there were no plans to make more, according to the SEC.
Arkells also falsely told at least two potential investors C3 had received a $30 million infusion of capital from a private equity group, telling one of them the company’s stock would go up eight to 10 times in value during the coming year, according to the complaint.
“Because of this and similar misrepresentations made by defendant, the investor sent $250,000 to C3 and lost his entire investment,” the lawsuit states.
The complaint also alleges that Arkells, who collected $66,205 in commissions from C3, drafted scripts with false claims for the company’s employees to use with prospective investors.