SEC v. American Patriot Brands, Inc.; Urban Pharms, LLC; DJ & S Property #1, LLC; TSL Distribution, LLC; Robert Y. Lee; Brian L. Pallas, et al., No. 3:23-cv-01124, District of Puerto Rico (Mar. 24, 2023) — Complaint

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

SECURITIES AND EXCHANGE COMMISSION,

   PLAINTIFF,

 V.

AMERICAN PATRIOT BRANDS, INC., URBAN
PHARMS, LLC, DJ & S PROPERTY #1, LLC, TSL
DISTRIBUTION, LLC, ROBERT Y. LEE, BRIAN
L. PALLAS, AND J. BERNARD RICE,

 DEFENDANTS, AND

PUERTO  RICO  ONE  CORPORATION,  CASTRO
BUSINESS  ENTERPRISES,  LLC,  AND  LEGION
ACCOUNTING SERVICES, INC.

   RELIEF DEFENDANTS.

CIVIL NO.

COMPLAINT AND DEMAND FOR JURY TRIAL

 Plaintiff, United States Securities and Exchange Commission (“Commission” or “SEC”),
for  its  Complaint  and  Demand  for  Jury  Trial  against Defendants American  Patriot  Brands,  Inc.
(“APB”),  Urban  Pharms,  LLC  (“Urban  Pharms”),  DJ  &  S  Property  #1,  LLC  (“DJ  &  S”),  TSL
Distribution, LLC (“TSL”), Robert Y. Lee (“Lee”), Brian L. Pallas (“Pallas”), and J. Bernard Rice
(“Rice”) (collectively, the “Defendants”), and Castro Business Enterprises, LLC (“CBE”), Puerto
Rico   One   Corporation (“PR-One”), and   Legion   Accounting   Services,   Inc.   (“Legion”)

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(collectively, the “Relief Defendants”), alleges as follows:
SUMMARY OF ACTION

1. This case involves a fraudulent securities offering in APB, a cannabis cultivation
and distribution company.  From August 2016 through the present (the “Relevant Period”),  APB’s
Chief  Executive  Officer  Lee,  Chief  Operating  Officer  Pallas,  and  Chief  Financial  Officer  Rice
have solicited investments and raised over $30 million from more than 100 investors in the United
States, including in this District, through a variety of material misrepresentations and omissions.
2. As part of its offerings, APB urged investors to act quickly to invest before APB
made its securities more widely available, an event APB claimed was imminent.  In fact, the SEC
registration APB  needed  for  widespread  public  trading  was  in  jeopardy  and  was  revoked  in  the
midst of an offering.  APB told investors that it had multistate and worldwide operations when it
had no operations outside of Oregon.
3. Although APB  produced  only  a  small  amount  of  sellable  cannabis  a  year,  it
promoted itself as one of the largest cannabis farms in the country  and provided wildly inflated
financial  information  to  support  extremely  high  revenue  projections.    To  make  the  investment
appear even more attractive, APB promised that investments would be secured by a lien on APB’s
cannabis farm, at times when the farm likely did not have enough equity to secure investments.
4. APB’s officers have siphoned  off  millions  in  investor  funds  to  Relief  Defendant
PR-One, a company partly owned by Lee, and Relief Defendant CBE, a company APB does not
control.  They have also used investment proceeds to enrich themselves through payments that, in
some years, vastly exceeded the revenues APB generated from the sale of cannabis products.
5. Having  left  existing  investors with  essentially  worthless  securities,  APB  is  still
actively marketing securities to prospective investors with the same false and misleading claims.

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DEFENDANTS

6. APB is a Nevada corporation, formed in 2009, with its corporate headquarters in
Newport  Beach,  California.    APB  owns  and  operates  subsidiary  companies  that  farm  and  sell
cannabis.
7. DJ & S is an Oregon limited liability company with its principal place of business
in Medford, Oregon and the owner of the real property and improvements constituting a cannabis
farm (the “Oregon Farm”).  APB owns and operates DJ & S.
8. Urban  Pharms  is  an  Oregon  limited  liability  company  that operates  the  Oregon
Farm.  APB owns and operates Urban Pharms.
9. TSL is an Oregon limited liability company with its principal place of business in
Portland, Oregon.  TSL sells cannabis from APB and other growers.  APB owns and operates TSL.
10. Lee,  58,  is  a  resident  of  Newport  Beach,  California.    He  is  the  Chief  Executive
Officer of APB and Chairman of its Board of Directors.
11. Pallas, 76, is a resident of Laguna Beach, California.  He is the Chief Operating
Officer of APB, Urban Pharms, and TSL.  He is also a member of APB’s Board of Directors.
12. Rice, 68, is a resident of Roswell, Georgia.  He was the Chief Financial Officer and
Executive Vice President of Corporate Development for APB from at least February 2017 to 2019.
RELIEF DEFENDANTS
13. PR-One  is  a  Puerto  Rican  corporation  with  a  principal  place  of  business  in  San
Juan, Puerto Rico.  Lee is the Chairman of the Board of PR-One.
14. CBE, formerly known as Castro Business Enterprises, Inc. and doing business as
Castro Cash and Carry and NGX Military Store, is a Puerto Rican corporation with its principal
place of business in San Juan, Puerto Rico.  Ricky Castro is CBE’s president.

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15. Legion is  a  California  corporation  with  its  principal  place  of  business  in  Yorba
Linda, California.  Legion is owned by Rosalie Frances D’Amico, formerly known as Lee Patin,
who serves as APB’s controller.  APB uses a bank account in the name of Legion as an operating
account.
JURISDICTION AND VENUE
16. This  Court  has  subject  matter  jurisdiction  over  this  action  pursuant  to  Sections
20(b), 20(d)(1), and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)], and
Sections 21(d) and 27(a) of the Exchange Act [15 U.S.C. §§ 78u(d) and 78aa(a)].
17. Venue is proper in this district under Section 22(a) of the Securities Act [15 U.S.C.
§ 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)] because at least one of the
fraudulent offerings was made almost exclusively to Puerto Rican residents, at least 47 of whom
purchased, collectively, over $3.2 million worth of APB securities.
THE FRAUDULENT OFFERINGS
18. From  2016 through  the  present,  APB  has  offered its securities for  sale  and
represented that the funds would be used to pay for, among other things, the operation or expansion
of Urban Pharms, DJ & S, and TSL (the “Subsidiaries”).
19. Some investors participated in the offerings by purchasing stock or options to buy
stock in APB.  Other investors loaned APB funds pursuant to convertible promissory notes that
granted investors the right to receive note payments in either APB stock or cash.  Other investors
were offered the right to receive rent and a percentage of the sales from a field on the Oregon Farm
called Garden #1 (the “Garden Units”).
20. The convertible promissory notes are securities because, among other things, they
were:  (1) promoted as a way to raise funds for the operation and expansion of APB’s business;

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(2) sold  to  nearly  50  investors  and  promoted  to  hundreds  more;  (3)  promoted  by  APB  as
investments, titled as “securities;” and (4) were unsecured or under-secured.  They are not subject
to regulation by another federal agency.
21. The Garden Units are securities because, among other things:  (1) investors’ monies
were pooled to acquire the ownership interest in Garden #1; (2) the investors share in the revenues
of cannabis produced from Garden #1; and (3) the revenues and rent are derived from the efforts
of APB and the Subsidiaries.
22. To induce prospective investors to invest in APB, to induce existing investors to
increase their investments, and to induce convertible promissory note holders to choose repayment
in the form of APB stock, Lee,  Rice, and Pallas, acting on behalf of APB and the Subsidiaries,
made numerous misrepresentations and omissions.
I. The First Offering - 2016 through 2019
23. From 2016 through 2019, APB offered securities that generated approximately $20
million in investment funds from approximately 50 investors.
24. Lee  and Rice  made  numerous  misrepresentations  and  omissions  to  investors,
including investors identified below as Investors 1 through 6.  At the time the misrepresentations
and  omissions  were  made,  Investors  1  through  6 had  either  not  yet  invested,  held unexercised
rights  to  convert  their  promissory  notes  to  APB  stock,  or  held  unexercised  options  to  purchase
APB stock.
25. To  convince  the  First  Offering  investors  that  APB’s  securities  were  likely  to
produce  significant  returns,  APB  made  multiple  misrepresentations  about  APB’s  past  revenues
and, based on that false information, made revenue projections that were wholly unfounded.
26. In  March  2017,  Rice  emailed  a presentation  to  a  representative  of  prospective

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Investor 1.  The presentation falsely stated that in 2016 APB had “achieved [w]holesale cannabis
revenues  of  over  $3.3  million  and  EBITDA  [earnings  before  interest,  taxes,  depreciation,  and
amortization] of over $1 million.”  In fact, APB had only achieved $330,905 of gross revenue and
had a negative EBITDA of $9,606,543 for 2016.
27. In  the  fall  of  2017,  Lee  told  prospective  Investor  5  that  APB  executives  had  not
taken  salaries  in  the  past  and  had  agreed  to  be  compensated  exclusively  in  APB  stock.    This
statement was false.  The total monies APB paid to Lee, Rice, and Pallas in 2017 exceeded all of
APB’s revenues from the sale of cannabis products.
28. On November 26, 2017, with just 36 days left in APB’s fiscal year, Rice emailed a
presentation to a representative of Investor 1.  The presentation projected that APB would achieve
“annualized revenue of over $16 million and positive cash flow of over $5 million for fiscal year
2017.”  To meet that projection, APB would have had to achieve revenues of $11.9 million in the
next  36  days,  almost  3  times  the  total  revenues  APB  had  achieved  from  January  to  November
2017.
29. In April 2018, Lee used a presentation dated April 13, 2018, and updated on April
18,  2018, to  promote  the  offering  to  prospective  investors  throughout  the  Caribbean.    The
presentation  falsely  claimed  that  APB’s  2017  revenues  were  $8.2  million, when  APB’s  2017
revenues  were  only  $4.2  million, and  falsely  claimed  that  APB  had  raised  $40  million  from
investors,  when APB had not even raised $17 million.  The presentation also claimed that a famous
retired  United  States  Army  General  was  APB’s  “Chief  Humanitarian  and  Global  Economic
Advisor,” when APB had previously claimed that the General resigned from the Company in 2016.
30. With Rice’s knowledge, on  April  20,  2018,  an  APB  employee  emailed the April
presentation  to  a  representative  of  Investor  1 and  to  prospective  Investor  2,  who  forwarded  the

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presentation to prospective Investor 3.  In addition, on July 2, 2018, with Rice’s knowledge, an
APB employee emailed the April presentation directly to prospective Investor 3.
31. On  January  9,  2019,  Lee  emailed  another  presentation  to  Investor  4.    The
presentation projected that, in 2019, APB would achieve $128.5 million (CAD) in revenue from
seven existing California cannabis businesses that APB did not then own.  On the date Lee sent
the  projection,  APB did  not  even  have  $1  million  CAD in  its  bank  accounts  and  no  means  of
acquiring businesses generating over a hundred million in yearly revenue.
32. To convince First Offering investors that their entire investment would be secured
by a lien on the Oregon Farm, APB repeatedly misrepresented the value of the Oregon Farm.
33. In the summer of 2017, Lee and Rice told prospective Investor 5 that the value of
the Oregon Farm exceeded $60 million.  By that time, Jackson County Oregon had sent DJ & S a
tax bill that assessed the “real market value” of the Oregon Farm at approximately $1.9 million.
Because APB had caused DJ & S to grant over $7 million in liens on the Oregon Farm –   including
liens in favor of some of APB’s suppliers and service providers – if the Oregon Farm was only
worth $1.9 million, there was no equity in the Oregon Farm to serve as security for any investment
Investor 5 might make.
34. Days after speaking with Lee and Rice, Investor 5 invested $1,000,000 in APB by
way of a convertible promissory note, secured by a lien on the Oregon Farm.  Lee and Rice failed
to tell Investor 5 about the existing liens on the Oregon Farm and the Jackson County valuation
before Investor 5 made his investment.
35. On  April  4,  2018,  APB received  an  appraisal  (the  “BVA  Appraisal”)  it  had
commissioned  in  an  effort  to  record  the  $8.7 million purchase  of  Urban  Pharms  pursuant  to
Generally Accepted Accounting Principles (“GAAP”).

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36. The  BVA  Appraisal,  performed  by  a  Chartered  Financial  Analyst,  identified
categories of assets required to be separately valued,  which included cash, inventory, real property,
equipment, customer contracts, and tradenames.  The BVA Appraisal made clear that any portion
of the purchase price that could not be supported by a valuation of an identifiable asset had to be
allocated to goodwill.
37. The  BVA  Appraisal  valued  the  Oregon  Farm  by  assessing  recent  sales  of
comparable real property and the nature, age, and condition of the improvements, concluding that,
as of 2016, the value of the improved real property was $3.5 million.  After conducting separate
valuations  of  Urban  Pharms’  remaining  identifiable  assets,  the  BVA  Appraisal  concluded  that
almost half of the $8.7 million APB had paid for Urban Pharms was not supported by the value of
any identifiable asset and had to be allocated to goodwill.
38. On  November  5,  2018,  just  months  after  receiving  the  BVA  Appraisal,  APB
purported to perform its own current valuation of the Oregon Farm (the “APB Valuation”).  Rather
than assessing recent comparable real property sales as the BVA Appraisal had done, APB looked
at the purchase price paid for six cannabis businesses as reported in news articles.
39. In  some  cases,  APB  assumed  that  the  entire  purchase  price  for  the  business  was
allocable  to  the  real  property  rather  than  any  of  the  other  types  of  assets  identified  in  the  BVA
Appraisal, such as cash, inventory, or customer contracts.  In other cases, APB allocated a portion
of the purchase price to non-real estate assets and then allocated all of the remaining purchase price
to  the  business’  real  estate,  although  GAAP  required  any  portion  of  the  purchase  price  not
supported by a valuation to be allocated to goodwill.
40. Using these false assumptions, the APB Valuation thus concluded that the Oregon
Farm,  professionally  appraised  at  $3.5  million  as  of  September  2016, was  worth  between  $190

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million to $272 million two years later.
41. On  November  5,  2018,  Rice  e-mailed  the  APB  Valuation  to  a  representative  of
Investor 1, Investor 2, and Investor 4.
42. In  December  2018,  Rice  falsely  told  representatives  of  Investor  1  and Investor  5
that APB was about to close on $30 million in financing, contingent on a first lien on the Oregon
Farm.  To allow the financing to close, Rice requested that Investors 1 and 5 agree to subordinate
their liens or convert their promissory notes to APB securities.  Based on the promise of imminent
financing, Investor 1 converted its promissory notes to APB securities, thus relinquishing its liens
on the Oregon Farm.
43. To convince First Offering investors that APB was a large cannabis company with
expanding operations, APB falsely told investors that it had dispensaries, farms, and customers in
other states and countries and would be operating a cannabis business in Puerto Rico through a
company called PR-One.
44. In the April 2018 presentation described above, APB claimed that PR-One would
be operating retail cannabis stores in Puerto Rico, had already completed four asset acquisitions,
and was projected to generate revenue in the third quarter (July – September) of 2018.  In fact, PR-
One  reported  to  the  Puerto  Rican  government  in  both  2018  and  2019  that  it  did  not  own  any
property.  In addition, more than a year after PR-One was supposed to be generating revenue from
cannabis sales, APB conceded that PR-One had not grown any cannabis or opened any cannabis
dispensaries.
45. On  October  31,  2018,  an  APB  employee  emailed  prospective  Investor  6  a  term
sheet,  subscription  documents,  and  other  promotional  materials.    The  presentation  claimed  that
APB had extensive revenue-generating operations in Colorado that included six dispensaries, one

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with $400,000 per month in gross revenues, an indoor cultivation facility with harvests five times
a year, and a manufacturing facility for cannabis lotions, candies, and the like.  APB did not have
business operations in Colorado.  Rice was copied on the email, but did not correct the inaccurate
statements made in the presentation.
46. On  January  12,  2019,  an  APB  employee  emailed Rice  a  draft  presentation  for
review.  The presentation falsely stated that APB owned a dispensary in Colorado.  Rice did not
correct the presentation and the employee subsequently emailed the presentation to Investor 4.
47. On March 9, 2019, Lee emailed Investor 5 claiming that, in Puerto Rico, APB had
2,700 acres of cannabis under “Cultivation and Export now” and that, in Curaçao, APB had “300
acre  Export  Cultivation  ready  to  go,  Aruba  right  behind.”    Lee  further  claimed  that  APB  had  a
million  pound  purchase  order  from  a  Canadian  buyer.    Because  the  United  States  classifies
cannabis  as  a  Schedule  I  controlled  substance,  it  would  have  been  illegal  for  APB  to  import  or
export  cannabis  to  or  from  Canada,  Curaçao,  or  Aruba.    Moreover, APB  had  not  directly,  or
through PR-One, grown cannabis in Puerto Rico.
48. APB stopped preparing audited financial statements in 2016, which had multiple
detrimental effects.  The lack of audited financial statements kept investors from discovering that
APB’s revenues and operations were not as APB had represented them; it jeopardized investors’
ability to trade APB securities via a trading platform called OTC Link; and it jeopardized APB’s
ability to apply for its securities to be traded on more widely-accessible trading platforms, such as
NASDAQ.
49. Although APB was not close to completing audited financial statements until the
fall  of  2019,  and  never  did  actually complete  them,  APB  falsely  assured  investors  that  the
completion  of  audited  financial  statements  was  imminent,  while  failing  to  disclose  that  the

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delinquent audited financial statements jeopardized investors’ access to trading platforms.
50. APB’s securities were registered with the Commission under Section 12(g) of the
Exchange Act, which required APB to file quarterly and annual reports with the SEC.  The annual
reports required audited financial statements.
51. APB’s securities were quoted on OTC Link, a trading platform that allows Broker-
Dealers  to  publish  prices  at  which  they  will  buy  and  sell  securities  not  listed  on  a  securities
exchange such as NASDAQ.
52. APB  stopped  making  the  filings  required  to  maintain  its  SEC  registration  as  of
2016.    Because  of  APB’s  delinquency,  there  was  a  risk  that  the  SEC  would  institute  a  trading
suspension prohibiting Broker-Dealers from publishing quotes for APB securities on OTC Link,
thus impairing the ability of APB investors to trade their APB securities.
53. The delinquency could also result in revocation of APB’s registration, which would
likely prevent the securities from qualifying for listing on an American exchange.
54. APB did not engage an accountant to prepare its delinquent 2016 statement until
November 2017 and the accountant (“Accountant 1”) did not begin working on the statement until
2018.  In the course of their work, Accountant 1 learned that APB was making payments to and
on behalf of PR-One under a contract granting APB the right to acquire 40% of PR-One’s securities
in exchange for $5 million in cash and $5 million in APB securities.
55. In the summer of 2018, Accountant 1 advised Pallas and Lee that they viewed PR-
One as a subsidiary of APB and that PR-One’s financial statements should be consolidated with
APB’s.    Lee and Pallas disagreed and the issue as to the true nature of APB’s relationship with
PR-One remained unresolved.
56. Almost  a  year  later,  in  September  2019,  APB  provided  Accountant  1  with  a

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statement from PR-One claiming that it was a debtor of APB, not a subsidiary.  Accountant 1 again
began  working  on  finalizing  the  financial  statements  then  outstanding  when an  APB  employee
informed Accountant 1 that Lee did not intend to allow APB to pay for the work.  In late 2019,
Accountant 1 informed APB that they would not finalize the financial statements without payment,
which was never forthcoming.
57. At  all  times,  Accountant  1  kept  Lee  and  Pallas  apprised  of  the  issues  preventing
Accountant  1  from  completing  APB’s  financial  statements.    Nevertheless, Lee  and  Rice
continually assured investors that the financial statements would soon be filed or had been filed:
(a) In  an  October  7,  2017  email  to  Investor  1,  an  APB  employee  stated  that  APB
“expect[ed] all of the 2016 [SEC] filings to be completed within 30 days and the
2017  10-Q’s  within  a  few  weeks  thereafter,”  although APB  had  not  yet  engaged
Accountant 1.  Neither Lee nor Rice, who were both copied on the email, corrected
the APB employee’s unfounded projection.

(b) In a November 2017 email to Investor 1, Rice claimed that APB had “cleaned up
the SEC IRS incompleteness reported earlier.”  This statement was false.  APB had
not cured any of the delinquent filings.

(c) In April and September 2018 emails to Investor 1 and Investor 3, an APB employee
stated that  APB’s  delinquent filings  would  be  complete  “within  the  next  few
weeks” and “are being completed now,” even though the PR-One accounting issue
was  unresolved.    Rice,  who  was  copied  on  the  email, did  not  correct  the  APB
employee’s unfounded projection.

(d) During a February 2019 investor meeting, Lee assured investors that audits of the
financial  statements  were  about  to  be  completed,  even  though  the  PR-One
accounting issue remained unresolved.

(e) In an August 2019 email to Investor 3, Lee claimed that APB’s “SEC filings [were]
scheduled for completion end of August” even though the PR-One accounting issue
remained unresolved.

58. By July 2019, the $20 million from the First Offering investors was largely spent,
with a significant amount going to Lee, Rice, Pallas, PR-One, and CBE.
59. APB had paid millions to or on behalf of PR-One.  Of that amount, Lee had taken

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over $1.1 million in petty cash.  APB had also paid CBE over $2 million for costs and expenses
associated with CBE’s purchase of real property in Puerto Rico, none of which was titled in the
name  of  APB  or  PR-One, the  entity  through  which  APB  was  purportedly  conducting  a  Puerto
Rican cannabis business.
60. None of the investor funds had resulted in a profitable business.
II. The Second Offering – July 2019 through March 2020
61. Starting in approximately July 2019 through March 2020, APB offered $30 million
worth of convertible promissory notes to investors located in Puerto Rico.  Ultimately, the offering
raised over $3.2 million from 47 individual investors.
62. The  offering  was  promoted  by  a  Broker-Dealer  through  a  “private  placement,” a
type  of  securities  offering  that  can  only  be  promoted  to  “accredited”  investors,  those  who  are
sophisticated and have a high net worth.
63. Lee and Pallas approved promotional materials for the Broker-Dealer for electronic
distribution  to  prospective  investors  and  Lee  personally  emailed some  of  them  to  the  Broker-
Dealer.  The promotional materials included a letter with a link to a video,  a Private Placement
Memorandum (“PPM”), and a presentation.
64. The letter imparted  a  sense  of  urgency  to  invest  before  APB  made  its  securities
available to the general public:
[W]e would like to introduce American Patriot Brands, Inc. (APB) - a compelling
investment  designed  for  accredited  investors  such  as  yourself.  .  .  .  .  The  greatest
investor returns have come from “late stage” pre-public investments in U.S. based,
vertically  integrated,  multi-state  operators  like  APB.  .  .  .  .  APB  is  planning  on
becoming a listed publicly traded company in less than six months.  This is APB’s
last “pre-public” financing offering before the company begins to trade their stock
as a public company. This late stage “pre-public” offering is unique for investors,
as this opportunity provides a high potential return on investment[.]

65. Following  up  on  that theme,  in  the  PPM,  APB  claimed  that  one  of  the  principal

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benefits of investing in the notes was the ability to convert them into shares of a publicly traded
company and that APB’s shares would continue to trade on OTC Markets until APB could cure
its  filing  delinquencies  and  apply  to  have  its  securities  listed  on  a  more  “reputable”  trading
platform, followed by a specific reference to NASDAQ.
66. Similarly, the presentation suggested that APB’s stock would soon be listed on an
exchange  where  the  price  of  APB  stock  would  skyrocket:    “APB Estimated  Stock  Market
Valuation Based on 3-Year Projected Revenue Year 1 $5.29, Year 2 $9.96, Year 3 $17.67.”  Based
on these projections, the offered convertible promissory notes, which had a $1 conversion price,
had an extremely high rate of return.
67. The materials failed to disclose that APB’s years-long failure to file required reports
with the SEC could terminate the trading of APB securities on OTC  Link  and could lead to the
revocation of its registration, likely preventing its securities from being listed on any  American
exchange, including NASDAQ, an exchange specifically referenced in the PPM.
68. The letter also described the investment offered as a “Senior Secured Debt Position,
secured with a 1st Trust Deed Security interest in the Company’s prized 275-acre Urban Pharms
property.”    The  letter  failed  to  tell  investors  that  the  Oregon  Farm  had  been  professionally
appraised  as  of  2016  at  $3.5  million,  had  received  a  “real  market  value”  appraisal  by  Jackson
County   Oregon   in   late   2018   of   $2.83   million,   and   was,   by   then,   encumbered   with   an
unsubordinated $3.5 million lien.  At the higher valuation, there would only be $35,000 in equity
to secure the Second Offering investors’ notes.
69. In the PPM, APB claimed that, through a joint venture with a third-party facilitator
(the “License Facilitator”), APB had obtained eight licenses to operate cannabis dispensaries in
California,  had  applied  for  49  additional  California  licenses, and  believed  it  would  receive  the

15

necessary licenses.  The promotional materials failed to tell investors that the License Facilitator
had  informed  APB  that  APB’s  limited  finances  would  adversely  impact  the  pending  license
applications and APB’s ability to make use of the granted applications.
70. The  presentation  continued  to  claim  that  a  famous  retired  United  States  Army
General  was  APB’s  “Chief  Humanitarian  and  Global  Economic  Advisor,”  when  APB  had
previously claimed that the General resigned from the Company in 2016.
71. Lee personally emailed the  Broker-Dealer  an  updated  version  of  the  APB
Valuation, which, based on the same faulty methodology, concluded that the Oregon Farm was
worth $216 million.
72. In the PPM, APB claimed it would use investor funds to purchase 40% of PR-One
and failed to disclose that it had already paid more than double the cash component of the purchase
price  for  a  40%  interest  in  PR-One.    APB  continued  to  claim  that  PR-One  owned  property  that
would be operated as cannabis dispensaries, but PR-One reported to the Puerto Rican government
in 2019 that it owned no property.
73. Because  of  APB’s  failure  to  file  periodic  reports,  in  September  2019,  the  SEC
suspended the trading of APB securities, effectively terminating the securities’ trading on the OTC
Link trading platform.  On October 2019, APB consented to the revocation of the SEC registration
of APB’s securities.  Without the registration, APB stock was likely ineligible for listing on any
American exchange, including NASDAQ.
III. The Third Offering – July 2021 through June 2022
74. By July 2021, APB was not timely paying its obligations as evidenced by the fact
that it was in default on all of the convertible promissory notes owed to investors in the Second
Offering, had  suffered  a  $679,810  judgment  by  one  creditor,  and  had  been  sued  by  at  least  one

16

investor for breach of the obligation to pay a $3.5 million convertible promissory note.  Moreover,
APB, Lee, Pallas, and Rice had been sued for fraud by many of the First Offering investors.
75. In defense of one of the lawsuits, Lee obtained an appraisal that valued the Oregon
Farm at $17 million.  This appraisal was performed by an individual who, months after completing
it, agreed to relinquish their California appraisal license because several of their appraisals did not
comply with professional appraisal standards.  The appraisal was many times higher than the most
recent “real market value” appraisal by Jackson County, Oregon, which was just over $2.4 million.
76. From July  2021  through  at  least  June  2022,  APB  conducted  a  third  offering  of
convertible promissory notes.  The offering was advertised via a publicly available website that
included a video featuring Lee.
77. In the video, Lee claimed that investors could have “absolute confidence and peace
of mind that [the notes] were a collateralized, protected investment” because they were secured by
the Oregon Farm.  Lee failed to tell prospective investors that the Oregon Farm had been appraised
as of January 2020 at $17 million, had received a much lower “real market value” appraisals from
Jackson County Oregon, and was encumbered with millions in liens, calling into question whether
there was sufficient equity to secure additional investment.  Lee also failed to disclose that APB
was not making note payments to other investors, who had sued for that reason.
78. In  the  video,  Lee  stated  that  Urban  Pharms  is  “a  275-acre  licensed  cannabis
production farm” but failed to also disclose that the license only allowed Urban Pharms to grow
40,000 square feet of cannabis canopy, an amount just less than one acre.
79. In the video, Lee stated that Urban Pharms is “one of the largest legal marijuana
farms  .  .  .  in  the  country.”    Lee  failed  to  also  tell  investors  that  the  statement  was  based  on  the
acreage  of  the  Oregon  Farm,  not  the  number  of  acres  licensed  for  production  or  the  amount  of

17

cannabis produced, both of which were far smaller than many other cannabis farms in the United
States.
IV. The Fourth Offering – 2022 through Present
80. From  at  least  2022 through  the  present,  DJ  &  S has  offered  the  Garden  Units
through at least two publicly available real estate brokerage websites.
81. Lee  and  Pallas  began  planning  the  sale  of  the  Garden  Units  in  approximately
December 2020 and, by January 2022, had developed a brochure to promote their sale.
82. Ultimately the brochure that was posted on the real estate broker websites included
multiple misrepresentations and omissions including:
(a) that  the  Oregon  Farm  is  “one  of  the  largest  legal  Cannabis  Farms  in  the  U.S.”
without disclosing that the statement is based on the acreage of the Oregon Farm,
not the number of acres in production or the amount of cannabis produced, which
is far smaller than many other cannabis farms in the United States;

(b) that  the  investors’  field,  known  as  Garden  #1,  had  a  “2021  harvest  of  more  than
24,000 pounds of sun grown flower,” when Urban Pharms’ entire gross harvest for
2021 was less than 19,000 pounds with only 5,000 pounds of sellable material; and

(c) that Urban Pharms had “produced nearly 100,000 lbs of flower since inception,”
when it has only produced 25,000 pounds since inception.

V. The  Misrepresentations  And  Omissions  Were  Material,  Made  With  Scienter,  And
Made Through The Instrumentalities Of Interstate Commerce

83. Lee and Rice made statements directly to investors that they knew, or were reckless
or  negligent  in  not  knowing,  were  false,  included  partial  information  that  was  misleading,  and
included projections based on inaccurate facts and unreasonable methodologies.
84. Lee,  Rice, and  Pallas  reviewed,  approved,  and  had  ultimate  authority  over
presentations, Oregon  Farm  valuations,  videos,  private  placement  memoranda,  website  listings,
and APB employee emails (the “Investor Materials”).  Lee, Rice, and Pallas knew, or were reckless
or negligent in not knowing, that the Investor Materials were false, included partial information

18

that  was  misleading,  and  included  projections  based  on  inaccurate  facts  and  unreasonable
methodologies.    Lee,  Rice,  and  Pallas,  directly  and  through  others,  disseminated  the  Investor
Materials to investors with the intent that investors would rely on them.
85. Lee and Rice obtained money through the statements they made to investors, and
Lee, Rice, and Pallas obtained money through the dissemination of Investor Materials.
86. All of the misrepresentations and omissions were material because they would have
been important to an investor in deciding whether to invest, to convert a promissory note to APB
stock, or to exercise an option to buy APB stock.
87. Accurate information about past and projected revenues was relevant to the risk of
the  investment  and  the  size  of  potential  returns,  as  was  information  about  the  scope  of  APB’s
operations, whether it owned other farms, historical harvests, and the amount of acres licensed for
cultivation.    Information  about  competing  valuations  of  the  Oregon  Farm  would  have  allowed
investors to  assess  whether  the  high  valuations  provided  by  APB  were  accurate.    Coupled  with
information about the liens on the Oregon Farm,  the competing valuations would also have allowed
investors to assess whether APB had sufficient revenues to pay its operating expenses and whether
a lien on the Oregon Farm would fully secure promissory note investments.  Accurate information
about the status  of  APB’s  efforts  to  become  compliant  with  SEC  reporting  requirements  would
have been relevant to the competency of APB’s management, the eligibility of APB securities to
continue trading on OTC Link, and the likelihood that APB securities would qualify for listing on
an American exchange.
88. The statements made to existing investors in the First Offering were also intended
to convince them that their funds had been put to their intended use and that APB management
was taking care of the SEC filing delinquencies.  These statements were intended to placate the

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First Offering investors so that they would not take action that could interfere with APB’s ability
to continue making fraudulent offerings to new investors.
89. The  misrepresentations  and  omissions  were  made  through  the  internet,  the
telephone, and the mails, which are means and instrumentalities of interstate commerce.
MISAPPROPRIATION OF INVESTOR FUNDS AND APB ASSETS
90. During the Relevant Period, Lee, Pallas, and Rice misappropriated investor funds
through payments to Relief Defendants PR-One and CBE, excessive payments to themselves, and
payment of personal expenses.
91. In 2017, Lee executed, on behalf of APB, an agreement with PR-One, a company
partly owned by Lee, who is also PR-One’s Chairman.  Under the agreement, APB agreed to pay
$5  million  in  cash  and  $5  million  in  APB  securities  to  PR-One,   which  did  not  then  have  any
business operations, in exchange for a right to acquire 40% of PR-One’s outstanding stock.
92. By September 2019, Lee and Pallas had paid from APB’s accounts over $9 million
to  or  on  behalf  of  PR-One.    To  avoid  showing  PR-One  as  an  APB  subsidiary  on  the financial
statements, Lee and Pallas provided Accountant 1 with a document in which PR-One claimed to
be APB’s debtor and an opinion letter from counsel opining that APB owned no interest in PR-
One.  A month later, however, APB was again claiming, by way of an updated PPM in the Second
Offering, that it had a right to acquire 40% of PR-One.
93. Of the millions that APB paid to PR-One or on its behalf, at least $1.1 million was
taken by Lee in petty cash, over $140,000 went for apartment rentals in Puerto Rico (at least one
of which was an apartment for Lee), and additional amounts went to pay Lee’s living expenses.
94. Despite the millions in payments to PR-One, as of late 2021, APB claimed that it
had   no ownership interest in PR-One and APB has received little to nothing in exchange for its
millions.

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95. In late 2017 and early 2018, Lee and Pallas caused APB to pay over $2 million to
CBE that CBE used to purchase real property in Puerto Rico.  The property CBE purchased was
not  titled  in  the  name  of  APB  or  PR-One,  the  entity  APB  claimed it  was  using  to  develop real
property in Puerto Rico into cannabis dispensaries.
96. Lee,  Pallas, and Rice paid themselves, collectively, a large share of investor funds.
In some years, the amounts the officers paid themselves were many times the revenues generated
from cannabis sales.
97. In 2018, Lee and Pallas caused APB to grant them liens on the Oregon Farm for
$750,000 and $323,478, respectively.
98. Lee and Pallas caused APB to pay over $160,000 in fees to a luxury beach resort
that Lee and his wife frequented in Newport Beach, California.
99. Lee  and  Pallas  also  caused  APB  to  pay  for personal  expenses  including  items  at
Bed, Bath & Beyond, Marshalls, a Chili’s restaurant, a Disney Store, Toys R Us, GameStop, and
Harley Davidson.
100. During  the  Relevant  Period,  Lee,  Pallas,  and  Rice  issued  themselves  millions  of
shares of APB stock for which they did not provide fair value including over 11 million shares
issued to Lee, over 4 million shares issued to Pallas, and 1.8 million shares issued to Rice.
101. The  payments  and  stock  transfers  were  made  through  the  internet  and  the  mails,
which are means and instrumentalities of interstate commerce.
ILL-GOTTEN GAINS WERE TRANSFERRED TO THE RELIEF DEFENDANTS, WHO
HAVE NO LEGITIMATE CLAIM TO THEM

102. During  the  Relevant  Period,  APB transferred  ill-gotten  gains  to  the  Relief
Defendants.
103. APB transferred millions in cash to PR-One and paid millions of expenses on its

21

behalf and has received little to nothing in return.
104. APB has transferred millions in cash to CBE for the purchase of properties that are
not titled  in  the  name  of  either  APB  or  PR-One,  the  entity  through  which  APB  claims  to  be
developing a Puerto Rican cannabis business.  APB also made additional payments and provided
other items of value to CBE for which APB received little or no consideration.
105. Legion, which is owned by APB’s controller Rosalie Frances D’Amico (formerly
known as Lee Patin),  received millions of dollars in funds raised from APB investors into its bank
accounts.  APB directed D’Amico to make specific payments to APB employees, investors, and
others,  and  D’Amico  used  the  remaining APB  funds  in  the  Legion  account  to  pay  personal
expenses and to make payments to herself and her relatives.
106. Because  the  Relief  Defendants  provided  nor  consideration,  or  less  than full
consideration, for these ill-gotten gains, they have no legitimate claim to them.
CLAIMS FOR RELIEF
COUNT I
Section 17(a) of the Securities Act
[15 U.S.C. § 77q(a)]
Defendants

107. The Commission realleges and incorporates by reference paragraphs 1   through 101.
108. By  engaging  in  the  acts  and  conduct  alleged  above,  Defendants  APB,  Urban
Pharms, DJ & S,  TSL, Lee, and Rice directly or indirectly, in the offer or sale of securities, by use
of the means or instruments of transportation or communication in interstate commerce or by use
of the mails, (1) knowingly or recklessly employed devices, schemes, or artifices to defraud; (2)
with knowingly,   recklessly,  or  negligently  obtained  money  or  property  by  means  of  untrue
statements  of  material  fact  or  by  omitting  to  state  material  facts  necessary  in  order  to  make
statements made, in the light of the circumstances under which they were made, not misleading;

22

and  (3)  knowingly,   recklessly,  or  negligently  engaged  in  transactions,  practices,  or  courses  of
business which operated or would operate as a fraud or deceit upon the purchasers, in violation of
Section 17(a)(1), (2), and (3) of the Securities Act [15 U.S.C. § 77q(a)(1), (2) and (3)].
109. By  engaging  in  the  acts  and  conduct  alleged  above,  Defendant  Pallas  directly  or
indirectly, in the offer or sale of securities, by use of the means or instruments of transportation or
communication  in  interstate  commerce  or  by  use  of  the  mails,  (1)  knowingly  or  recklessly
employed devices, schemes, or artifices to defraud and (2) knowingly,  recklessly, or negligently
engaged  in  transactions,  practices,  or  courses  of  business  which  operated  or  would  operate  as  a
fraud or deceit upon the purchasers, in violation of Section 17(a)(1) and (3) of the Securities Act
[15 U.S.C. § 77q(a)(1) and (3)].
110. Pallas  also  knowingly  or  recklessly  provided substantial  assistance  to  Lee,  Rice,
APB,  Urban  Pharms,  DJ&S  and  TSL  in defrauding  investors.    Pursuant  to  Section  15(b)  of  the
Securities Act [15 U.S.C. § 77o(b)], Pallas is liable for their violations of Section 17(a)(1), (2),
and (3) of the Securities Act [15 U.S.C. § 77q(a)(1), (2) and (3)] to the same extent as they are.
111. By  reason  of  the  foregoing,  Defendants  violated  and,  unless  restrained  and
enjoined, will continue to violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
COUNT II
Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder
[15 U.S.C. § 78q(b), 17 C.F.R. § 240.10b-5]
Defendants

112. The Commission realleges and incorporates by reference paragraphs 1 through 101.
113. By  engaging  in  the  acts  and  conduct  alleged  above,  Defendants APB,  Urban
Pharms, DJ & S,  TSL, Lee, and Rice directly or indirectly, in connection with the purchase or sale
of  securities,  by  the  use  of  means  or  instrumentalities  of  interstate  commerce,  or  of  the  mails
knowingly or recklessly, (a) employed devices, schemes, or artifices to defraud; (b) made untrue

23

statements  of  material  fact  or  omitted  to  state  material  facts  necessary  in  order  to  make  the
statements made, in light of the circumstances under which they were made, not misleading; and
(c) engaged in acts, practices, or courses of business which operated or would operate as a fraud
or deceit upon other persons, including purchasers and sellers of securities, in violation of Section
10(b)  of  the  Exchange  Act  [15  U.S.C.  §  78j(b)]  and  subsections  (a),  (b)  and  (c)  of  Rule  10b-5
thereunder [17 C.F.R. § 240.10b-5(a), (b) and (c)].
114. By  engaging  in  the  acts  and  conduct  alleged  above,  Defendant  Pallas  directly  or
indirectly,  in  connection  with  the  purchase  or  sale  of  securities,  by  the  use  of  means  or
instrumentalities  of  interstate  commerce,  or  of  the  mails  knowingly  or  recklessly,  (a)  employed
devices, schemes, or artifices to defraud; and (b) engaged in acts, practices, or courses of business
which operated or would operate as a fraud or deceit upon other persons, including purchasers and
sellers of securities, in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and
subsections (a) and (c) of Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5(a) and (c)].
115. Pallas  also  knowingly  or  recklessly  provided  substantial  assistance  to  Lee,  Rice,
APB,  Urban  Pharms,  DJ&S  and  TSL  in  defrauding  investors.    Pursuant  to  Section  20(e)  of  the
Exchange Act  [15  U.S.C.  §  78o(e)],  Pallas  is  liable  for  their  violations  of  Section  10(b)  of  the
Exchange Act [15 U.S.C. § 78j(b)] and subsections (a), (b) and (c) of Rule 10b-5 thereunder [17
C.F.R. § 240.10b-5(a), (b) and (c)] to the same extent as they are.
116. By  reason  of  the  foregoing,  all  Defendants  violated,  and  unless  restrained  and
enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule
10b-5 thereunder [17 C.F.R. § 240.10b-5].

24

COUNT III
Unjust Enrichment
Relief Defendants

117. The Commission realleges and incorporates by reference paragraphs1   through 106.
118. The Relief Defendants received, directly or indirectly, funds or other property from
APB, which are either the proceeds of, or are traceable to the proceeds of, the unlawful activities
alleged in this Complaint to which they have no legitimate claim.
119. It would be inequitable for the Relief Defendants to retain the proceeds of violations
of the federal securities laws and such proceeds should be disgorged.
PRAYER FOR RELIEF

 WHEREFORE, the Commission respectfully requests that this Court enter a judgment:
1. Permanently  restraining  and  enjoining  Defendants  from,  directly  or  indirectly,
violating Sections 17(a) of the Securities Act [15 U.S.C. §§ 77e, 77q(a)] and Section 10(b) of the
Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5];
2. Permanently  restraining  and  enjoining  Defendants  Lee,  Rice,  and  Pallas  from,
directly or indirectly, including but not limited to, through any entity owned or controlled by each
individual, participating in the issuance, purchase, offer, or sale of any security provided, however,
that such injunction shall not prevent each individual from purchasing or selling securities for his
own personal accounts;
3. Permanently  prohibiting  Defendants  Lee,  Rice,  and  Pallas,  pursuant  to  Section
20(e) of the Securities Act [15 U.S.C. § 77t(e) and Section 21(d)(2) of the Exchange Act [15 U.S.C.
§  78u(d)(2)],  from  acting  as  an  officer  or  director  of  any  issuer  that  has  a  class  of  securities
registered  pursuant  to  Section  12  of  the  Exchange  act  [15  U.S.C.  78l]  or  that  is  required  to  file
reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d);
4. Ordering  Defendants  to  pay  civil  penalties  pursuant  to  Section 20(d)  of  the

25

Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)];
5. Ordering Defendants and Relief Defendants to disgorge ill-gotten gains according
to proof, plus prejudgment interest thereon; and
6. Granting  such  other  and  further  relief  as  this  Court  may  deem  just,  equitable,  or
necessary.

JURY DEMAND
Plaintiff demands a trial by jury.

March 16, 2023 Respectfully submitted,

Samantha M. Williams
Special Temporary Permission for
Governmental Attorney No. G03809
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
202.551.4061
[email protected]

Attorney for the United States Securities and
Exchange Commission

UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF PUERTO RICO 

 
 

SECURITIES AND EXCHANGE COMMISSION, 
      

   PLAINTIFF,     

 

 V. 

 

AMERICAN PATRIOT BRANDS, INC., URBAN 
PHARMS, LLC, DJ & S PROPERTY #1, LLC, TSL 
DISTRIBUTION, LLC, ROBERT Y. LEE, BRIAN 
L. PALLAS, AND J. BERNARD RICE, 

        

 DEFENDANTS, AND 

 

PUERTO RICO ONE CORPORATION, CASTRO 
BUSINESS ENTERPRISES, LLC, AND LEGION 
ACCOUNTING SERVICES, INC. 
 

   RELIEF DEFENDANTS. 

 

  

 

 

 

 

 

 

 

CIVIL NO.  

 

 

 

 

 
COMPLAINT AND DEMAND FOR JURY TRIAL 

 
 Plaintiff, United States Securities and Exchange Commission (“Commission” or “SEC”), 

for its Complaint and Demand for Jury Trial against Defendants American Patriot Brands, Inc. 

(“APB”), Urban Pharms, LLC (“Urban Pharms”), DJ & S Property #1, LLC (“DJ & S”), TSL 

Distribution, LLC (“TSL”), Robert Y. Lee (“Lee”), Brian L. Pallas (“Pallas”), and J. Bernard Rice 

(“Rice”) (collectively, the “Defendants”), and Castro Business Enterprises, LLC (“CBE”), Puerto 

Rico One Corporation (“PR-One”), and Legion Accounting Services, Inc. (“Legion”) 

Case 3:23-cv-01124   Document 1   Filed 03/16/23   Page 1 of 25



2 
 

(collectively, the “Relief Defendants”), alleges as follows: 

SUMMARY OF ACTION 
 

1. This case involves a fraudulent securities offering in APB, a cannabis cultivation 

and distribution company.  From August 2016 through the present (the “Relevant Period”), APB’s 

Chief Executive Officer Lee, Chief Operating Officer Pallas, and Chief Financial Officer Rice 

have solicited investments and raised over $30 million from more than 100 investors in the United 

States, including in this District, through a variety of material misrepresentations and omissions.   

2. As part of its offerings, APB urged investors to act quickly to invest before APB 

made its securities more widely available, an event APB claimed was imminent.  In fact, the SEC 

registration APB needed for widespread public trading was in jeopardy and was revoked in the 

midst of an offering.  APB told investors that it had multistate and worldwide operations when it 

had no operations outside of Oregon.   

3. Although APB produced only a small amount of sellable cannabis a year, it 

promoted itself as one of the largest cannabis farms in the country and provided wildly inflated 

financial information to support extremely high revenue projections.  To make the investment 

appear even more attractive, APB promised that investments would be secured by a lien on APB’s 

cannabis farm, at times when the farm likely did not have enough equity to secure investments.   

4. APB’s officers have siphoned off millions in investor funds to Relief Defendant 

PR-One, a company partly owned by Lee, and Relief Defendant CBE, a company APB does not 

control.  They have also used investment proceeds to enrich themselves through payments that, in 

some years, vastly exceeded the revenues APB generated from the sale of cannabis products.   

5. Having left existing investors with essentially worthless securities, APB is still 

actively marketing securities to prospective investors with the same false and misleading claims. 

Case 3:23-cv-01124   Document 1   Filed 03/16/23   Page 2 of 25



3 
 

DEFENDANTS  
 

6. APB is a Nevada corporation, formed in 2009, with its corporate headquarters in 

Newport Beach, California.  APB owns and operates subsidiary companies that farm and sell 

cannabis.   

7. DJ & S is an Oregon limited liability company with its principal place of business 

in Medford, Oregon and the owner of the real property and improvements constituting a cannabis 

farm (the “Oregon Farm”).  APB owns and operates DJ & S. 

8. Urban Pharms is an Oregon limited liability company that operates the Oregon 

Farm.  APB owns and operates Urban Pharms.  

9. TSL is an Oregon limited liability company with its principal place of business in 

Portland, Oregon.  TSL sells cannabis from APB and other growers.  APB owns and operates TSL. 

10. Lee, 58, is a resident of Newport Beach, California.  He is the Chief Executive 

Officer of APB and Chairman of its Board of Directors. 

11. Pallas, 76, is a resident of Laguna Beach, California.  He is the Chief Operating 

Officer of APB, Urban Pharms, and TSL.  He is also a member of APB’s Board of Directors. 

12. Rice, 68, is a resident of Roswell, Georgia.  He was the Chief Financial Officer and 

Executive Vice President of Corporate Development for APB from at least February 2017 to 2019.   

RELIEF DEFENDANTS 

13. PR-One is a Puerto Rican corporation with a principal place of business in San 

Juan, Puerto Rico.  Lee is the Chairman of the Board of PR-One.   

14. CBE, formerly known as Castro Business Enterprises, Inc. and doing business as 

Castro Cash and Carry and NGX Military Store, is a Puerto Rican corporation with its principal 

place of business in San Juan, Puerto Rico.  Ricky Castro is CBE’s president. 

Case 3:23-cv-01124   Document 1   Filed 03/16/23   Page 3 of 25



4 
 

15. Legion is a California corporation with its principal place of business in Yorba 

Linda, California.  Legion is owned by Rosalie Frances D’Amico, formerly known as Lee Patin, 

who serves as APB’s controller.  APB uses a bank account in the name of Legion as an operating 

account.   

JURISDICTION AND VENUE 

16. This Court has subject matter jurisdiction over this action pursuant to Sections 

20(b), 20(d)(1), and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)], and 

Sections 21(d) and 27(a) of the Exchange Act [15 U.S.C. §§ 78u(d) and 78aa(a)]. 

17. Venue is proper in this district under Section 22(a) of the Securities Act [15 U.S.C. 

§ 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)] because at least one of the 

fraudulent offerings was made almost exclusively to Puerto Rican residents, at least 47 of whom 

purchased, collectively, over $3.2 million worth of APB securities.   

THE FRAUDULENT OFFERINGS 

18. From 2016 through the present, APB has offered its securities for sale and 

represented that the funds would be used to pay for, among other things, the operation or expansion 

of Urban Pharms, DJ & S, and TSL (the “Subsidiaries”).   

19. Some investors participated in the offerings by purchasing stock or options to buy 

stock in APB.  Other investors loaned APB funds pursuant to convertible promissory notes that 

granted investors the right to receive note payments in either APB stock or cash.  Other investors 

were offered the right to receive rent and a percentage of the sales from a field on the Oregon Farm 

called Garden #1 (the “Garden Units”).   

20. The convertible promissory notes are securities because, among other things, they 

were:  (1) promoted as a way to raise funds for the operation and expansion of APB’s business; 

Case 3:23-cv-01124   Document 1   Filed 03/16/23   Page 4 of 25



5 
 

(2) sold to nearly 50 investors and promoted to hundreds more; (3) promoted by APB as 

investments, titled as “securities;” and (4) were unsecured or under-secured.  They are not subject 

to regulation by another federal agency. 

21. The Garden Units are securities because, among other things:  (1) investors’ monies 

were pooled to acquire the ownership interest in Garden #1; (2) the investors share in the revenues 

of cannabis produced from Garden #1; and (3) the revenues and rent are derived from the efforts 

of APB and the Subsidiaries. 

22. To induce prospective investors to invest in APB, to induce existing investors to 

increase their investments, and to induce convertible promissory note holders to choose repayment 

in the form of APB stock, Lee, Rice, and Pallas, acting on behalf of APB and the Subsidiaries, 

made numerous misrepresentations and omissions.  

I. The First Offering - 2016 through 2019 

23. From 2016 through 2019, APB offered securities that generated approximately $20 

million in investment funds from approximately 50 investors.   

24. Lee and Rice made numerous misrepresentations and omissions to investors, 

including investors identified below as Investors 1 through 6.  At the time the misrepresentations 

and omissions were made, Investors 1 through 6 had either not yet invested, held unexercised 

rights to convert their promissory notes to APB stock, or held unexercised options to purchase 

APB stock.   

25. To convince the First Offering investors that APB’s securities were likely to 

produce significant returns, APB made multiple misrepresentations about APB’s past revenues 

and, based on that false information, made revenue projections that were wholly unfounded.    

26. In March 2017, Rice emailed a presentation to a representative of prospective 

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Investor 1.  The presentation falsely stated that in 2016 APB had “achieved [w]holesale cannabis 

revenues of over $3.3 million and EBITDA [earnings before interest, taxes, depreciation, and 

amortization] of over $1 million.”  In fact, APB had only achieved $330,905 of gross revenue and 

had a negative EBITDA of $9,606,543 for 2016.     

27. In the fall of 2017, Lee told prospective Investor 5 that APB executives had not 

taken salaries in the past and had agreed to be compensated exclusively in APB stock.  This 

statement was false.  The total monies APB paid to Lee, Rice, and Pallas in 2017 exceeded all of 

APB’s revenues from the sale of cannabis products.  

28. On November 26, 2017, with just 36 days left in APB’s fiscal year, Rice emailed a 

presentation to a representative of Investor 1.  The presentation projected that APB would achieve 

“annualized revenue of over $16 million and positive cash flow of over $5 million for fiscal year 

2017.”  To meet that projection, APB would have had to achieve revenues of $11.9 million in the 

next 36 days, almost 3 times the total revenues APB had achieved from January to November 

2017.   

29. In April 2018, Lee used a presentation dated April 13, 2018, and updated on April 

18, 2018, to promote the offering to prospective investors throughout the Caribbean.  The 

presentation falsely claimed that APB’s 2017 revenues were $8.2 million, when APB’s 2017 

revenues were only $4.2 million, and falsely claimed that APB had raised $40 million from 

investors, when APB had not even raised $17 million.  The presentation also claimed that a famous 

retired United States Army General was APB’s “Chief Humanitarian and Global Economic 

Advisor,” when APB had previously claimed that the General resigned from the Company in 2016. 

30. With Rice’s knowledge, on April 20, 2018, an APB employee emailed the April 

presentation to a representative of Investor 1 and to prospective Investor 2, who forwarded the 

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presentation to prospective Investor 3.  In addition, on July 2, 2018, with Rice’s knowledge, an 

APB employee emailed the April presentation directly to prospective Investor 3. 

31. On January 9, 2019, Lee emailed another presentation to Investor 4.  The 

presentation projected that, in 2019, APB would achieve $128.5 million (CAD) in revenue from 

seven existing California cannabis businesses that APB did not then own.  On the date Lee sent 

the projection, APB did not even have $1 million CAD in its bank accounts and no means of 

acquiring businesses generating over a hundred million in yearly revenue.  

32. To convince First Offering investors that their entire investment would be secured 

by a lien on the Oregon Farm, APB repeatedly misrepresented the value of the Oregon Farm.  

33. In the summer of 2017, Lee and Rice told prospective Investor 5 that the value of 

the Oregon Farm exceeded $60 million.  By that time, Jackson County Oregon had sent DJ & S a 

tax bill that assessed the “real market value” of the Oregon Farm at approximately $1.9 million.  

Because APB had caused DJ & S to grant over $7 million in liens on the Oregon Farm – including 

liens in favor of some of APB’s suppliers and service providers – if the Oregon Farm was only 

worth $1.9 million, there was no equity in the Oregon Farm to serve as security for any investment 

Investor 5 might make.   

34. Days after speaking with Lee and Rice, Investor 5 invested $1,000,000 in APB by 

way of a convertible promissory note, secured by a lien on the Oregon Farm.  Lee and Rice failed 

to tell Investor 5 about the existing liens on the Oregon Farm and the Jackson County valuation 

before Investor 5 made his investment.  

35. On April 4, 2018, APB received an appraisal (the “BVA Appraisal”) it had 

commissioned in an effort to record the $8.7 million purchase of Urban Pharms pursuant to 

Generally Accepted Accounting Principles (“GAAP”).  

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36. The BVA Appraisal, performed by a Chartered Financial Analyst, identified 

categories of assets required to be separately valued, which included cash, inventory, real property, 

equipment, customer contracts, and tradenames.  The BVA Appraisal made clear that any portion 

of the purchase price that could not be supported by a valuation of an identifiable asset had to be 

allocated to goodwill.   

37. The BVA Appraisal valued the Oregon Farm by assessing recent sales of 

comparable real property and the nature, age, and condition of the improvements, concluding that, 

as of 2016, the value of the improved real property was $3.5 million.  After conducting separate 

valuations of Urban Pharms’ remaining identifiable assets, the BVA Appraisal concluded that 

almost half of the $8.7 million APB had paid for Urban Pharms was not supported by the value of 

any identifiable asset and had to be allocated to goodwill.   

38. On November 5, 2018, just months after receiving the BVA Appraisal, APB 

purported to perform its own current valuation of the Oregon Farm (the “APB Valuation”).  Rather 

than assessing recent comparable real property sales as the BVA Appraisal had done, APB looked 

at the purchase price paid for six cannabis businesses as reported in news articles.   

39. In some cases, APB assumed that the entire purchase price for the business was 

allocable to the real property rather than any of the other types of assets identified in the BVA 

Appraisal, such as cash, inventory, or customer contracts.  In other cases, APB allocated a portion 

of the purchase price to non-real estate assets and then allocated all of the remaining purchase price 

to the business’ real estate, although GAAP required any portion of the purchase price not 

supported by a valuation to be allocated to goodwill.   

40. Using these false assumptions, the APB Valuation thus concluded that the Oregon 

Farm, professionally appraised at $3.5 million as of September 2016, was worth between $190 

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million to $272 million two years later.     

41. On November 5, 2018, Rice e-mailed the APB Valuation to a representative of 

Investor 1, Investor 2, and Investor 4.   

42. In December 2018, Rice falsely told representatives of Investor 1 and Investor 5 

that APB was about to close on $30 million in financing, contingent on a first lien on the Oregon 

Farm.  To allow the financing to close, Rice requested that Investors 1 and 5 agree to subordinate 

their liens or convert their promissory notes to APB securities.  Based on the promise of imminent 

financing, Investor 1 converted its promissory notes to APB securities, thus relinquishing its liens 

on the Oregon Farm. 

43. To convince First Offering investors that APB was a large cannabis company with 

expanding operations, APB falsely told investors that it had dispensaries, farms, and customers in 

other states and countries and would be operating a cannabis business in Puerto Rico through a 

company called PR-One.  

44. In the April 2018 presentation described above, APB claimed that PR-One would 

be operating retail cannabis stores in Puerto Rico, had already completed four asset acquisitions, 

and was projected to generate revenue in the third quarter (July – September) of 2018.  In fact, PR-

One reported to the Puerto Rican government in both 2018 and 2019 that it did not own any 

property.  In addition, more than a year after PR-One was supposed to be generating revenue from 

cannabis sales, APB conceded that PR-One had not grown any cannabis or opened any cannabis 

dispensaries.  

45. On October 31, 2018, an APB employee emailed prospective Investor 6 a term 

sheet, subscription documents, and other promotional materials.  The presentation claimed that 

APB had extensive revenue-generating operations in Colorado that included six dispensaries, one 

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with $400,000 per month in gross revenues, an indoor cultivation facility with harvests five times 

a year, and a manufacturing facility for cannabis lotions, candies, and the like.  APB did not have 

business operations in Colorado.  Rice was copied on the email, but did not correct the inaccurate 

statements made in the presentation.   

46. On January 12, 2019, an APB employee emailed Rice a draft presentation for 

review.  The presentation falsely stated that APB owned a dispensary in Colorado.  Rice did not 

correct the presentation and the employee subsequently emailed the presentation to Investor 4.  

47. On March 9, 2019, Lee emailed Investor 5 claiming that, in Puerto Rico, APB had 

2,700 acres of cannabis under “Cultivation and Export now” and that, in Curaçao, APB had “300 

acre Export Cultivation ready to go, Aruba right behind.”  Lee further claimed that APB had a 

million pound purchase order from a Canadian buyer.  Because the United States classifies 

cannabis as a Schedule I controlled substance, it would have been illegal for APB to import or 

export cannabis to or from Canada, Curaçao, or Aruba.  Moreover, APB had not directly, or 

through PR-One, grown cannabis in Puerto Rico.  

48. APB stopped preparing audited financial statements in 2016, which had multiple 

detrimental effects.  The lack of audited financial statements kept investors from discovering that 

APB’s revenues and operations were not as APB had represented them; it jeopardized investors’ 

ability to trade APB securities via a trading platform called OTC Link; and it jeopardized APB’s 

ability to apply for its securities to be traded on more widely-accessible trading platforms, such as 

NASDAQ.   

49. Although APB was not close to completing audited financial statements until the 

fall of 2019, and never did actually complete them, APB falsely assured investors that the 

completion of audited financial statements was imminent, while failing to disclose that the 

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delinquent audited financial statements jeopardized investors’ access to trading platforms.  

50. APB’s securities were registered with the Commission under Section 12(g) of the 

Exchange Act, which required APB to file quarterly and annual reports with the SEC.  The annual 

reports required audited financial statements.   

51. APB’s securities were quoted on OTC Link, a trading platform that allows Broker-

Dealers to publish prices at which they will buy and sell securities not listed on a securities 

exchange such as NASDAQ.   

52. APB stopped making the filings required to maintain its SEC registration as of 

2016.  Because of APB’s delinquency, there was a risk that the SEC would institute a trading 

suspension prohibiting Broker-Dealers from publishing quotes for APB securities on OTC Link, 

thus impairing the ability of APB investors to trade their APB securities.   

53. The delinquency could also result in revocation of APB’s registration, which would 

likely prevent the securities from qualifying for listing on an American exchange.  

54. APB did not engage an accountant to prepare its delinquent 2016 statement until 

November 2017 and the accountant (“Accountant 1”) did not begin working on the statement until 

2018.  In the course of their work, Accountant 1 learned that APB was making payments to and 

on behalf of PR-One under a contract granting APB the right to acquire 40% of PR-One’s securities 

in exchange for $5 million in cash and $5 million in APB securities.   

55. In the summer of 2018, Accountant 1 advised Pallas and Lee that they viewed PR-

One as a subsidiary of APB and that PR-One’s financial statements should be consolidated with 

APB’s.  Lee and Pallas disagreed and the issue as to the true nature of APB’s relationship with 

PR-One remained unresolved.   

56. Almost a year later, in September 2019, APB provided Accountant 1 with a 

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statement from PR-One claiming that it was a debtor of APB, not a subsidiary.  Accountant 1 again 

began working on finalizing the financial statements then outstanding when an APB employee 

informed Accountant 1 that Lee did not intend to allow APB to pay for the work.  In late 2019, 

Accountant 1 informed APB that they would not finalize the financial statements without payment, 

which was never forthcoming.   

57. At all times, Accountant 1 kept Lee and Pallas apprised of the issues preventing 

Accountant 1 from completing APB’s financial statements.  Nevertheless, Lee and Rice 

continually assured investors that the financial statements would soon be filed or had been filed:  

(a) In an October 7, 2017 email to Investor 1, an APB employee stated that APB 
“expect[ed] all of the 2016 [SEC] filings to be completed within 30 days and the 
2017 10-Q’s within a few weeks thereafter,” although APB had not yet engaged 
Accountant 1.  Neither Lee nor Rice, who were both copied on the email, corrected 
the APB employee’s unfounded projection.  
 

(b) In a November 2017 email to Investor 1, Rice claimed that APB had “cleaned up 
the SEC IRS incompleteness reported earlier.”  This statement was false.  APB had 
not cured any of the delinquent filings. 

 
(c) In April and September 2018 emails to Investor 1 and Investor 3, an APB employee 

stated that APB’s delinquent filings would be complete “within the next few 
weeks” and “are being completed now,” even though the PR-One accounting issue 
was unresolved.  Rice, who was copied on the email, did not correct the APB 
employee’s unfounded projection.  
 

(d) During a February 2019 investor meeting, Lee assured investors that audits of the 
financial statements were about to be completed, even though the PR-One 
accounting issue remained unresolved.  
 

(e) In an August 2019 email to Investor 3, Lee claimed that APB’s “SEC filings [were] 
scheduled for completion end of August” even though the PR-One accounting issue 
remained unresolved.   

 
58. By July 2019, the $20 million from the First Offering investors was largely spent, 

with a significant amount going to Lee, Rice, Pallas, PR-One, and CBE.   

59. APB had paid millions to or on behalf of PR-One.  Of that amount, Lee had taken 

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over $1.1 million in petty cash.  APB had also paid CBE over $2 million for costs and expenses 

associated with CBE’s purchase of real property in Puerto Rico, none of which was titled in the 

name of APB or PR-One, the entity through which APB was purportedly conducting a Puerto 

Rican cannabis business.  

60. None of the investor funds had resulted in a profitable business.  

II. The Second Offering – July 2019 through March 2020  

61. Starting in approximately July 2019 through March 2020, APB offered $30 million 

worth of convertible promissory notes to investors located in Puerto Rico.  Ultimately, the offering 

raised over $3.2 million from 47 individual investors.  

62. The offering was promoted by a Broker-Dealer through a “private placement,” a 

type of securities offering that can only be promoted to “accredited” investors, those who are 

sophisticated and have a high net worth.   

63. Lee and Pallas approved promotional materials for the Broker-Dealer for electronic 

distribution to prospective investors and Lee personally emailed some of them to the Broker-

Dealer.  The promotional materials included a letter with a link to a video, a Private Placement 

Memorandum (“PPM”), and a presentation.   

64. The letter imparted a sense of urgency to invest before APB made its securities 

available to the general public:  

[W]e would like to introduce American Patriot Brands, Inc. (APB) - a compelling 
investment designed for accredited investors such as yourself. . . . . The greatest 
investor returns have come from “late stage” pre-public investments in U.S. based, 
vertically integrated, multi-state operators like APB. . . . . APB is planning on 
becoming a listed publicly traded company in less than six months.  This is APB’s 
last “pre-public” financing offering before the company begins to trade their stock 
as a public company. This late stage “pre-public” offering is unique for investors, 
as this opportunity provides a high potential return on investment[.] 
 
65. Following up on that theme, in the PPM, APB claimed that one of the principal 

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benefits of investing in the notes was the ability to convert them into shares of a publicly traded 

company and that APB’s shares would continue to trade on OTC Markets until APB could cure 

its filing delinquencies and apply to have its securities listed on a more “reputable” trading 

platform, followed by a specific reference to NASDAQ.   

66. Similarly, the presentation suggested that APB’s stock would soon be listed on an 

exchange where the price of APB stock would skyrocket:  “APB Estimated Stock Market 

Valuation Based on 3-Year Projected Revenue Year 1 $5.29, Year 2 $9.96, Year 3 $17.67.”  Based 

on these projections, the offered convertible promissory notes, which had a $1 conversion price, 

had an extremely high rate of return.   

67. The materials failed to disclose that APB’s years-long failure to file required reports 

with the SEC could terminate the trading of APB securities on OTC Link and could lead to the 

revocation of its registration, likely preventing its securities from being listed on any American 

exchange, including NASDAQ, an exchange specifically referenced in the PPM.   

68. The letter also described the investment offered as a “Senior Secured Debt Position, 

secured with a 1st Trust Deed Security interest in the Company’s prized 275-acre Urban Pharms 

property.”  The letter failed to tell investors that the Oregon Farm had been professionally 

appraised as of 2016 at $3.5 million, had received a “real market value” appraisal by Jackson 

County Oregon in late 2018 of $2.83 million, and was, by then, encumbered with an 

unsubordinated $3.5 million lien.  At the higher valuation, there would only be $35,000 in equity 

to secure the Second Offering investors’ notes.     

69. In the PPM, APB claimed that, through a joint venture with a third-party facilitator 

(the “License Facilitator”), APB had obtained eight licenses to operate cannabis dispensaries in 

California, had applied for 49 additional California licenses, and believed it would receive the 

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necessary licenses.  The promotional materials failed to tell investors that the License Facilitator 

had informed APB that APB’s limited finances would adversely impact the pending license 

applications and APB’s ability to make use of the granted applications.   

70. The presentation continued to claim that a famous retired United States Army 

General was APB’s “Chief Humanitarian and Global Economic Advisor,” when APB had 

previously claimed that the General resigned from the Company in 2016.  

71. Lee personally emailed the Broker-Dealer an updated version of the APB 

Valuation, which, based on the same faulty methodology, concluded that the Oregon Farm was 

worth $216 million.   

72. In the PPM, APB claimed it would use investor funds to purchase 40% of PR-One 

and failed to disclose that it had already paid more than double the cash component of the purchase 

price for a 40% interest in PR-One.  APB continued to claim that PR-One owned property that 

would be operated as cannabis dispensaries, but PR-One reported to the Puerto Rican government 

in 2019 that it owned no property. 

73. Because of APB’s failure to file periodic reports, in September 2019, the SEC 

suspended the trading of APB securities, effectively terminating the securities’ trading on the OTC 

Link trading platform.  On October 2019, APB consented to the revocation of the SEC registration 

of APB’s securities.  Without the registration, APB stock was likely ineligible for listing on any 

American exchange, including NASDAQ.  

III. The Third Offering – July 2021 through June 2022  

74. By July 2021, APB was not timely paying its obligations as evidenced by the fact 

that it was in default on all of the convertible promissory notes owed to investors in the Second 

Offering, had suffered a $679,810 judgment by one creditor, and had been sued by at least one 

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investor for breach of the obligation to pay a $3.5 million convertible promissory note.  Moreover, 

APB, Lee, Pallas, and Rice had been sued for fraud by many of the First Offering investors. 

75. In defense of one of the lawsuits, Lee obtained an appraisal that valued the Oregon 

Farm at $17 million.  This appraisal was performed by an individual who, months after completing 

it, agreed to relinquish their California appraisal license because several of their appraisals did not 

comply with professional appraisal standards.  The appraisal was many times higher than the most 

recent “real market value” appraisal by Jackson County, Oregon, which was just over $2.4 million. 

76. From July 2021 through at least June 2022, APB conducted a third offering of 

convertible promissory notes.  The offering was advertised via a publicly available website that 

included a video featuring Lee.   

77. In the video, Lee claimed that investors could have “absolute confidence and peace 

of mind that [the notes] were a collateralized, protected investment” because they were secured by 

the Oregon Farm.  Lee failed to tell prospective investors that the Oregon Farm had been appraised 

as of January 2020 at $17 million, had received a much lower “real market value” appraisals from 

Jackson County Oregon, and was encumbered with millions in liens, calling into question whether 

there was sufficient equity to secure additional investment.  Lee also failed to disclose that APB 

was not making note payments to other investors, who had sued for that reason. 

78. In the video, Lee stated that Urban Pharms is “a 275-acre licensed cannabis 

production farm” but failed to also disclose that the license only allowed Urban Pharms to grow 

40,000 square feet of cannabis canopy, an amount just less than one acre.   

79. In the video, Lee stated that Urban Pharms is “one of the largest legal marijuana 

farms . . . in the country.”  Lee failed to also tell investors that the statement was based on the 

acreage of the Oregon Farm, not the number of acres licensed for production or the amount of 

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cannabis produced, both of which were far smaller than many other cannabis farms in the United 

States. 

IV. The Fourth Offering – 2022 through Present 

80. From at least 2022 through the present, DJ & S has offered the Garden Units 

through at least two publicly available real estate brokerage websites.   

81. Lee and Pallas began planning the sale of the Garden Units in approximately 

December 2020 and, by January 2022, had developed a brochure to promote their sale.   

82. Ultimately the brochure that was posted on the real estate broker websites included 

multiple misrepresentations and omissions including:   

(a) that the Oregon Farm is “one of the largest legal Cannabis Farms in the U.S.” 
without disclosing that the statement is based on the acreage of the Oregon Farm, 
not the number of acres in production or the amount of cannabis produced, which 
is far smaller than many other cannabis farms in the United States;  

 
(b) that the investors’ field, known as Garden #1, had a “2021 harvest of more than 

24,000 pounds of sun grown flower,” when Urban Pharms’ entire gross harvest for 
2021 was less than 19,000 pounds with only 5,000 pounds of sellable material; and  
 

(c) that Urban Pharms had “produced nearly 100,000 lbs of flower since inception,” 
when it has only produced 25,000 pounds since inception.  
 

V. The Misrepresentations And Omissions Were Material, Made With Scienter, And 
Made Through The Instrumentalities Of Interstate Commerce 
 
83. Lee and Rice made statements directly to investors that they knew, or were reckless 

or negligent in not knowing, were false, included partial information that was misleading, and 

included projections based on inaccurate facts and unreasonable methodologies. 

84. Lee, Rice, and Pallas reviewed, approved, and had ultimate authority over 

presentations, Oregon Farm valuations, videos, private placement memoranda, website listings, 

and APB employee emails (the “Investor Materials”).  Lee, Rice, and Pallas knew, or were reckless 

or negligent in not knowing, that the Investor Materials were false, included partial information 

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that was misleading, and included projections based on inaccurate facts and unreasonable 

methodologies.  Lee, Rice, and Pallas, directly and through others, disseminated the Investor 

Materials to investors with the intent that investors would rely on them. 

85. Lee and Rice obtained money through the statements they made to investors, and 

Lee, Rice, and Pallas obtained money through the dissemination of Investor Materials.  

86. All of the misrepresentations and omissions were material because they would have 

been important to an investor in deciding whether to invest, to convert a promissory note to APB 

stock, or to exercise an option to buy APB stock.   

87. Accurate information about past and projected revenues was relevant to the risk of 

the investment and the size of potential returns, as was information about the scope of APB’s 

operations, whether it owned other farms, historical harvests, and the amount of acres licensed for 

cultivation.  Information about competing valuations of the Oregon Farm would have allowed 

investors to assess whether the high valuations provided by APB were accurate.  Coupled with 

information about the liens on the Oregon Farm, the competing valuations would also have allowed 

investors to assess whether APB had sufficient revenues to pay its operating expenses and whether 

a lien on the Oregon Farm would fully secure promissory note investments.  Accurate information 

about the status of APB’s efforts to become compliant with SEC reporting requirements would 

have been relevant to the competency of APB’s management, the eligibility of APB securities to 

continue trading on OTC Link, and the likelihood that APB securities would qualify for listing on 

an American exchange.  

88. The statements made to existing investors in the First Offering were also intended 

to convince them that their funds had been put to their intended use and that APB management 

was taking care of the SEC filing delinquencies.  These statements were intended to placate the 

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First Offering investors so that they would not take action that could interfere with APB’s ability 

to continue making fraudulent offerings to new investors.   

89. The misrepresentations and omissions were made through the internet, the 

telephone, and the mails, which are means and instrumentalities of interstate commerce. 

MISAPPROPRIATION OF INVESTOR FUNDS AND APB ASSETS 

90. During the Relevant Period, Lee, Pallas, and Rice misappropriated investor funds 

through payments to Relief Defendants PR-One and CBE, excessive payments to themselves, and 

payment of personal expenses. 

91. In 2017, Lee executed, on behalf of APB, an agreement with PR-One, a company 

partly owned by Lee, who is also PR-One’s Chairman.  Under the agreement, APB agreed to pay 

$5 million in cash and $5 million in APB securities to PR-One, which did not then have any 

business operations, in exchange for a right to acquire 40% of PR-One’s outstanding stock.   

92. By September 2019, Lee and Pallas had paid from APB’s accounts over $9 million 

to or on behalf of PR-One.  To avoid showing PR-One as an APB subsidiary on the financial 

statements, Lee and Pallas provided Accountant 1 with a document in which PR-One claimed to 

be APB’s debtor and an opinion letter from counsel opining that APB owned no interest in PR-

One.  A month later, however, APB was again claiming, by way of an updated PPM in the Second 

Offering, that it had a right to acquire 40% of PR-One.  

93. Of the millions that APB paid to PR-One or on its behalf, at least $1.1 million was 

taken by Lee in petty cash, over $140,000 went for apartment rentals in Puerto Rico (at least one 

of which was an apartment for Lee), and additional amounts went to pay Lee’s living expenses.  

94. Despite the millions in payments to PR-One, as of late 2021, APB claimed that it 

had no ownership interest in PR-One and APB has received little to nothing in exchange for its 

millions.  

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95. In late 2017 and early 2018, Lee and Pallas caused APB to pay over $2 million to 

CBE that CBE used to purchase real property in Puerto Rico.  The property CBE purchased was 

not titled in the name of APB or PR-One, the entity APB claimed it was using to develop real 

property in Puerto Rico into cannabis dispensaries.   

96. Lee, Pallas, and Rice paid themselves, collectively, a large share of investor funds.  

In some years, the amounts the officers paid themselves were many times the revenues generated 

from cannabis sales.   

97. In 2018, Lee and Pallas caused APB to grant them liens on the Oregon Farm for 

$750,000 and $323,478, respectively.   

98. Lee and Pallas caused APB to pay over $160,000 in fees to a luxury beach resort 

that Lee and his wife frequented in Newport Beach, California.   

99. Lee and Pallas also caused APB to pay for personal expenses including items at 

Bed, Bath & Beyond, Marshalls, a Chili’s restaurant, a Disney Store, Toys R Us, GameStop, and 

Harley Davidson.  

100. During the Relevant Period, Lee, Pallas, and Rice issued themselves millions of 

shares of APB stock for which they did not provide fair value including over 11 million shares 

issued to Lee, over 4 million shares issued to Pallas, and 1.8 million shares issued to Rice.   

101. The payments and stock transfers were made through the internet and the mails, 

which are means and instrumentalities of interstate commerce. 

ILL-GOTTEN GAINS WERE TRANSFERRED TO THE RELIEF DEFENDANTS, WHO 
HAVE NO LEGITIMATE CLAIM TO THEM 

 
102. During the Relevant Period, APB transferred ill-gotten gains to the Relief 

Defendants.  

103. APB transferred millions in cash to PR-One and paid millions of expenses on its 

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behalf and has received little to nothing in return.  

104. APB has transferred millions in cash to CBE for the purchase of properties that are 

not titled in the name of either APB or PR-One, the entity through which APB claims to be 

developing a Puerto Rican cannabis business.  APB also made additional payments and provided 

other items of value to CBE for which APB received little or no consideration. 

105. Legion, which is owned by APB’s controller Rosalie Frances D’Amico (formerly 

known as Lee Patin), received millions of dollars in funds raised from APB investors into its bank 

accounts.  APB directed D’Amico to make specific payments to APB employees, investors, and 

others, and D’Amico used the remaining APB funds in the Legion account to pay personal 

expenses and to make payments to herself and her relatives.  

106. Because the Relief Defendants provided nor consideration, or less than full 

consideration, for these ill-gotten gains, they have no legitimate claim to them.  

CLAIMS FOR RELIEF 

COUNT I 
Section 17(a) of the Securities Act 

[15 U.S.C. § 77q(a)] 
Defendants 

 
107. The Commission realleges and incorporates by reference paragraphs 1 through 101. 

108. By engaging in the acts and conduct alleged above, Defendants APB, Urban 

Pharms, DJ & S, TSL, Lee, and Rice directly or indirectly, in the offer or sale of securities, by use 

of the means or instruments of transportation or communication in interstate commerce or by use 

of the mails, (1) knowingly or recklessly employed devices, schemes, or artifices to defraud; (2) 

with knowingly, recklessly, or negligently obtained money or property by means of untrue 

statements of material fact or by omitting to state material facts necessary in order to make 

statements made, in the light of the circumstances under which they were made, not misleading; 

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and (3) knowingly, recklessly, or negligently engaged in transactions, practices, or courses of 

business which operated or would operate as a fraud or deceit upon the purchasers, in violation of 

Section 17(a)(1), (2), and (3) of the Securities Act [15 U.S.C. § 77q(a)(1), (2) and (3)].  

109. By engaging in the acts and conduct alleged above, Defendant Pallas directly or 

indirectly, in the offer or sale of securities, by use of the means or instruments of transportation or 

communication in interstate commerce or by use of the mails, (1) knowingly or recklessly 

employed devices, schemes, or artifices to defraud and (2) knowingly, recklessly, or negligently 

engaged in transactions, practices, or courses of business which operated or would operate as a 

fraud or deceit upon the purchasers, in violation of Section 17(a)(1) and (3) of the Securities Act 

[15 U.S.C. § 77q(a)(1) and (3)].   

110. Pallas also knowingly or recklessly provided substantial assistance to Lee, Rice, 

APB, Urban Pharms, DJ&S and TSL in defrauding investors.  Pursuant to Section 15(b) of the 

Securities Act [15 U.S.C. § 77o(b)], Pallas is liable for their violations of Section 17(a)(1), (2), 

and (3) of the Securities Act [15 U.S.C. § 77q(a)(1), (2) and (3)] to the same extent as they are.  

111. By reason of the foregoing, Defendants violated and, unless restrained and 

enjoined, will continue to violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]. 

COUNT II 
Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder 

[15 U.S.C. § 78q(b), 17 C.F.R. § 240.10b-5] 
Defendants 

 
112. The Commission realleges and incorporates by reference paragraphs 1 through 101. 

113. By engaging in the acts and conduct alleged above, Defendants APB, Urban 

Pharms, DJ & S, TSL, Lee, and Rice directly or indirectly, in connection with the purchase or sale 

of securities, by the use of means or instrumentalities of interstate commerce, or of the mails 

knowingly or recklessly, (a) employed devices, schemes, or artifices to defraud; (b) made untrue 

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statements of material fact or omitted to state material facts necessary in order to make the 

statements made, in light of the circumstances under which they were made, not misleading; and 

(c) engaged in acts, practices, or courses of business which operated or would operate as a fraud 

or deceit upon other persons, including purchasers and sellers of securities, in violation of Section 

10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and subsections (a), (b) and (c) of Rule 10b-5 

thereunder [17 C.F.R. § 240.10b-5(a), (b) and (c)].   

114. By engaging in the acts and conduct alleged above, Defendant Pallas directly or 

indirectly, in connection with the purchase or sale of securities, by the use of means or 

instrumentalities of interstate commerce, or of the mails knowingly or recklessly, (a) employed 

devices, schemes, or artifices to defraud; and (b) engaged in acts, practices, or courses of business 

which operated or would operate as a fraud or deceit upon other persons, including purchasers and 

sellers of securities, in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and 

subsections (a) and (c) of Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5(a) and (c)]. 

115. Pallas also knowingly or recklessly provided substantial assistance to Lee, Rice, 

APB, Urban Pharms, DJ&S and TSL in defrauding investors.  Pursuant to Section 20(e) of the 

Exchange Act [15 U.S.C. § 78o(e)], Pallas is liable for their violations of Section 10(b) of the 

Exchange Act [15 U.S.C. § 78j(b)] and subsections (a), (b) and (c) of Rule 10b-5 thereunder [17 

C.F.R. § 240.10b-5(a), (b) and (c)] to the same extent as they are.  

116. By reason of the foregoing, all Defendants violated, and unless restrained and 

enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 

10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

  

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COUNT III 
Unjust Enrichment 
Relief Defendants 

 
117. The Commission realleges and incorporates by reference paragraphs1 through 106. 

118. The Relief Defendants received, directly or indirectly, funds or other property from 

APB, which are either the proceeds of, or are traceable to the proceeds of, the unlawful activities 

alleged in this Complaint to which they have no legitimate claim.  

119. It would be inequitable for the Relief Defendants to retain the proceeds of violations 

of the federal securities laws and such proceeds should be disgorged.  

PRAYER FOR RELIEF 
 
 WHEREFORE, the Commission respectfully requests that this Court enter a judgment:  

1. Permanently restraining and enjoining Defendants from, directly or indirectly, 

violating Sections 17(a) of the Securities Act [15 U.S.C. §§ 77e, 77q(a)] and Section 10(b) of the 

Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5];  

2. Permanently restraining and enjoining Defendants Lee, Rice, and Pallas from, 

directly or indirectly, including but not limited to, through any entity owned or controlled by each 

individual, participating in the issuance, purchase, offer, or sale of any security provided, however, 

that such injunction shall not prevent each individual from purchasing or selling securities for his 

own personal accounts; 

3. Permanently prohibiting Defendants Lee, Rice, and Pallas, pursuant to Section 

20(e) of the Securities Act [15 U.S.C. § 77t(e) and Section 21(d)(2) of the Exchange Act [15 U.S.C. 

§ 78u(d)(2)], from acting as an officer or director of any issuer that has a class of securities 

registered pursuant to Section 12 of the Exchange act [15 U.S.C. 78l] or that is required to file 

reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d);  

4. Ordering Defendants to pay civil penalties pursuant to Section 20(d) of the 

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Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]; 

5. Ordering Defendants and Relief Defendants to disgorge ill-gotten gains according 

to proof, plus prejudgment interest thereon; and  

6. Granting such other and further relief as this Court may deem just, equitable, or 

necessary. 

 

JURY DEMAND 

Plaintiff demands a trial by jury. 

 

March 16, 2023 Respectfully submitted, 

 Samantha M. Williams 
Special Temporary Permission for 
Governmental Attorney No. G03809 
U.S. Securities and Exchange Commission 
100 F Street, N.E.  
Washington, DC 20549 
202.551.4061  
[email protected] 
 
Attorney for the United States Securities and           
Exchange Commission 

 

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mailto:[email protected]