SEC sues former NewAge CEO Brent Willis for fraud
The SEC has sued former NewAge CEO Brent Willis for fraud.
According to the regulator, Willis told porky pies which contributed to NewAge’s “growth and success”.
As alleged by the SEC, Willis lied about “product distribution deals” in “investors conferences, earnings calls, media interviews, and in at least 12 press releases.”
In reality, these distribution deals either did not exist or were significantly smaller than claimed in the public statements.
One lie cited is Willis, in early 2018, claiming NewAge had a distribution agreement with the US military.
In reality, NewAge never entered into a distribution agreement with the military; never had plans to sell its products at all commissaries and exchanges worldwide; and did not even have the inventory to do so.
Willis also cashed in on the CBD trend in MLM back in late 2018, claiming the NewAge was developing “a portfolio of CBD-infused beverages”.
Willis falsely stated that NewAge had secured substantial retail and distribution orders and commitments to sell its CBD products, and that
NewAge’s CBD products were being sold in retail stores.
In fact, NewAge never completed the development of a CBD beverage product and never received orders or commitments from any retailer for CBD beverage products.
Despite not actually even having CBD products in development, let alone available for distribution;
At an off-site meeting organized by Defendant and attended by retailers, distributors, and investors during the October 2018 NACS trade show in Las Vegas, NewAge distributed sell sheets … that included the false and misleading statements that
(i) NewAge’s “full spectrum” CBD products were manufactured via a “proprietary production process”;
(ii) that the purported products were a “proprietary in-house formula developed by New Age Health Sciences”;
(iii) that “every batch” of the purported products “is third-party tested”; and
(iv) that the purported products benefited from a “full spectrum nano technology-amplified entourage effect.”
Other NewAge distribution lies Willis told include:
- XingTea being distributed by 7-Eleven in ~1500 across the US, when in fact the distribution agreement pertained only to ~250 stores in Colorado (2017);
- Aspen Pure Probiotic water being distributed through 2000+ Ahold Delhaize stores, when NewAge didn’t have the inventory to do so and Ahold Delhaize only committed to 74 stores (2017);
- Unified Strategies Group would distribute NewAge beverages through “more than 1 million vending machines, 5,000 micro markets, and over 1,800 client dining facilities throughout the United States”, when the agreement didn’t specify at distribution commitments (2017);
- Coco-Libre and Bucha Live Kombucha was being distributed throughout Loblaws and Sobeys in Canada, when no such distribution agreement existed (2018;
- Bucha Live Kombucha would be distributed by “the largest food and beverage distributor in South Korea to expand to all major retail outlets throughout the country effective immediately”, when all that was sold was licensing with no distribution agreement (2018); and
- Marley beverages was being distributed through Walmart “across the United States … in all Walmart stores”, when the agreement pertained to “less than 7% of Walmart stores” (2019)
The SEC alleges Willis’ lied to
artificially inflate NewAge’s stock price, improve its financial position, and financially benefit himself, despite knowing, or recklessly failing to know, that the statements were false and misleading.
The SEC claims Willis was “fixated” on NewAge’s declining share price, which reflected the financial state of the company.
Throughout 2017 and 2018, NewAge was in dire financial straits.
In 2017, NewAge incurred losses and struggled to pay for inventory and its operating expenses.
For the year ended December 31, 2017, NewAge reported a net loss of approximately $3.5 million and had only approximately $285,000 in cash.
For the first six months of 2018 (ending on June 30, 2018), New Age reported a net loss of approximately $3.4 million and had only approximately $213,000 in cash.
NewAge’s share price also declined substantially in late 2017 amid the Company’s inability to secure national accounts for its existing brands or develop promising new products.
Things got worse in 2018, eventually leading to NewAge taking out a “high-interest loan in order to meet basic financial obligations.”
Willis repeatedly expressed frustration with the Company’s inability to secure distribution with major retailers and imposed substantial pressure on his employees, particularly his sales personnel, to generate positive news for the company.
And while this was going on, “this” being NewAge tanking, Willis was begging the Board of Directors for a pay rise.
Willis was also frustrated with his compensation at NewAge and repeatedly urged the Company’s Board of Directors to increase it, in part to pay personal tax liabilities.
In or around 2017 and early 2018, the Board told Defendant that once the Company was on better financial footing, it would revisit his compensation package.
Note the years 2017 and 2018, which coincides with Willis’ porky pies – which eventually led to him delivering on NewAge’s share price.
Willis also personally benefited from the false and misleading statements described above.
For example, while NewAge’s share price and liquidity were still artificially inflated as a result of the misstatements described above, between April and October 2019, Defendant obtained money or property by selling 425,000 NewAge shares for net proceeds of over $2 million.
In addition, the Board awarded Defendant a significant compensation increase starting in 2019 due to the Company’s improved financial position, successful stock offerings, and the completion of the Morinda acquisition, all of which resulted from the above misstatements.
Willis eventually bailed as CEO on January 10th, 2022.
NewAge would go on to file for Chapter 11 bankruptcy in September 2022. In addition to Willis’ lies, the lead up to NewAge’s bankruptcy was mired with sabotage and extortion.
As a result of his conduct, the SEC has accused Willis of multiple violations of the Securities and Exchange act.
The regulator is seeking an injunction, as well as disgorgement of ill-gotten gains and a civil monetary penalty.
Leave a Reply...