Enforcement News: SEC Alleges Mississippi Cannabis Founder Misappropriated Nearly $2 Million of Investor Funds

By: Jeffrey M. Haber 

Material misrepresentations, omissions, and misuse of investor funds can give rise to securities fraud liability, regardless of the industry in which the offering occurs. In Securities and Exchange Commission v. Thomas J. Moore, III, the SEC alleged that the founder of a Mississippi medical cannabis company raised approximately $4.94 million from investors by representing that their capital would be used to develop cultivation and processing operations, while allegedly diverting nearly $2 million for personal expenses, making unsupported promises of investor distributions, and failing to disclose prior investor lawsuits when soliciting additional investments. As discussed below, the case highlights the importance of truthful disclosures, proper use of investor proceeds, and the disclosure of material adverse information during the fundraising process.

The Enforcement Action

On September 30, 2026, the Securities and Exchange Commission announced that it filed a civil enforcement action against a D’Iberville, Mississippi man, alleging that he defrauded investors through Mississippi Green Oil, LLC, a medical cannabis company he founded and controlled.[1] Securities and Exchange Commission v. Thomas J. Moore, III, No. 1:26-cv-00286-LG-BWR (S.D. Miss. filed Sept. 30, 2026). According to the SEC, defendant raised approximately $4.94 million from roughly 20 investors nationwide by offering equity interests in the company and promising that investor capital would be used to develop a medical marijuana cultivation and processing operation in Mississippi.

The action arose against the backdrop of Mississippi’s emerging medical cannabis industry. After voters approved a medical marijuana initiative in 2020 and the Mississippi Legislature later enacted the Mississippi Medical Cannabis Act in 2022, Mississippi Green positioned itself as a business poised to capitalize on the newly legalized market. Defendant allegedly promoted the company as a medical marijuana cultivator, processor, and business-to-business service provider, distributing materials that projected annual revenues ranging from approximately $40 million to as high as $64 million.

According to the SEC, investors were offered ownership interests in Mississippi Green in exchange for capital contributions, typically paying approximately $300,000 for a one-percent equity stake. Investors were told their funds would be used to build and improve cultivation facilities, purchase equipment, acquire cannabis plants, and otherwise expand company operations. The SEC alleged that defendant emphasized that investor money would serve as the “seed capital” needed to launch and grow the business.

At the center of the SEC’s complaint is the allegation that defendant diverted a substantial portion of investor funds for personal use. While the SEC acknowledged that some investor money was spent on legitimate business expenses, the SEC alleged that defendant misappropriated approximately $1.94 million, representing roughly 40 percent of the total funds raised, comprised of nearly $880,000 in cash withdrawals and transfers to family members, approximately $514,000 spent on travel, lodging, restaurants, groceries, and department store purchases, and more than $120,000 spent on clothing, jewelry, and private-school tuition. The SEC contended that defendant failed to disclose these personal expenditures to investors while continuing to solicit additional investment capital.

The complaint further alleged that defendant often withdrew or spent investor money shortly after receiving it. In one example cited by the SEC, defendant allegedly spent more than $21,000 on travel, lodging, restaurants, and entertainment within days of receiving a $100,000 investor contribution.

The SEC also alleged that defendant induced investors to participate by promising relatively quick returns in the form of quarterly profit distributions. According to the complaint, defendant represented to various investors that distributions would begin anywhere from 30 days to nine months after they invested.

The SEC claimed that these promises were particularly important to certain investors, some of whom allegedly borrowed against their homes in order to participate in the investment opportunity. Yet despite repeated assurances that payments were imminent, the SEC alleged that no investor ever received a distribution.

According to the SEC, defendant continued making promises regarding future distributions even as Mississippi Green experienced significant operational setbacks. The complaint pointed to licensing delays, cultivation problems, equipment issues, electrical challenges, and crop-quality concerns. Mississippi Green allegedly did not receive its cultivation license until June 2023 and did not plant its first crop until October 2023. The SEC further alleged that the initial harvest failed to meet quality standards and was ultimately sold at a substantial discount.

Despite those difficulties, the complaint alleged that defendant continued to reassure investors that payments were forthcoming. The SEC cited numerous examples of communications in which defendant allegedly promised that distributions would soon begin. Those payments allegedly never materialized.

Another significant component of the SEC’s case involved defendant’s alleged failure to disclose lawsuits filed by existing investors.

According to the complaint, investors began filing lawsuits as early as January 2023 after allegedly failing to receive promised distributions or repayment of principal. The SEC alleged that despite becoming aware of those claims, defendant continued to solicit new investments without informing prospective investors that prior investors had already sued him and Mississippi Green over similar allegations.

The complaint further alleged that defendant raised additional funds even after multiple lawsuits had been filed and that he affirmatively denied being served legal papers when questioned by at least one investor. The SEC contended that a reasonable investor would consider information about prior lawsuits alleging nonpayment of distributions and failure to return invested capital important when deciding whether to invest.

Based on these allegations, the SEC alleged that defendant violated the anti-fraud provisions of the federal securities laws. Specifically, the complaint charged defendant with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder.

The SEC is seeking a permanent injunction, a conduct-based injunction, disgorgement of allegedly ill-gotten gains together with prejudgment interest, and civil monetary penalties.

Takeaway

The key takeaway from the SEC’s enforcement action is that the same disclosure and anti-fraud obligations that govern established industries apply equally to emerging sectors like medical cannabis. According to the complaint, the case turns not on the viability of the cannabis industry, but on whether investors were provided accurate information, whether their funds were used as represented, and whether material facts were concealed during the fundraising process.

The SEC alleged that investors were told their capital would be used to develop Mississippi Green’s cultivation and processing operations, while a substantial portion of those funds was instead diverted to personal expenses. If proven, the case serves as a reminder that representations regarding the use of investor proceeds are often among the most important disclosures in a private offering and can form the basis of fraud claims when they are materially inaccurate or incomplete.

The action also highlights the risks associated with promising future returns. According to the SEC, investors were repeatedly assured that quarterly distributions would begin within relatively short timeframes, despite ongoing operational setbacks, licensing delays, and cultivation challenges. The allegations reflect the SEC’s continued focus on whether statements about future profitability and investor returns have a reasonable basis when made.

In addition, the SEC alleged that prospective investors were not informed about prior lawsuits filed by existing investors seeking the return of principal or promised distributions. The case therefore illustrates the significance of disclosing adverse information that a reasonable investor might consider important when deciding whether to invest. Pending litigation, prior litigation, settlements, judgments, and allegations that an issuer or its principals failed to repay investors, honor distribution commitments, or comply with investment terms may bear directly on the risks of an investment and, depending on the circumstances, can be material to a reasonable investor’s decision to make, maintain, or increase an investment. Consistent with that principle, the SEC alleged that investors who invested after earlier lawsuits were filed were not informed that existing investors had already asserted claims based on the alleged failure to repay principal or make promised distributions. Knowledge that prior investors were already alleging nonpayment of principal or promised returns could materially affect a reasonable investor’s assessment of management credibility, the likelihood of receiving future distributions, the company’s financial condition, and the overall risk of the investment.

Finally, the action serves as a reminder that private offerings, even those made to friends, family members, and personal acquaintances, remain subject to the federal securities laws. According to the SEC, raising capital through informal conversations, text messages, and personal relationships does not diminish an issuer’s obligation to provide accurate information and refrain from misleading investors.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm.

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[1] As with all SEC enforcement actions, the allegations in the complaint are unproven unless and until established in court. Defendant will have the opportunity to contest the SEC’s allegations during the litigation.