A former cannabis cultivator from Richmond is alleging a B.C. investment firm founded by his cousin was a “sham” to serve as a “conduit for undisclosed payments” for chosen shareholders — some of whom are implicated in an alleged US$1-billion stock fraud scheme.
In a notice of civil claim filed in B.C. Supreme Court on Oct. 31, Kris Kallu is suing his cousin Avtar Dhillon and Dhillon’s former company Emerald Health Sciences (Emerald or EHS) for unspecified investment losses.
Emerald was incorporated (as Medna Biosciences) in B.C. in 2013. It is a private parent investment firm used to hold shares of various subsidiaries, chief among them Emerald Health Therapeutics, a now-defunct Vancouver and Richmond-based medical marijuana public company.
Kallu’s claim centres around allegations he and other Emerald shareholders were misled by EHS directors, such as Dhillon, about the 2022 merger between Therapeutics and California-based Skye Biosciences, which is directed by Kallu’s nephew Punit Dhillon.
Kallu says a special meeting for Emerald shareholders in 2022 was thought to be an opportunity for them to consider and vote on the wind-up of Therapeutics, which was controlled by Emerald. Instead, he alleges it was a “promotional showcase” for Skye and the decision had already been made by a majority.
Ultimately, Kallu claims he was misled about: the true owners and controllers of Emerald; the value of the two companies; and about "his ability to liquidate his holdings in light of actual and threatened litigation against Skye and as a result of market manipulation” (referencing several ongoing investigations by California law firms).
And so, according to Kallu's claim, “EHS was either from inception or became over time a sham company” that “in reality served the defendants as a conduit for payments, some being liquidity from its publicly traded subsidiaries, some being undisclosed payments.”
Kallu’s claim, via lawyer Helena Plecko of Finestra Law, suggests Emerald “acted as an illegal investment fund, with no regulatory or other oversight.”
Nephew cites cousin's involvement in massive U.S. stock fraud case
The lawsuit also names Fred Sharp, a West Vancouver resident and former lawyer turned offshore shell facilitator, as a co-defendant.
Dhillon and Sharp “are the true, direct or indirect, controllers of EHS and [Dhillon] and [Punit Dhillon], directly or indirectly, control Skye,” Kallu alleges, adding “Sharp and [Avtar Dhillon] have been close business associates for many years.”
The lawsuit notes both Sharp and Dhillon have been found liable for committing stock fraud in civil claims brought against them by the U.S. Securities and Exchange Commission (SEC) in 2021; Sharp, who now owes the SEC US$52.9 million for his “mastermind” role also faces criminal charges from the U.S. Attorney's Office that have not been proven in a U.S. court.
But Dhillon, a resident of Long Beach, Calif., has pleaded guilty to three felony securities offences and faces sentencing on Dec. 4 at a federal court in Boston.
Dhillon agreed to plead guilty to one count of wilful failure to disclose stock sales, one count of aiding and abetting the sale of unregistered securities and one count of conspiracy to not disclose touting compensation.
Dhillon was ordered to pay the SEC US$10.4 million for repayment of ill-gotten gains and received a penny stock ban. He also owes about US$1.4 million to the U.S. Attorney’s Office as a penalty for the criminal acts.
The SEC determined Dhillon worked in concert with Sharp and the “Sharp Group” which was accused of hiding beneficial ownership of millions of insider shares through a web of local and offshore shell companies and brokerage accounts controlled by Sharp — whose other alleged associate, among several B.C. residents, is a member of the Hells Angels outlaw motorcycle group.
It was the September 2021 indictments against Dhillon and Sharp that had led Kallu to use a 2019 Emerald securities registry to email shareholders about the proceedings. As a result, Emerald filed for an injunction against Kallu, claiming he violated privacy provisions, but was unsuccessful.
The defendants in the claim — Emerald, Skye, Avtar Dhillon, Punit Dhillon and Fred Sharp — have yet to respond. Kallu’s allegations against them have not been proven in court.
Emerald responds to first Kallu lawsuit
Emerald — and several directors, including Avtar Dhillon — have recently, however, responded to another notice of civil claim from Oct. 3, 2022, that stems from a 2020 court petition from Kallu alleging oppression against him on the part of Emerald.
The claim stems from the origins of Emerald in 2013.
Kallu claims Emerald, among others, intended to use Dhillon's business acumen as a prominent stock promoter and Kallu's horticulture experience as a blueberry farmer to produce and sell medical marijuana via a reverse takeover of Venturi Ventures, a public shell company directed by Vancouver lawyer and Dhillon's long-time business associate Jim Heppell. (Last April, Heppell authorized a settlement for another Emerald subsidiary, U.S.-based Emerald Health Pharmaceuticals with the SEC, as its director, agreeing to pay the agency a US$517,955 civil monetary penalty without admitting or denying allegations Pharmaceuticals was involved in market manipulation.)
In addition to Emerald, Avtar Dhillon and Heppell, the claim also names Emerald director Stephen Hall, shareholder Baldev Munger and his company MFDI Corp. and other co-founders Maheep Dhillon, Punit Dhillon and Kallu's brother Yadvinder Singh Kallu, a U.S.-convicted heroin trafficker who was sentenced to nine years in jail in 1998.
"Despite Yad’s official involvement in EHS and his criminal record, EHS was issued a cannabis licence," notes Kallu's claim.
And so, both Kallu brothers — despite otherwise being estranged, according to Kris Kallu — started the Therapeutics venture with Dhillon and the other founders around 2014 with research and development taking place at Kallu's parents' farm property at 7480 Sidaway Rd. in Richmond.
But Kallu claims he resigned from Emerald in 2018, citing a lack of remuneration.
Kallu subsequently alleged Dhillon, among others at the company, blocked him from proper share compensation. Kallu contests he was a founder of Emerald and is entitled to 1.4 million founder shares (four per cent); Kallu also contests the company failed to issue a share certificate for 100,000 shares, preventing him from selling them before the price of Therapeutics plummeted in 2019.
In its response, filed Nov. 12, the company and all other named defendants except Yadvinder Kallu denies Kallu was ever involved in strategic discussions regarding the direction, financing or incorporation of Emerald and as such says he is not entitled to founder shares.
"Kris was not a Founder and did not provide work or services toward the establishment or incorporation of EHS, he was not and is not entitled to an allocation of Founders Shares. ...Any delay complained of by Kris was the result of his dispute with Yad and/or other members of his family over the transfer of the share certificate," the response states.
Emerald, via Poulus Ensom Smith LLP, also denies it prevented Kallu from obtaining any information to which he is entitled as a shareholder of the company.
On Oct. 29, 2020, shortly after Kallu filed his oppression petition against Emerald, Delta police raided the Sidaway property finding 11,152 cannabis plants, plus illicit equipment, surveillance cameras, workers and a currency counting machine. But only four personal medical marijuana growing licences — for a total of 3,071 plants — were associated with the property, including for Yadvinder Kallu, Kris Kallu and his mother Mohinder Kallu, according to an ongoing civil forfeiture claim against the property.
Delta police claim the investigation, which it believes is tied to organized crime, including the Hells Angels, is ongoing.
Delta police say some individuals associated with the investigation have been charged but a publication ban is in place.
