Investment and Securities Litigation – Handshake Deals Are Not. Your. Friend.

We’ve been monitoring and reporting on the growing trend of investment and securities fraud litigation in the cannabis industry, and this week brings yet another case.

In Murray v. Camp, et al., Murray is suing three Washington entities and their principals for breach of contract, unjust enrichment, fraud, and violation of the Securities Act of Washington. Murray alleges that in 2016, he traveled from his home state of Texas to Washington to meet with the defendants about investing in their marijuana businesses. At that meeting, the parties orally agreed Murray would provide a $50,000 loan to facilitate development of the defendants’ operations, and in return, Murray would be paid “above and beyond” that amount. The parties then executed two operating agreements – with one company assigning a 25% interest to Murray, and another company assigning a 6% interest. Based on those agreements, Murray provided the $50,000.

Of course, Murray claims everything then went sideways for him. In addition to the typically alleged facts that he was never actually added as a member of either company or given distributions at any time, he discovered two other key facts of fraud that most of our readership probably already recognized when I mentioned he was a resident of Texas above. First, Washington does not permit non-residents to own any percentage of its licensed marijuana businesses. Second, and relatedly, Washington does not permit non-residents to obtain any percentage of a licensed marijuana business’ profits. The entire agreement, Murray claims, was a fraud and scam because the defendants knew all this, misrepresented or withheld these facts, and took his money anyway.

This case is a bit different from other cases we’ve reported on because obviously, Murray theoretically could have known he wasn’t legally able to obtain those interests or profits. He alleges he was justified in representing on the defendants’ “specialized knowledge and experience in the Washington cannabis industry,” but we’ll see what Judge Theiler thinks. This case was recently removed from King County Superior Court to the Western District of Washington, so it’s just getting started. We’ll continue to monitor developments and report on any significant arguments made by the parties or rulings made by the federal court.

For other case summaries in this space, see:

And please, consider this case a cautionary tale and always make sure to consult experienced and knowledgeable attorneys in any transaction – big or small, with friends or strangers. Putting in that time and expense up front will likely save you from a lot more down the road.