A Beverly-based investment adviser is facing charges after he allegedly solicited millions of dollars in investments for medical marijuana projects and dispensaries that never received licenses from the state.
Frederick V. McDonald Jr., the CEO of US Advisory Group Inc., allegedly funded multiple ventures with investments from more than 100 people, including “one high net-worth client, who has lost more than $3 million,” according to Secretary of State William F. Galvin, whose Securities Division charged McDonald on Wednesday.
Altogether, Galvin’s office said, investors have “lost control of more than $8 million in assets, while seeing no returns on their investments.”
According to the complaint, the unidentified high net-worth investor became one of McDonald’s clients in 2007. McDonald reportedly recommended the client invest in marijuana companies nationwide, giving “only the barest of information,” the complaint says.
He began discussing Massachusetts marijuana dispensaries with the client in December 2013. In early 2014, according to the complaint, McDonald and several other people began working together to get licenses to open three medical marijuana dispensaries in Massachusetts.
They reportedly wanted to open a dispensary in Revere at one point, but “a lack of transparency and communication led to funding issues,” according to Galvin’s office.
McDonald and his partners also allegedly purposely hid the identity of a fund-raiser for the project because of the person’s criminal record, which could have kept them from receiving a license.
Galvin’s office said that while investing his clients’ money into the ventures, McDonald did not reveal his conflict of interests in the projects or “disclose key risk factors in the cannabis industry.”
“McDonald failed to educate himself regarding the unique and complex licensing process in Massachusetts, which resulted in the distribution of offering documents that failed to adequately disclose to investors the risks or difficulties the investment could face,” the complaint says.
McDonald’s various companies — US Advisory Group, Commonwealth Pain Management Connections LLC, and Kettle Black of MA LLC — are named in the complaint.
Galvin’s office said it is seeking a variety of things, including a fine, an order that would permanently bar McDonald from registering in the state, and a “requirement that respondents make offers of rescission and provide restitution to compensate investors for the alleged wrongdoing.”
“McDonald’s free-wheeling practices included cutting corners at every opportunity and lying to his own business partners and investors to cover his own mistakes,” the complaint states.
In a statement Wednesday afternoon, a representative for US Advisory Group denied the allegations, writing that the complaint was filed “without any advance notice” and that the company looks “forward to putting this behind us.”
“We have always acted with the highest level of ethics and in the best interests of our clients,” the statement said. “News reports do not accurately reflect US Advisory Group’s core, history and legacy of providing exceptional financial planning and advice.”Felicia Gans can be reached at [email protected]. Follow her on Twitter @FeliciaGans.