The U.S. Securities and Exchange Commission (SEC) last week filed fraud and securities violations charges in federal court against Brent Willis, the former CEO of NewAge Inc.
According to a complaint filed Oct. 18 in the U.S. District Court, Federal District of Colorado, Willis lied about NewAge’s sales and distribution agreements “during investors conferences, earnings calls, media interviews, and in at least 12 press releases” related to the company in an attempt to raise its share price.
The filing notes that the false filings and announcements — some made during quarterly earnings calls — were able to cause a “significant spike” in NewAge’s shares following false and misleading announcements of sales agreements with clients like the U.S. military, Walmart, Loblaw’s, Safeway, and others.
On Oct. 19, the SEC also sent a cease-and-desist order to Colorado-based NewAge Inc. Both actions describe the company and Willis “knowingly and/or recklessly” making multiple false and misleading public statements regarding the company’s CBD beverage business.
The letter claims that between September 2018 and January 2019, during which he was New Age CEO and a member of the Board of Directors, Willis, 62, had been “orchestrating (a) multiyear fraud” to create the “illusion” that NewAge was rapidly scaling its CBD beverage portfolio with significant traction with major distributors and retailers.
“These false and misleading public statements were made knowingly and/or recklessly over a two-year period to artificially inflate NewAge’s stock price, improve its financial position, and financially benefit Willis,” the documents stated.
The SEC is seeking permanent injunctions, financial penalties, and officer-and-director penny stock bars against Willis.
Formerly known as New Age Beverages Corp., NewAge is a publicly traded company which previously held the rights to brands like Coco Libre, Xing Tea and Bucha Live Kombucha. The company filed for Chapter 11 bankruptcy protection in August and its DSD business were sold to Legacy Distribution Group for $4.5 million in September, pending bankruptcy proceedings.
The claims center around New Age’s purported interest in developing CBD-infused beverages. The company announced its intention to enter the emerging CBD category in October 2018 at the National Association of Convenience Stores (NACS) trade show, during which the company shared several new CBD-based product lines, including CBD Tea, CBD WTR, and CBD Shot by New Age. It doubled-down on the plan that December by merging with Utah-based Morinda, Inc., makers of Tahitian Noni Juice, in a deal valued at $85 million. Speaking to BevNET at the time, Willis said the company had already received pre-order commitments from major retailers and distributors throughout the U.S., and that New Age CBD-infused beverages could eventually be sold in as many as 125,000 accounts.
The following year, NewAge announced the launch of Mellow Mood +CBD under the Marley brand, with 25 mg of full spectrum hemp-derived CBD in each 15.5 oz. can.
The SEC letter cites multiple allegedly false public statements, either attributed to Willis directly or to the company via press releases, related to NewAge’s CBD beverages, including claims around its “proprietary in-house formula” which produced a “full spectrum nano technology-amplified entourage effect” and a quote attributed to its Chief Medical Officer attesting to NewAge’s “scientifically and medically grounded” approach. At various points, the company claimed its CBD beverages had earned commitments across 110,000 points of distribution and that it had landed a distribution deal with Japanese retailer FamilyMart.
But according to the SEC, NewAge has to date failed to complete the development of a CBD beverage product and has never received purchase orders or commitments from retailers for any such items. The agency alleges that development of the CBD range started “just days” before its announcement and that NewAge’s Health Sciences division, which was purportedly created to oversee the development of the CBD portfolio, “participated minimally, if at all, in the process.”
Willis and NewAge also allegedly lied about a distribution agreement with the U.S. military in 2018, claiming that 21 of the company’s SKUs across its five product lines were shipping to 240 commissaries and 3,100 exchanges worldwide across more than 30 countries. The deal was expected to “have a material impact on the financial results of New Age,” the company stated in a press release at the time.
The documents cited multiple instances in which NewAge allegedly presented a deceptive picture of how widely its brands were available. The SEC cites an April 2019 press release announcing NewAge’s purported expansion of the Marley beverage line with Walmart, including statements that NewAge had “begun shipments to Walmart distribution centers across the U.S.,” and that each of its three Marley Mate flavors would be available at all Walmart stores that month. The company also claimed that Marley would be supported by significant marketing efforts “across Walmart stores.”
According to the SEC, that was false and at its peak, Walmart sold Marley brand products in fewer than 10% of its stores.
NewAge, Inc. has consented to the cease-and-desist order, Pursuant to Section 8A of the Securities Act of 1933, without admitting or denying the findings in the letter.
Willis left NewAge earlier this year, resigning as both CEO and a member of the board in January. According to LinkedIn, he joined Florida-based aerospace company Vaya Space as CEO in April. NewAge operated without a chief executive until March when chairman Ed Brennan was named interim CEO. The company filed for bankruptcy protection in August, citing total debt of $149.4 million.