Controversial Canadian dealmaker Andy DeFrancesco is in the midst of a heated legal battle with Toronto-based hedge fund MMCap Asset Management over shares of U.S. cannabis company Verano Holdings, that are now worth almost $700-million.

The tug of war involves SOL Global Investments Corp. – the cannabis company founded and led by Mr. DeFrancesco – and 1235 Fund LP, an affiliate of MMCap. It has culminated in both entities hurling lawsuits at each other in courts in New York and Ontario.

1235 Fund is seeking hundreds of millions of dollars from SOL, Mr. DeFrancesco, his wife, Catherine DeFrancesco, as well as his private equity company Delavaco Holdings.

The dispute is unfolding at a time of renewed investor interest in the cannabis sector that has sent pot stocks soaring, increasing the stakes for both parties involved in the litigation centred around millions of shares of the newly listed Verano.

SOL has a 20-per-cent all-stock stake in Verano, which went public on the Canadian Securities Exchange in mid-February and is one of SOL’s most valuable assets. In the summer of 2019, SOL borrowed US$50-million from 1235 Fund, which is now seeking repayment in the form of SOL’s Verano shares.

A lawsuit filed by SOL on Feb. 7 in New York alleges that 1235 Fund is attempting to “extort a usurious windfall” in relation to a US$50-million convertible debenture that was issued to SOL in July, 2019. The cannabis company insists that according to the repayment terms of the loan, it is only obligated to pay back the US$50-million principal plus 6 per cent in interest.

But a separate lawsuit, filed by 1235 Fund on Feb. 24, accuses SOL and the guarantors of the loan – Mr. DeFrancesco, Ms. DeFrancesco and Delavaco Holdings – of deliberately misinterpreting the terms. The suit argues that SOL is obligated to hand over millions of Verano shares worth US$550-million as repayment for the convertible debenture.

“This action concerns the unlawful conduct of rogue participants in the Canadian capital markets … the Defendants [SOL] now regret their bargain and seek to resile from it instead of honouring their contractual and legal obligations,” states the 1235 Fund lawsuit, filed in an Ontario court.

The latter half of 2019 was a particularly bad time for cannabis companies, both in the U.S. and Canada. The euphoria of legalization the previous fall had waned, and signs of oversupply and low demand had started to permeate the industry. Between October, 2018, and July, 2019, shares of SOL plummeted 60 per cent, and the company was facing significant financial difficulty, public filings show.

It was under these circumstances that SOL and 1235 Fund entered into the convertible-debenture agreement. “SOL was in critical need of cash to continue as a going concern. 1235 had what SOL needed, namely available funds to invest,” the Ontario suit against SOL states.

1235 Fund, for its part, was particularly interested in the large equity stake that SOL had in Verano at the time, which was one of the cannabis company’s most valuable assets. Verano was set to merge with another large U.S. cannabis company, Harvest Health & Recreation, and the fund saw a huge monetary upside in the deal if it went through.

The debenture agreement, according to the lawsuit, stated that if the Harvest-Verano deal was successful, 1235 Fund would receive 8.2 million shares of the resulting company as repayment for the US$50-million loan.

More critically, if the deal did not go through, 1235 Fund claims that the agreement between both parties stated that the fund had the option of receiving 1.7 million in Verano shares as repayment for the loan. The fund alleges that it was also “given the option” of receiving repayment of the loan purely in cash.

Hedge funds have long played the role of providing much-needed cash to companies with little revenue. MMCap and its affiliates frequently entered into these types of share-lending agreements, which also gave them the chance to sell their borrowed shares at opportune moments.

“Although structured using a debenture … whenever 1235 purchases debt securities, those securities always carry an equity upside,” the Ontario lawsuit said.

In March, 2020, the Harvest-Verano deal fell apart because of a combination of regulatory and financing issues. The fund could have technically exercised its equity option in Verano shares at the time or received repayment of the loan in cash, but it chose not to, according to the lawsuit filed by 1235 Fund against SOL, because Verano shares “appeared to be worth considerably less than US$50-million.”

But then in late 2020, a new deal was on the table. Taking advantage of the renewed investor interest in cannabis, Verano was planning to go public on the Canadian Securities Exchange.

SOL still had millions in Verano stock and issued multiple news releases reminding shareholders of how Verano’s public debut would significantly boost its own value. According to SOL, it was in early 2021 that 1235 Fund decided to ask for Verano’s shares, threatening to invoke an “event of default” under the debenture agreement that would force SOL to repay the fund in Verano shares. That was effectively what prompted SOL to file a lawsuit against the fund, according to a Feb. 16 news release from SOL.

“Defendants saw in Verano’s going-public transaction an opportunity to extort an advantage for themselves at Plaintiffs’ expense,” SOL’s New York lawsuit stated.

Mr. DeFrancesco played a central, and often controversial role in many deals in the early days of the cannabis boom. He was most famously in the spotlight in late December, 2018, when a short-seller report accused him of orchestrating the sale of SOL-owned Latin American cannabis assets to Aphria Inc. at an inflated price.

Mr. DeFrancesco declined a request for comment.

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All amounts in US Dollars unless otherwise stated.

TORONTO, March 03, 2021 (GLOBE NEWSWIRE) — Firm Capital Apartment Real Estate Investment Trust (the “Trust”), (TSXV: FCA.U), (TSXV: FCA.UN) is pleased to announce that its distributions for 2020 were tax efficient to unitholders as it delivered a 100% return of capital. The 100% return of capital is in excess of the 85% projected when the Trust converted from a Corporation at the beginning of 2020.

In addition, senior management and the board of trustees of the Trust have purchased 105,865 Trust Units of the Trust in the market at a weighted average price of US$5.90 per Trust Unit over the past month. As a result, senior management and the board of trustees now control approximately 27% of the Trust.

Based on the current trading price of US$6.35 per Trust Unit, the current distribution yield is approximately 3.7%, which is the highest distribution yield amongst its multi-residential REIT peers.

Further information about the Trust can be found by selecting the Firm Capital Apartment Real Estate Investment Trust link at www.firmcapital.com.

ABOUT FIRM CAPITAL AMERICAN REALTY PARTNERS TRUST

Firm Capital Apartment Real Estate Investment Trust is a U.S. focused real estate investment trust that pursues multi-residential income producing real estate and related debt investments on both a wholly owned and joint venture basis. The Trust has ownership interests in a total of 2,308 apartment units diversely located in Florida, Connecticut, Texas, New York, New Jersey, Georgia and Maryland.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information in this news release constitutes forward-looking statements under applicable securities law. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as “may”, “should”, “anticipate”, “expect”, “intend” and similar expressions.

Forward-looking statements necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse factors affecting the U.S. real estate market generally or those specific markets in which the Trust holds properties; volatility of real estate prices; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; industry and government regulation; changes in legislation, income tax and regulatory matters; the ability of the Trust to implement its business strategies; competition; currency and interest rate fluctuations and other risks. Additional risk factors that may impact the Trust or cause actual results and performance to differ from the forward looking statements contained herein are set forth in the Trust’s Annual Information Form under the heading Risk Factors (a copy of which can be obtained under the Trust’s profile on www.sedar.com).

Readers are cautioned that the foregoing list is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Except as required by applicable law, the Trust undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Neither the Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

For further information, please contact:

For Investor Relations information, please contact:

Victoria Moayedi
Director, Investor Relations
(416) 635-0221

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Blockchain or Cryptocurrency Fraud – Cryptocurrency Fraudulent
Investment Schemes

The advent of blockchain technology and cryptocurrencies has
resulted in sudden fortunes for more than a few individuals. At the
same time, the technology and economics of the cryptocurrency space
are confusing and not well understood by the general public. This
creates an opportunity for scammers to exploit the public with a
path to riches whose credibility is difficult to evaluate.

Apart from outright scams, our clients have also informed us of
companies operating in the cryptocurrency space which have
incorrectly requested funds on the basis of Canadian income tax or
anti-money laundering compliance requirements. In addition to
scams, investors in cryptocurrency need to be aware that the
companies that they deal with may not understand Canadian tax or
anti-money laundering compliance requirements.

Clients of our firm have received a request of this nature from
Continental Marketing Czech Republic s.r.o., a company holding
itself out as offering cryptocurrency investment services and
operating under the name Nittrex. The clients had an account with
Nittrex which was used for an investment strategy which involved
buying and selling cryptocurrency based on Nittrex’s advice.
The investment strategy was explained as being cryptocurrency
arbitrage transactions. According to the client’s statements
from Nittrex, this investment strategy was extremely profitable.
When the clients attempted to make their first significant
withdrawal of funds from the account, Nittrex informed them that
they needed to make a substantial payment into an escrow wallet set
up by Nittrex on account of the taxes that would be owing to the
Canada Revenue Agency for Canadian income tax. Nittrex stated that
this was required by anti-money laundering regulations and Canadian
tax law. Our clients were also told that paying CRA themselves was
not an option.

The claims made by Nittrex are false. As described below, this
is not how Canadian tax or anti-money laundering law operates.
There is almost never a requirement to make a payment on account of
Canadian income tax to a private company or individual. Demands of
this nature are a sign of fraud and you should exercise extreme
caution in dealing with the company or person making this type of
demand. We do not know whether in particular Nittrex merely does
not understand Canadian tax and anti-money laundering compliance
but information given to our clients was wrong.

Fraud in the Cryptocurrency Context – Cryptocurrency Fraudulent
Investment Schemes

One classic scam, called a Ponzi scheme, is to solicit funds
from investors, send regular false reports of outsized profits to
solicit additional funds, and then disappear with the funds
received before too many investors try to withdraw their money. In
the blockchain or cryptocurrency context, scammers can ask you to
transfer Bitcoin to you so they can use your capital for a highly
profitable cryptocurrency trading strategy. This type of approach
has many advantages for scammers.

One problem is that in most cases transfers of Bitcoin or other
cryptocurrencies are effectively irreversible. Once you have
transferred Bitcoin to scammers, there is no mechanism available to
reverse the transaction. In the ordinary financial system it is
sometimes possible to reverse fraudulent or unintended transactions
after the fact (e.g. credit card charge backs). Similarly,
Governments are not able to intervene directly to reverse
transactions on blockchain ledgers.

Another advantage is that since the general public knows that
some individuals have genuinely become wealthy almost overnight
with cryptocurrency investments. This makes it easier for a member
of the public to believe the reports of outsized profits sent to
them by the scammers are correct. Once you have provided funds to a
scammer purporting to be running a cryptocurrency investment
strategy, you will likely have no way to directly verify the
performance of the alleged investments.

Canadian Tax Payment & Withholding – Cryptocurrency
Fraudulent Investment Schemes

Our firm has been retained by clients who as investors are being
told that they need to pay Canadian income tax to their purported
cryptocurrency investment managers in order to withdraw
cryptocurrency from their accounts. This is a red flag because it
involves neither paying taxes to CRA directly nor witholding by the
investment manager. If you pay a private entity on account of your
Canadian income taxes you will not get credit for that amount from
the Canada Revenue Agency and you may not be able to retrieve the
amount from the private entity. On reciept of such a request you
should consult with an expert Canadian tax lawyer before sending any
funds.

Canadians normally pay income tax through one of two different
methods. First is by paying CRA directly. The second is through
witholding by the entity paying out the income (e.g. an employer
witholding income tax from an employee’s salary). The first
method is the default and used in essentially all cases except when
the second method applies.

The witholding method is used only in a relatively small number
of types of situations. When the witholding method applies, the
withholder will provide a statement of some kind to the recipient
of the income showing the amount withheld. The withholder will then
remit the amount withheld to the CRA. The taxpayer who had the
amount withheld will be credited with having paid a corresponding
amount. In the event that the total amount withheld from a taxpayer
exceeds the taxpayer’s amount owing, the CRA will send the
taxpayer a refund. This witholding only applies to a relatively
small number types of situations in the Canadian tax system, most
prominently:

• Employers witholding from payment of salary, wages or
  employment benefits to their employees;
• Financial institutions witholding from RRSPs withdrawals;
• Payors witholding from payments of rent, interest, dividends or
  certain other types of passive income to non-residents;
• Witholding from fees or commissions charged by a non-resident
  rendering services in Canada; and
• Witholding from proceeds of sale paid to a non-resident selling
  Canadian real estate, Canadian resource properties, or timber
  resource properties.

In most legitimate cryptocurrency investment scenarios, none of
the above witholding mechanisms will be involved. There are some
exceptions however, such as investing in securities designed to
give investors cryptocurrency exposure through an RRSP. If you are
in doubt regarding your situation, consult an expert Toronto tax
lawyer.

Canadian Anti-Money Laundering Law – Cryptocurrency Fraudulent
Investment Schemes

Our firm has been retained by clients who have received requests
for funds incorrectly justified on the basis of anti-money
laundering law and regulations. Demands for additional money on the
grounds of Canadian anti-money laundering law are a fraud red flag
as these demands are not contrary to how Canadian anti-money
laundering law operates. If you have received such a demand, you
should seek out legal advice from an experienced Canadian tax
lawyer. You may not be able to recover funds transferred in
response to such a demand.

The primary statute implementing Canadian anti-money laundering
law is the Proceeds of Crime (Money Laundering) and Terrorist
Financing Act (PCMLTFA). This statute is administered by the
Financial Transactions and Reports Analysis Centre of Canada
(FINTRAC).

The primary approach taken by Proceeds of Crime (Money
Laundering) and Terrorist Financing Act to combat money
laundering is to impose record keeping and reporting requirements
on financial service providers and other persons or entities that
engage in businesses, professions or activities that are
susceptible to being used for money laundering. Regulated entities
are required to run a compliance program, implement “know your
client” protocols, keep records, and report certain types of
transactions.

FINTRAC monitors entities regulated by the Proceeds of Crime
(Money Laundering) and Terrorist Financing Act to ensure
compliance. It also receives and analyses the reports sent by those
entities. When appropriate the Financial Transactions and Reports
Analysis Centre of Canada interfaces with law enforcement and other
government agencies which may then take further action in
suspicious circumstances.

None of these activities would require additional payment on
behalf of a cryptocurrency investor to someone purportedly running
a cryptocurrency investment service.

Entities which operate money services businesses are also
required to register with FINTRAC, and this registry is searchable
by the public on the Financial Transactions and Reports Analysis
Centre of Canada’s website. A money services business is a
business that offers at least one of the following services to the
Canadian public:

• foreign exchange dealing,
• remitting or transferring funds,
• issuing or redeeming money order or similar negotiable
  instruments, or
• dealing in virtual currency.

This means if you are a Canadian using some form of intermediary
to purchase cryptocurrency, that intermediary should be registered.
If that intermediary is not registered, it is cause for extreme
caution. Nittrex is not registered with FINTRAC as of the
publication of this article despite allegedly operating a platform
which allows for Canadians to buy and sell virtual currencies.

Pro Tax Tips – Cryptocurrency Fraudulent Investment
Schemes

Beware of investment opportunities with the following red flags
of fraud:

• promises of high returns with low risk,
• the investment is only available for purchase for a short
  period of time,
• the investment promoter uses high pressure sales tactics,
• the investment is described as normally only being offered to
  an exclusive group (e.g. normally only to the very wealthy),
• the investment promoter is not registered to sell
  investments.

The website of the Canadian Securities Administrators offers a
national registration search that is helpful for verifying whether
a promoter is registered.

If you are ever requested to make a payment to someone other
than the Canada Revenue Agency on account of Canadian income taxes,
you should consult an experienced Canadian tax lawyer to verify
that the request is genuine. It is almost certainly not a valid
request.

If you suffer losses due to a cryptocurrency related fraudulent
investment scheme, you may be able to claim a loss for Canadian
income tax purposes that will help offset your other Canadian
income tax liability. Canadians who have been defrauded should also
report the fraud to the government through the Canadian Anti-Fraud
Centre and through the RCMP.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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