An earlier version of this article incorrectly said the NYSE had issued nine late-filing notices to IGC in the past three years. The company itself told the SEC nine times since 2015 that it could not file its quarterly report on time. The article has been corrected.

Investors who purchased shares of cannabis play India Globalization Capital Inc., or IGC, in the past month are likely pleased with the stock’s more than 500% surge, but can it hold those gains?

A review of the company’s IGC, -3.65% history and regulatory filings has uncovered an alarming number of red flags that undermine some of the claims made by the company and demonstrate the importance of due diligence when investing.

The stock’s move came after the company announced its plan for a line of CBD-infused drinks, or those containing cannabinoids, ingredients in cannabis that are said to have health benefits. With Canada gearing up for full legalization of cannabis for adult recreational use on Oct. 17, the sector has become a hot market for speculators, with investors jumping on every announcement of a planned product, alliance, distribution agreement or deal.

IGC has benefited — its market capitalization has ballooned to $295 million on Thursday from just $78 million on Sept. 25, the day before the drinks announcement.

In its most recent quarterly earnings report, IGC posted a loss of $512,296 on revenue of $1.5 million for the three months to end June. Cost of revenue came to $1.4 million, while SG&A costs came to $553,645, which exceed its revenue.

“ “Marijuana or any form of products including CBD oil is illegal in Malaysia.” ” — Erny Sabrina Mohd Noor, counselor for agriculture, Malaysian Embassy, Washington, D.C.,

MarketWatch has spent several days calling and emailing IGC, its executives and the scientists whom it names as advisers on its website. Founder and Chief Executive Ram Mukunda returned a call on Wednesday, before asking for time to read the questions we had emailed him with the promise he would call back. On Thursday, the company said it would provide answers to our questions. It has not done so at this time.

Here are 10 potential red flags for investors to be aware of:

Photograph taken Oct. 2 at the address in suburban Washington, D.C., listed by India Globalization Capital Inc. as its headquarters. MarketWatch/Steve Goldstein

Made in Malaysia?

In the release announcing the plan for CBD-infused drinks, IGC indicates it will work with a manufacturer in Malaysia, but that country has a mandatory death sentence for cannabis possession and has no medical-marijuana program.



“Marijuana or any form of products including CBD oil is illegal in Malaysia,” Erny Sabrina Mohd Noor, counselor for agriculture at the Malaysian Embassy in Washington, D.C., told MarketWatch.

History of pivots

IGC, which started life in 2005 as a blank-check company, has a history of pivoting to new businesses as they become popular and releasing press releases to highlight those business-plan shifts.

The company’s IPO prospectus said that it aimed to acquire or merge with businesses operating in India, to take advantage of the potential of that market. In 2007, it began to acquire infrastructure assets in Asia and later started trading commodities such as steel and iron ore, leasing heavy construction equipment and managing real estate in Malaysia, according to its website. Today, the SEC-registered area of business is described as “wholesale electronic parts and equipment.”

In 2013, the company started to look into the cannabis industry, where it now claims to be working on treatments for serious diseases including Alzheimer’s and Parkinson’s, as well as anxiety and sleep disorders.

However, a review of its regulatory filings reveals that it has assigned very little funding to research and development — roughly $150,000 a year — and none to clinical studies or any of the other steps needed to win U.S. Food and Drug Administration approval.

A look at press releases from the last year shows a clear pattern of repeatedly entering the latest hot market. In late 2017, that was blockchain, while last month it was cannabis that helped push or support the stock above the $1 threshold. The latest announcement appeared to be timed with a sale of shares.

FactSet, MarketWatch

The strategy-pivot approach to capturing investor interest was used most dramatically by Long Island Iced Tea Corp., which caused a stir on Dec. 21, 2017, by announcing it was changing its name to Long Blockchain Corp. LBCC, +14.28% , sending the stock up 183%. The news came three days after bitcoin futures US:XBTV8 started trading, at prices above $20,000.

From the MarketWatch archives: Nasdaq to delist Long Blockchain Corp., underlining fading bitcoin fervor

Less than a week later, IGC followed with its own blockchain initiative, saying it would use the technology to address “issues” in areas such as product identification. The stock shot up 91% to $1.26 on Dec. 26, the first close above the $1 mark since July 2014.

On Dec. 29, a proposal to approve the grant of 1.9 million shares of stock to “current and new employees, advisers, directors and consultants by the board of directors” passed a shareholder vote.

In mid-September, Level Brands Inc.’s stock US:LEVB more than doubled in four days, just before the company announced on Sept. 21 the online launch of five new cannabidiol (CBD) products under the Kathy Ireland Health & Wellness brand. The stock ran up as much 24% during the day of the announcement, before reversing course to close the session down 12%.

Four days later, IGC said it was entering the market for CBD-infused energy drinks, with “plans to create a branded hemp/CBD-infused version of the formulation that addresses market demand for energy drinks with the inclusion of healthy properties derived from hemp including CBD.” In other words, the product, called “Nitro-G,” was still in the planning stages. Still, the news helped kick off a near sixfold rise — the stock ran up 458% — over the next five sessions.

On cue, the company disclosed late Tuesday it had completed its at-the-market offering of 5.65 million shares at a weighted average price of $5.30, which was more than double the closing price of $2.33 on Sept. 25, when the offering commenced. Coincidentally, Sept. 25 was the day IGC said it was entering the market for CBD-infused energy drinks.

The stock tumbled 32% in afternoon trade Friday, putting it on track for the biggest one-day selloff since going public in April 2006. It has plummeted 66% the past three sessions.

A history with the SEC

IGC went public on May 13, 2005, led by Ram Mukunda, who has since served as chairman of the board, CEO and president. Mukunda was previously founder and CEO of a company called Startec Global Communications, according to a biography on his company website. The bio fails to disclose that Startec went bankrupt in 2001, having defaulted on a $9.6 million interest payment.

IGC started in 2005 with $200,000 in assets, a $100,000 loan payable to Mukunda and an obligation to pay Mukunda’s company, Integrated Global Network LLC, an administrative fee of $7,500 a month for office space and general and administrative services. John Cherin, an Arthur Andersen alumnus, served as chief financial officer until he was replaced by Rohit Goel and Shajy Mathilakathu as co-principal accounting officers on Sept. 29, 2017.

Claudia Grimaldi became the company’s “principal financial officer” in May 2018.

The company has attracted a lot correspondence from the SEC. In March 2017, the SEC wrote to ask about a 2009 transaction with Bricoleur Capital Management, an investment adviser. The loan from Bricoleur to IGC has been renegotiated several times.

IGC’s financial statements filed with the SEC as of June 30, 2017, said the company had issued 90,000 shares valued at $36,600 to Bricoleur Partners L.P. against the outstanding $1.8 million promissory note as repayment of interest. Bricoleur’s SEC registration was terminated in December 2012, and its license was revoked by the state of Florida in 2015.

IGC has informed the New York Stock Exchange that it would not file its quarterly reports on time nine times since 2015. In March of 2017, IGC told the SEC it had cancelled its shareholder meeting for 2016 and would not be sending a final proxy statement for 2016. In April 2017, the NYSE notified IGC that it was not in compliance with its listing standards because it had not held a shareholder meeting that year.

The company finally caught up on its filings, averting a NYSE delisting by issuing its annual report and 10K on June 21 and holding a shareholders meeting on August 6.

An SEC spokeswoman declined comment on the company.

Insiders make the most money from stock gains

The biggest beneficiaries of the news that’s pumped up the stock are IGC’s executive officers, as the following table shows:

FactSet, MarketWatch

Six of the top seven shareholders, who own a combined 16.5% of all shares outstanding, are IGC’s six executive officers and directors, as named in the company’s latest annual report filing.

Of the rest of the outstanding shares, 0.9% is owned by institutional investors and 82.6% is owned by “unknown” investors, which, according to FactSet, can include individual investors, mutual funds not covered because of nondisclosure laws, institutional managers managing less than $100 million and foreign-based institutional investors.

The sole institutional investor in the top seven is hedge fund Citadel Advisors LLC, which owned about 115,000 shares as of June 30, or 0.3% of the shares outstanding, according to the most recent 13F filing with the SEC. That’s down from about 149,000 shares as of the end of May, and up from zero shares at the end of 2017.

IGC’s business partners have issues

The Dama Pharma company in Puerto Rico appears to have been created just in time for an IGC press release, headlined “Puerto Rican Alzheimer’s Patients to Be First in U.S. to Obtain Cannabis-Based Relief” on March 26, 2018. It was incorporated three days before the press release was sent out.

DaMa Pharma says it is “a medical cannabis manufacturing company, and a Clinical Research Organization (CRO) for conducting clinical trials on cannabis-based products” and has a LinkedIn profile, but its website is incomplete. DaMa Pharma’s only employee is Stephen Inglis, who is also CEO of a company called InPortal USA.

InPortal is a facilitator, providing “Compliant Market Access through an equity capital markets (ECM) and a debt capital markets (DCM) platform with a dedicated public corporate landing site and controlled investor access to a deal data room.”

IGC shares also trade on the Boerse Frankfurt, Stuttgart, and Berlin Exchanges under the ticker symbol “IGS1” and on the Boerse Frankfurt, Boerse Berlin and Boerse Stuttgart under “XETRA2,” according to the company’s filings.

IGC’s German distribution partner was said to be ready to “distribute its formulations in Germany in early 2018,” according to a press release from October 2017.

Between Oct. 25, when the press release was issued, and Nov. 3, IGC’s Mukunda sold 200,000 shares of IGC stock. There was no further mention in SEC filings of this business partnership and no further press releases.

Medicann is a German “medical marijuana retailer website,” and its listed CEO is Carsten Siegemund. Medicann was created with just 25,000 euros in capital on May 31, 2017.

A search of the site finds no mention of the IGC product Hyalolex, which it claims can treat symptoms of Alzheimer’s disease.

The site itself is a work in progress, since the map shows the center of Central Park in New York, and the answers to FAQ questions are “lorum ipsum” — filler text often used in place of the eventual content of new website templates and other yet-to-be-published materials.

Cartsten Siegemund helps distribute productsfor other penny-stock companies besides IGC. One press release touts a 3.7 million eurosdistribution agreement, pretty big business for a company started six months earlier with a €25,000 investment.

It shared an auditor with alleged fraud Longfin

On Nov. 8, 2017, the company’s shareholders ratified the appointment of AJSH & Co. LLP as IGC’s independent registered public accounting firm for the 2018 fiscal year, according to an SEC filing. AJSH had been the company’s auditor since 2013.

On March 16, the company suddenly announced it had changed its mind and decided to dismiss AJSH & Co. as its audit firm, with no replacement named. An SEC filing said that “after five years with the same independent public accounting firm, as a matter of good corporate governance, it was appropriate to change to a different firm.”

On April 6, the SEC obtained a judge’s order to freeze $27 million that it characterized as proceeds from illegal sales of shares of LongFin Corp. LFIN, -13.63% , a brand-new audit client of AJSH & Co. When LongFin went public in December 2017, it was a poster child for shortcut “mini-IPO” rules known as Reg A+, according to an article in Barron’s.

There’s one additional connection between LongFin’s auditor AJSH and IGC.

Rohit Goel, based in Delhi, India, became IGC’s principal accounting officer in September 2017, according to the company’s website. Goel previously worked for AJSH from April 2014 to August 2016, according to his LinkedIn profile. That profile also states that he has runs BnA Consultancy, an accounting and management consultancy firm, from April 2015 — before he left AJSH — to the present. IGC told the SEC that Goel joined the firm full-time on Sept. 27, 2017, and would serve as a co–principal accounting officer.

Chief scientific officer has falsified data

In 2017, IGC’s chief scientific officer, Jagadeesh Rao, was caught falsifying data in scientific papers published in the Journal of Neurochemistry, the International Journal of Neuropsychopharmacology and Psychopharmacology, according to the website Retraction Watch.

The deception contributed to the resignation of Rao’s boss, Dr. Stanley Rapoport, from his work running a lab at the National Institutes of Health, who was quoted as regretting the falsifications.

“In these days of complex interdisciplinary research, one depends on the trustworthiness of colleagues who use methodologies with which one has no personal experience. I regret missing the falsifications by Dr. Rao,” he told Retraction Watch.

It relies heavily on paid stock promoters

IGC pays professional stock promoters to push its shares to retail investors, alongside its own marketing via its Twitter account and its company and productwebsites.

The SEC is so concerned about investors being fooled by “paid-to-promote” sites that it has put out multiple investor alerts and highlighted recent enforcement actions against marijuana penny-stock and microcap promoters. “If a company’s stock is promoted more heavily than its products or services, this may be a red flag of investment fraud,” according to the regulator’s alert.

Beginning in 2014, the SEC noticed an increase in these promotional efforts related to marijuana stocks and put out a special alert. “Fraudsters often exploit the latest innovation, technology, product, or growth to lure investors with the promise of high returns,” it said.

The craze over marijuana stocks is at an all-time high, fueled by Canadian legalization and moves toward legalization of marijuana in the U.S. for medical and other uses. CBD oil, which strips out psychoactive ingredients, is the hot new product in states that have legalized medical marijuana.

Promotional emails and marketing materials often contain lengthy disclaimers, but the disclaimers rarely reveal that the promoters are being paid in shares, already own the stock, or plan to immediately sell their shares and profit from the increase in price and demand that their efforts generate.

A story published on Sept. 26 on the site ProactiveInvestors.com talked about the company’s plans for CBD-infused drinks. Per the disclaimer: “You understand that the Company receives either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate.”

There’s another one in Stockhouse.com about how IGC has “targeted California as the priority market for Hyalolex, its lead cannabis-based medicine product for treating Alzheimer’s patients.” That piece, too carries, a disclosure: India Globalization Capital Inc. is a paid client of Stockhouse Publishing.”

The firm SeeThruEquity, which characterizes itself as “a leading independent equity research” but also a “corporate access firm,” put a $2 price on IGC on Aug. 23, in a post that was picked up on Yahoo.com. A disclosure on the company’s website, not the post that requires another click from the bottom, notes: “SeeThruEquity charges companies for a suite of services that may include conference presentation fees, the preparation of and distribution of initiation and/or update research reports, the issuance of press releases announcing its research reports and social media posts.”

Uptick Newswire calls itself an “investors relations firm with a dedicated social media team to engage investors.” That means IGC’s Mukunda paid to be interviewed on Uptick’s YouTube channel talking about how it would distribute its Alzheimer’s drug.