Joseph Cimino wanted to make a great tequila and needed capital to make it happen. He raised almost $1 million and got 6 Degree tequila into production. Unfortunately, he apparently lied to his investors in raising the capital and then stole almost half of that capital.
Cimino created a 40-page booklet providing sales and expense forecasts and describing 6 Degree’s product and business plan. This booklet reported 2015 sales of approximately $260,000 and a net profit of approximately $40,000. But 6 Degree did not launch its operations until the spring of 2016, so those numbers were entirely fictitious.
In another example, Cimino gave a potential investor a financial update showing sales of over 800 cases in Puerto Rico, when the truth was less than 200 cases in sales. Puerto Rico was one of the few places 6 Degree was sold. In another report, Cimino falsely represented in an investor report and quarterly profit and loss statement that the company’s year-to-date sales totaled 3,410 cases, when its actual sales totaled only 350 cases.
When he wasn’t lying to his investors and potential investors about the company’s results, he was allegedly stealing money from the company. He transferred approximately $472,000 from the company to his personal accounts.
Mr. Cimino is currently subject to civil and criminal charges by the Securities and Exchange Commission and Department of Justice. According to the statement of the FBI agent in the criminal complaint, Mr. Cimino admitted to at least some of the false claims. He does not admit to illegally taking the cash.
I assume that Mr. Cimino was initially just puffing the success of the company in order to entice investors. The classic, “fake it, ’til you make it.” The problem is that doing so in connection with raising capital, “faking it” is securities fraud. If you publish numbers in a fundraising document, you need to be able to substantiate that number. Moving the decimal point over is going to get you in trouble.
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