Robert Y. Lee, CEO of American Patriot Brands, Inc. (APB), a cannabis company, and Brian L. Pallas, its COO, ran a fraudulent securities offering through APB and its subsidiaries Urban Pharms, LLC, TSL Distribution, LLC, and DJ&S Property #1, LLC. The scheme, which the SEC first charged in March 2023, involved raising investor money for the cannabis operation through misrepresentations that led to a final judgment ordering nearly $24 million in combined disgorgement and prejudgment interest against the corporate defendants, plus millions more in civil penalties and permanent bars against Lee and Pallas. On July 10, 2026, the U.S. District Court for the Central District of California entered the final judgment, concluding the litigation.
The final judgment permanently enjoins APB, Urban Pharms, TSL, DJ&S, Lee, and Pallas from further violations of the antifraud provisions of the Securities Act and Exchange Act. It permanently bars Lee and Pallas from participating in the issuance, purchase, offer, or sale of securities except for their personal accounts, and prohibits both from acting as officers or directors of public companies. The judgment orders APB, Urban Pharms, TSL, and DJ&S jointly and severally to pay disgorgement of $17,786,703 plus prejudgment interest of $6,202,777. It orders APB and Urban Pharms each to pay a $4,729,004 civil penalty, TSL to pay $2,364,502, and DJ&S to pay $1,182,251. Lee was ordered to pay a total of $6,399,792, consisting of $2,687,061 in disgorgement, $1,025,670 in prejudgment interest, and a $2,687,061 civil penalty. Pallas was ordered to pay a $472,902 civil penalty.
A Cannabis Company, Its Subsidiaries, and a Fraudulent Offering
American Patriot Brands was structured as a cannabis enterprise with multiple operating subsidiaries, each of which became part of the fraudulent offering the SEC charged. Urban Pharms, TSL Distribution, and DJ&S Property #1 were the subsidiaries through which aspects of the cannabis cultivation, distribution, and real estate operations were conducted, and each was named as a defendant subject to the disgorgement and penalty obligations in the final judgment. The joint and several disgorgement of $17,786,703 across the corporate entities represents the SEC’s calculation of the ill-gotten gains from the fraudulent offering, the money raised from investors through the misrepresentations that formed the basis of the charges. The cannabis industry, which has attracted substantial investor interest as legalization has expanded across states, has also drawn significant SEC enforcement attention because the combination of investor enthusiasm, regulatory complexity, and the difficulty of valuing early-stage cannabis operations creates conditions in which fraudulent offerings can flourish.
The allocation of penalties reflects the roles and gains of each party. Lee, as CEO, bears the largest individual liability at nearly $6.4 million, including disgorgement of $2,687,061 that reflects his personal share of the fraud’s proceeds. Pallas, as COO, faces a $472,902 civil penalty without a disgorgement component, indicating the SEC attributed a smaller share of the personal gains to him while still holding him liable for his role in the fraudulent offering. The permanent officer and director bars against both men represent a significant consequence, permanently removing them from leadership of any public company, a more severe sanction than the time-limited bars imposed in many settled cases.
Summary Judgment, a Former CFO’s Separate Settlement, and the End of the Litigation
The final judgment followed the court’s June 16, 2025 order granting the SEC’s motion for partial summary judgment, meaning the court found the defendants liable as a matter of law before the remedies phase, a stronger outcome for the SEC than a negotiated settlement on liability. The July 10, 2026 judgment on remedies concluded the case. Previously, on March 13, 2026, the court had entered a final judgment by consent against J. Bernard Rice, APB’s former CFO, resolving the claims against him separately. The court also dismissed the SEC’s unjust enrichment claims against two relief defendants pursuant to a stipulation, and ruled in favor of a third relief defendant on the unjust enrichment claim. The entry of the final judgment against the cannabis company, its subsidiaries, and its two top officers concludes a case that ran for more than three years. The marijuana-related investment fraud pattern is one the SEC has repeatedly warned investors about as the cannabis sector has grown.
Conclusion
Robert Lee and Brian Pallas ran American Patriot Brands and its subsidiaries as the vehicle for a fraudulent securities offering that the SEC first charged in 2023. The court found the defendants liable on summary judgment and, in July 2026, entered a final judgment ordering the corporate entities to pay nearly $24 million in disgorgement and interest, imposing millions in additional penalties, and permanently barring Lee and Pallas from serving as officers or directors of public companies. Lee alone owes nearly $6.4 million. The cannabis company that raised money from investors on misrepresentations is now the subject of a concluded enforcement action, its officers permanently barred, its penalties entered. The litigation is over.
