Co-owner of Spokane’s marijuana producer Grow Op Farms among 9 indicted in Utah fraud scheme tied to supplements
Fri., March 24, 2023
A majority owner of two large-scale, state-licensed marijuana producers in Spokane County is among nine people indicted on an alleged $100 million fraud scheme out of Utah being investigated by federal authorities.
The Washington Liquor and Cannabis Board confirmed Thursday that Robert McKinley, 45, co-owner of Grow Op Farms and Phat and Sticky, was named in a December indictment accusing him and eight others of devising a scheme to bilk customers of “nutraceutical, CBD, and dietary supplement products” out of millions of dollars.
They are accused of setting up phony companies and websites, and making untrue claims about the products’ health benefits, while also hiding their fraudulent activity from banks and other financial institutions facilitating debit and credit card charges.
Charles Kreindler, a California attorney representing McKinley in the criminal matter, wrote in an email Thursday that the allegations have “nothing to do with businesses licensed for cannabis cultivation in Washington.”
“Grow Op Farms,” the brand name “Phat Panda” and “Phat and Sticky” do not appear anywhere in the indictment. CBD, or cannabidiol, is a chemical that is found in marijuana but can also be extracted from hemp, and does not have the same intoxicating effects as tetrahydrocannabinol, or THC, the element of the drug that gives the user a high.
“With respect to the Utah allegations themselves, as you can see from the indictment, Mr. McKinley is a fringe defendant who we fully expect to be dismissed or acquitted,” Kreindler wrote.
The 31-page indictment was filed in the U.S. District Court of Utah on Dec. 7. McKinley’s participation in the alleged offenses is listed as “the marketing of products to consumers.” The U.S. Attorney’s Office in Utah declined to comment on McKinley’s alleged involvement beyond what was listed in the indictment.
McKinley is not in custody and is next scheduled to appear before a Utah judge in April.
The LCB is aware of the allegations in the indictment, and there is an “open complaint” based on the case, said Brian Smith, communications director for the board. They are working to determine whether the alleged criminal activity has anything to do with a state-licensed marijuana business, he said.
McKinley is accused of 15 criminal counts, including identity theft, wire fraud and several conspiracy charges. Convictions under those charges would not automatically prevent McKinley from continuing to work in Washington’s legal cannabis industry under new regulations approved in 2021. Under an old point system, the LCB could deny an applicant for a cannabis license or renewal of a license if the person had a certain number of criminal conviction points, based on the severity of the crime and how long it had been since a conviction.
Under the new rules, the LCB may use discretion when reviewing an applicant’s license or renewal based on criminal history. The threshold system recommends a review if the person has felonies on their record in the past seven years, but the point system has been eliminated. State regulators approved the rule in an effort to open up the industry to formerly incarcerated people after concerns were raised that the system was discriminatory against people of color, among other concerns.
Grow Op Farms and Phat and Sticky are among the most lucrative marijuana producers and processors in the state. McKinley owns an 80% share of Grow Op and a 60% share of Phat and Sticky along with his wife, according to the LCB. Grow Op owns a massive growing facility in Spokane Valley, and McKinley ran a marketing firm before pivoting to cannabis cultivation in 2014, according to an interview conducted in 2018.
The indictment alleges a conspiracy that lasted six years and involved the creation of multiple “sham” companies so that the alleged conspirators could conduct tens of thousands of transactions for products that were marketed falsely to customers.
Those sham companies were owned by individuals who were unaware they were engaging in illegal activity, the grand jury alleges, and were used to avoid financial institutions’ security measures to identify users engaging in fraud and stopping payment to those companies. Proceeds were then forwarded to the nine named defendants. Investigators allege more than $64 million of the proceeds were sent overseas.
Customers would order products from websites not knowing they were signing up for recurring subscription fees, according to the indictment. The alleged conspirators submitted false websites to the companies processing debit and credit card transactions that did not include the same “misleading advertising as the websites directed at consumers,” the indictment alleges. The sham companies also hid the true number of customers who asked for their money back after not receiving what they ordered or being charged too much, prosecutors allege.
One of the named defendants is Richard Scott Nemrow, of Utah County, Utah. Nemrow, as part of a settlement with the Federal Trade Commission in 2018, agreed to make no “false or misleading statement(s) to obtain payment processing services.” Nemrow had been named in a $19 million online business-coaching scheme.
The case is being investigated by agents of the IRS and Food and Drug Administration’s offices of criminal investigations.
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