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What’s in a Name? The Ongoing Saga of Medbox

As more states have begun to legalize marijuana for medical or recreational uses, Medbox, a West Hollywood, California-based publicly traded startup, is promising investors that its machines can dispense the drug  safely and legally. In short order the company became the poster child for what investors now call “pot stocks.” It is one of dozens of startup enterprises seeking investors’ capital to legally grow, process and sell marijuana.

Southern Investigative Reporting Foundation readers will recall that Medbox‘s experience in the stock market has been volatile from the start. Its controversial founder, P. Vincent Mehdizadeh, is an entrepreneur with a background that has included a great deal of legal trouble.

To better understand Medbox’s polarizing history and where it is today, take in this review of its earliest days as a private company when it was known as Prescription Vending Machines and Mehdizadeh was on the hunt for investors.

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It was the third week of April in 2011 and Rishi Patel was on a mission: He was taking a hard look at business opportunities in the wake of Arizona’s decision to permit the sale of medical marijuana in dispensaries across the state.

To Patel’s way of thinking, selling medical marijuana would be a fantastic opportunity to earn money while offering a scientifically valid therapeutic service to people wrestling with disease.

Patel had come across an ad from Prescription Vending Machines, a company helping folks like him get into the medical marijuana business, and in short order he was in a running dialogue with the company’s founder, an agreeable and talkative fellow named Vincent Mehdizadeh. From there, it wasn’t long before Patel and a pair of friends had struck a plan to help Prescription Vending Machines land a dispensary permit in Arizona.

Just before he wrote a very large check — his father was staking him the capital — Patel did a background search on Mehdizadeh.

After getting the report, Patel was astonished to see a laundry list of crimes and lawsuits, one more serious than the other, all of which Mehdizadeh was at the center. (All involved negotiated pleas, with none of the charges resulting in a trial or jail time. The civil charges were settled after extensive negotiations.)

An irritated Patel called Mehdizadeh first thing the next morning, wanting to know why these legal woes had not been properly disclosed.

Mehdizadeh’s reaction during the call was unexpected. There was no yelling or smooth-talking; rather, he radiated a calm and sustained astonishment. He told Patel that there has been a mistake and that something somewhere is terribly wrong since he hasn’t been repeatedly sued or arrested.

Patel was dubious, having taken the precaution of using Pejman as Mehdizadeh’s given name to run the search. He was thoroughly convinced that the report was accurate. Detail after detail matched up; he was convinced that he had his man. After their conversation, Patel emailed him a copy of the background report.

But there was no angry hang-up or fumbling apology from Mehdizadeh when he called back. Instead, he told Patel he could see exactly what happened. The background search was run using the wrong name, he said, telling Patel that his formal first name is Pegah and not Pejman.

To correct the record, Mehdizadeh emailed Patel a scan of his driver’s license and another background report, from Intelius.

Shortly after the call ended, Patel opened up the files. As promised, the documents belonged to Pegah Vincent Mehdizadeh, a man from California whose spotless criminal record was the polar opposite of Pejman Vincent Mehdizadeh.

It was, as Patel was forced to concede, more than strange. Patel thought he had had the right name and was certain Vince had even mentioned the name Pejman to him, but the documents sitting right there on his laptop screen looked, for all the world, to be in good order. What’s more, Mehdizadeh called back and said he had found his birth certificate and social security card — and wanted to know if Patel needed those scans as well.

Patel felt there was nothing more he could do. He eventually shrugged off the matter and patched things up with Mehdizadeh, even if Patel wouldn’t accept that he had gotten his name so completely wrong. But he ignored the feeling and bet on his dreams, sending the check to Prescription Vending Machines for what he assumed — after plenty of sweat and hustle — would be the ticket to a good job and a meaningful life.

For a while, the process of being a medical marijuana entrepreneur proceeded apace. If things seemed to get ever more complex with delays, costs or red tape that hadn’t been discussed, well such was life.

And then in July 2011 Patel got his dispensary and within minutes knew that everything was wrong. The furniture was used, the location wasn’t what he had bargained for, and even the vaunted dispensary system he had been promised didn’t do what was advertised.

As Patel assessed the mess, an email from Mehdizadeh arrived bearing an offer to meet that weekend in Las Vegas. To help the decision-making process along, he included photographs of four strippers he had “recruited from [his] travels from Colorado to Arizona” that Mehdizadeh was proposing to meet up with as well. Mehdizadeh didn’t leave much to the imagination when he described their role on the trip as “bringing sand to the beach.”

Patel declined the Vegas junket.

In the following weeks, Patel would tell his partners, family and friends that the biggest mistake he had made, even greater than sending that big check, was that he did not trust his instincts on the basis of the background report. Because as Pejman Vincent Mehdizadeh caroused in Vegas with his four dancer friends, Patel came to the conclusion that a person is given instincts for a reason.

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The Southern Investigative Reporting Foundation’s interest in these documents was straightforward: Vincent Mehdizadeh has an acknowledged history of inventing credentials he has not earned, most notably when he posed as a law school graduate to bolster his legal referral service business.

When the foundation approached Mehdizadeh for comment, providing him with the emails and documents in question, the situation quickly got heated.

What follows is the byproduct of the collision of a host of issues: investigative reporting on a subject who was angry at the Southern Investigative Reporting Foundation’s previous reporting, the collapse of a source-reporter relationship under legal and economic duress, and the permanence of electronic communications.

Here’s how it all started:

On April 10, Mehdizadeh, after initially refusing comment, strongly denied that he had ever posed as Pegah Mehdizadeh or arranged a stripper-accompanied trip to Las Vegas. By the afternoon of April 11, he was promising to litigate against the Southern Investigative Reporting Foundation.

A lawyer Mehdizadeh retained attempted to smooth matters out and responded to submitted questions on April 15.

That is all standard in the world of investigative reporting. Where the real drama was playing out between Patel and Mehdizadeh, however, was far behind the scenes.

When the Southern Investigative Reporting Foundation provided Mehdizadeh the Pegah Mehdizadeh emails of April 10, Patel’s name and email address was removed. Despite this, Mehdizadeh insisted to the foundation that he knew the real source behind it, and that this source was demanding compensation.

While Mehdizadeh sharply denied the authenticity of the documents, Patel described the pressure from Mehdizadeh in a series of phone calls, emails and texts as “unbelievable.” Specifically, Mehdizadeh wanted Patel to email the Southern Investigative Reporting Foundation a note stating that the documents were fabricated. In turn, Patel told the foundation — and Mehdizadeh — that he viewed this pressure from him as a direct threat to him and his family.

Throughout the weekend of April 11 to April 13, Patel in a series of phone calls and texts insisted to the Southern Investigative Reporting Foundation that he sought to be protected as a source and had opposed financial inducements from Mehdizadeh. On the evening of April 11, he texted, “I got hit with a bribe again man. [You] won’t believe this.”

After a particularly heated exchange with Mehdizadeh on April 11, Patel said that if Mehdizadeh sued the Southern Investigative Reporting Foundation, he would surrender his anonymity and voluntarily testify, stating that “someone has to stop this crap. It has to end — the bad deals, dispensary owners getting screwed — and if I have to go into court, I’ll do it.”

Then Patel went silent for three days without returning numerous emails, phone and text messages. On the afternoon of April 14 he sent a brief text, “too many cooks in the kitchen.”

Later that afternoon, Mehdizadeh’s lawyer sent the Southern Investigative Reporting Foundation a signed and notarized statement from Patel, stating that all of the information he had provided about Vincent Mehdizadeh and Medbox was false.

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In certain circumstances that affidavit might be definitive, but in this instance it is virtually meaningless. Here is why:

Patel initiated contact with the Southern Investigative Reporting Foundation in the middle of October last year and never wavered in his desire to contribute documents to a follow-up exposé of Medbox, despite an equally profound fear of being discovered doing so. Though the foundation declined to pursue an investigation of the Arizona dispensaries, Patel provided the Pegah Mehdizadeh emails to the foundation in December. Patel’s explanations of the circumstances and conversations surrounding his obtaining of these documents were corroborated by others interviewed by the foundation. For his part, Patel said he had given the Pegah Mehdizadeh documents (among many others) to a local prosecutor in Arizona who retired suddenly last year. A subsequent relationship with a plaintiff’s attorney was terminated due to a demand for a retainer that Patel said he could not afford.

The email thread he forwarded to the Southern Investigative Reporting Foundation gave no appearance of having been manipulated, and the email address is one Mehdizadeh had used during that period.

To the extent that was even feasible for Patel to do so, generating these documents would have involved unusual risk, expense and effort and for absolutely no payoff. How would having created a fake driver’s license and a background report help him recoup his investment or even further his cause in a potential legal fight? On another note, being caught generating those documents would almost certainly result in felony prosecution under identity theft status and a guarantee of civil liability.

Patel told the Southern Investigative Reporting Foundation that at the time the disputed emails had been sent, he and Mehdizadeh had been on friendly terms; Mehdizadeh acknowledged this by sharing the Las Vegas invitation. Patel told the foundation that he thought his relationship with Prescription Vending Machines was going to make him a lot of money. Accordingly, he had no reason then to try to portray Mehdizadeh in a negative light. (Mehdizadeh described Patel repeatedly as seeking to “extort” him, charges Patel laughed about when approached for comment by the foundation on April 10 and 11.)

There are some compelling linkages between the documents and Vincent Mehdizadeh.

One data point connecting the disputed Pegah Mehdizadeh’s license and Vincent Mehdizadeh is the address: 4351 Park Arroyo in Calabasas, a property owned by the Michelle Mehdizadeh Family Trust. In addition, Parviz Mehdizadeh, Vincent’s father, has used the address to register a series of businesses.

(Pegah Mehdizadeh is a 37-year-old female physician whose address is listed in the disputed background report and whose birthday is the same as the one on the driver’s license. She did not return a call seeking comment.)

Additionally, the Intelius report clearly identifies the account holder as vin.zadeh@gmail.com. That email address belongs to Vincent Mehdizadeh and he has frequently used it to communicate with the Southern Investigative Reporting Foundation.

The foundation asked a spokesman for Intelius about the role email addresses play in setting up and maintaining an account. In reply he wrote, “An e-mail address serves as a username in an Intelius account. A customer supplies an e-mail address and password when they create an account, and they use that e-mail address and password to access their account.”

The account was opened at some point in 2010, months before Patel said he saw the Prescription Vending Machines ad and began communicating with Mehdizadeh.

Put bluntly, Patel signed the affidavit under financial and legal duress. Though he comes from a middle-class background, he is a 33-year-old single parent of multiple children and currently lives with his oncologist brother’s family while he attempts to launch a medical marijuana business. He said that apart from his family’s support, he has little money of his own and would appear to have no capacity to wage a legal fight against Mehdizadeh, who is now a multimillionaire.

Throughout his dialogue with the Southern Investigative Reporting Foundation, Patel’s fear of being involved in litigation with Mehdizadeh was palpable (even if he initiated contact with the foundation), and he constantly reiterated his anxiety about exposing his young children to the stress of litigation.

Even after discussing the documents he sent the Southern Investigative Reporting Foundation — spending many hours talking about their origins and what Patel believed they implied about Mehdizadeh’s business conduct — Patel left little to the imagination about his motivation for his actions.

The evening of April 15, Patel wrote to the Southern Investigative Reporting Foundation, “I did what I had to for my family in good faith that good men will carry the torch of truth.” After Patel had given the affidavit, he described himself as “a victim of fraud” while discussing his experience with Mehdizadeh in an email.

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Last September the foundation released an initial investigation of many undisclosed legal issues in Vincent Mehdizadeh’s past and associated with the then high-flying company he had founded to capture a piece of the medical marijuana business.

The story above and the related emails prompted the Southern Investigative Reporting Foundation to begin additional investigation into Mehdizadeh’s background, starting with a re-examination of its notes from the many phone calls and email exchanges with him during the reporting process in the summer of 2013.

What emerged from this study were questions about a California-domiciled holding company set up in March 2009 called Sniperella Investments Inc., whose initial president was Mehdizadeh’s then-girlfriend Yocelin Legaspi.

The company was set up, Mehdizadeh told the Southern Investigative Reporting Foundation, as he transitioned away from the legal referral service business in 2008 to working on what would become Medbox. (The legal referral business activities had prompted a joint Los Angeles Department of Consumer Affairs and District Attorney suit; he was ordered to pay back $450,000 to his victims. It was also the job he held prior to seeking creditor protection under the bankruptcy code.)

In an email exchange with the Southern Investigative Reporting Foundation, Mehdizadeh last summer described Sniperella as a “consulting firm I was associated with in 2009. It ceased doing business in January 2010.”

Sniperella has little public documentary footprint save for a June 2010 suit filed against both Mehdizadeh and Sniperella by Los Angeles resident Abdul Ala Ahmed, which described Sniperella as an “alter ego” of Mehdizadeh. As support for this “alter ego” status, Ahmed’s suit claimed the $50,000 cashier’s check he gave Mehdizadeh to purchase a marijuana dispensary was made out to him personally and promptly deposited in Sniperella’s account with Bank of America.

(Ahmed’s suit, having been amended to make Sniperella the defendant, is proceeding to trial according to his lawyer, Stanley Kimmel.)

The Southern Investigative Reporting Foundation examined Sniperella’s financial records as part of this investigation and it appears that Mehdizadeh and Sniperella are effectively one in the same: Mehdizadeh wrote and cashed checks within the account, wired money in and out of it, and paid bills on behalf of his father and girlfriend.

The defining feature of Sniperella’s brief economic life is the sheer velocity of activity in its checking account: Based on the Southern Investigative Reporting Foundation’s analysis, the account had just over $2.97 million worth of deposits and withdrawals from March 2009 to July 2010. (About $148,000 of the account’s activity occurred in 2010.)

There was over $42,000 spent on five weekend trips to Las Vegas (including cash withdrawals from Vegas banks), $9,342 for auto maintenance and payments, $6,400 in legal fees and expenses, $4,581 at Ticketmaster for unspecified tickets, and more than $24,400 in payments made for a Discover card of Mehdizadeh’s girlfriend. Thousands of additional dollars were spent on high-end clothing stores, trendy Los Angeles area restaurants and clubs and travel around the California coast.

More important, Sniperella provided Mehdizadeh with a veritable river of cash. In 2009, he withdrew more than $160,000 from various Los Angeles and Las Vegas Bank of America branches, and that December alone he cashed checks for $43,000. Additionally, over the life of the account, he withdrew more than $26,000 from ATMs.

The last activity for the Sniperella account was on July 12, 2010: a $20 payment to the California Secretary of State and a $26 payment to the Apple iTunes store.

Though numerous checks had been written, the payee was not designated in the financial records examined by the Southern Investigative Reporting Foundation, so determining in which businesses (if any) Sniperella was making investments was not possible.

Of particular note was the activity between Nov. 10 and Dec. 10, 2009, when a $300,000 online transfer was made to Sniperella from another account. Between Nov. 17 and Nov. 24, a sum of $42,000 was withdrawn from Sniperella, and over the course of this period, more than $158,000 was transferred back to the account, with $100,000 remaining with Sniperella.

Mehdizadeh filed his bankruptcy petition on July 14, 2010, listing $9,500 in assets, an income of $3,800 monthly and declaring that his 2009 income was $90,000 from “consulting.”

When asked about Sniperella in light of these details, Mehdizadeh replied through his lawyer, “[Sniperella Investments] had a focus of investing in different industries that were of interest. My girlfriend at the time was operating the company as she possessed a real estate license and was pursuing real estate investments. When I filed for bankruptcy in 2010, these company’s bank statements as well as 2 others were asked for by the US Trustee’s office overseeing the bankruptcy petition. I was also interviewed and asked questions about the statements and cleared all inquiries without a problem at all. My bankruptcy was discharged in 2011.”

Pressed on the matter, Mehdizadeh angrily declined to go into detail about what industries Sniperella targeted for investment or where the flow of deposits in 2009 came from.

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A final matter of interest for the Southern Investigative Reporting Foundation was what Vincent Mehdizadeh has done with his shares. Specifically, an impressively large block of his holdings were sold or transferred, and it’s not clear to whom or for how much.

In a December filing, Mehdizadeh is listed as owning 17,882,240 shares (adjusting for a 100 percent stock dividend paid in February). Less than three months later, however, in a filing he is listed as of March 24 as owning 16,238,940 shares — both personally and through a holding company he controls — a difference of 1,643,300, or more than 9 percent of his shares as of the end of the year.

An executive choosing not to disclose the sale or transfer of his or her shares is exceedingly rare among public company issuers, regardless of the enterprise’s size. Moreover, the shares could have been easily worth more than $40 million given Medbox’s share prices in the first quarter. Mehdizadeh did not address the Southern Investigative Reporting Foundation’s request to elaborate on where the shares went in a lengthy statement.

His response in full was as follows: “As the majority shareholder and founder of this company, I put the burden on myself to attract talent to our board and executive management team for the benefit of the company and its shareholders. I have used my shares over the last few years in many ways to directly and indirectly benefit the company.”

He continued, “As a non-reporting pink-sheet company during the period in time referenced, I had no obligation to document my private share sales/transfers. However, I did voluntarily disclose my share count in quarterly reports filed with OTC Markets as well as registration statements filed with the Securities and Exchange Commission. Again, I did so voluntarily and specifically for a higher level of transparency for shareholders. Now that we are an SEC filer, I would have to file Form 4’s every time I have a change in share count. I look forward to keeping investors in the loop as that is a duty I personally subjected myself to.”

Update: This story was updated in May 2020 with three additional paragraphs of introduction.

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Tinkerer, Lawyer, Hustler, Lies: One Man’s Path to a Dope Fortune

Illustration: Edel Rodriguez
Illustration: Edel Rodriguez

In the spring of 2010, exasperated police detectives from all over Los Angeles began phoning the county’s consumer affairs department to complain that an outfit calling itself the Active Lawyers Referral Service had misled its working-class customers from 2005 to 2008 by referring them to a law firm that billed them for work — but never finished the job. Their tales got positively woolly: Several claimed that Pejman Vincent Mehdizadeh, the founder of the referral service and the manager of the law firm, had posed as a lawyer and his father, Parviz, had given them legal advice as they sought work visas. (Pejman and Parviz use the names Vincent and Paul, respectively, for business.)

Three years later the consumer affairs unit, along with the Los Angeles County district attorney’s office, sought to prosecute Vincent Mehdizadeh, who, after months of wrangling, pleaded no contest to various criminal charges. He consented to pay $450,000 in restitution to his victims, thereby avoiding a four-year sentence in a California state penitentiary. (His father, Parviz, pleaded no contest to one misdemeanor charge.)

Ordinarily the playbook for those who have narrowly avoided a hefty prison sentence is standard: Assume a lower profile, make amends and go about getting life in order. Not so for Mehdizadeh, however, who decided to go on the offensive, putting out a press release that openly mocked the prosecutors and consumer affairs inspectors.

Then again, the fact that Vincent Mehdizadeh has in a few short years pivoted from hustling legal contracts to being the control man of a publicly traded company called Medbox goes a long way to explaining why lying low isn’t in his vocabulary.

Never heard of Medbox? This $27-a-share company has a fully diluted market capitalization of slightly under $800 million dollars and just happens to be the highest-profile service provider in the booming new business of legally selling marijuana in the United States. The company sits at the intersection of two American passions — the stock market and getting high — and its shares hit $215 at one point last November. Worth more than $200 million, Mehdizadeh is the first multimillionaire (legally) connected to the pot trade, no mean feat in an industry where prior to the start of legalization those at its pinnacle were often rewarded with long jail terms or the occasional bullet to the head.

The Southern Investigative Reporting Foundation pored over Medbox’s public filings, examined the records of the people involved with the company and Mehdizadeh’s background. We uncovered a host of disclosure issues, baffling related-party transactions and substantial problems with the company’s accounting — and its accountants.

The heart of Medbox’s business is a freestanding vending machine that dispenses bags of marijuana to registered users in states where the substance is legal. The company’s sales pitch to owners of marijuana dispensaries is touting its cashless inventory control system whose biometric thumbprint scan and Medbox-issued debit card ensure that only those with prescriptions can access pot.

What Medbox is really trying to do is carve out an alternative apart from traditional dispensary culture — warm, concerned, very stoned but inefficient — to a more corporate model. In California, lighting up one’s “meds” inside a dispensary is just fine; and operating a dispensary might seem to some people a cool way to earn a living for a while. But those places tend to run into expensive legal problems from crusading cops. Marketing vending machines costing upwards of $25,000 a piece, Medbox is selling dispensaries insurance as much as efficiency.

Running his own dispensary business had proved to be a profound headache for Mehdizadeh: In 2007 the Drug Enforcement Agency raided Herbal Nutrition Center, his dispensary; and a lawsuit resulted from another dispensary transaction in which he was accused of posing as a lawyer and a real estate agent at different times. (Mehdizadeh told the Southern Investigative Reporting Foundation that he paid $350,000 to the plaintiffs to settle the matter and “make it go away.”)

But the dispensary drama inspired Mehdizadeh. He and Bruce Bednick, a chiropractor from Arizona who had also entered the dispensary business and who now is Medbox’s president, have set up 165 of these machines in dispensaries in four states with legalized marijuana sales: California, Arizona, Colorado and Massachusetts.

Lately Bednick and Mehdizadeh want Medbox to graduate from the over-the-counter market and become fully compliant with all Securities and Exchange Commission reporting rules so it can snag a listing on a national stock exchange. It’s not an easy hoop to jump through; there is an extensive list of accounting and legal standards to meet. But if the SEC approves the company’s registration, it will be able to raise capital from the public and its shares can attract bids from institutional money managers. More important, company insiders who bought the stock months back at the massive discount of $5 per share can begin to cash in on the market’s insatiable appetite for anything to do with legalized pot and sell as many as 346,000 Medbox shares potentially worth more than $9 million, based on current values. (Mehdizadeh says he won’t sell any of his stock.)

Few would begrudge an entrepreneur his payday, but Medbox investors might be surprised to learn of Mehdizadeh’s past, including his many brushes with the law.

As Mehdizadeh tells it, he’s just a middle-class child of immigrants whose dreams for college got derailed when his parent divorced and then suffered a series of economic reverses. Towards the end of high school, the bottom fell out, forcing him to scrap school and hit the streets to drum up some revenue. He claims that against all odds he turned around a dormant legal referral business and earned a handsome living, all the while taking care of his two parents.

Despite there being a grain of truth to that narrative, the documents tell a very different story of the man behind Medbox.

A search of Los Angeles area criminal records databases shows that from 1997 to 2007, Mehdizadeh was arrested or pleaded no contest for breaking and entering, solicitation, trespassing and credit card fraud. He declared bankruptcy in July 2010, after landing up to his neck in back taxes owed to the Internal Revenue Service. Earlier this year, he wound up in the middle of the aforementioned consumer affairs investigation.

Mehdizadeh, now 34, insists he has explanations for all these troubles; mostly he attributes blame to the mistakes of others. While assuring the Southern Investigative Reporting Foundation he is an “open book,” he said he surmounted his problems five years ago and that dishonest message board critics who want to see Medbox fail have often overblown his past missteps and stumbles. The little he acknowledged of the legal headaches was offered with the caveat that he had been wrestling with anger over family troubles, as well as displaying poor youthful judgment about whom he associated with.

Consider Mehdizadeh’s tax problems. In his 2010 bankruptcy filing, he listed just under $2 million in back taxes owed the IRS for the 2003 to 2007 tax years. He attributed this situation mainly to a careless accountant who didn’t properly handle a series of allowable deductions.  His lawyer negotiated the owed amount down to $1.2 million, Mehdizadeh said, claiming that his role in the mess was simply not having filed his federal income tax return in 2004 and 2005.

“I knew taxes had to be filed but I got careless,” Mehdizadeh said. “I actually enjoy writing a monthly check to the IRS now; it reminds me of how far I’ve come.”

The allegations that legal client cases were handled improperly did not arise because he scammed anyone, Mehdizadeh asserted; rather they resulted from the lawyer he worked for, Thomas Lee. For his part, Lee retired suddenly in 2008 and resigned from the California state bar with charges pending.

Attempts to reach Lee by publication time were unsuccessful.

Mehdizadeh similarly claimed a 2006 arrest for solicitation of a prostitute and criminal trespassing with intent to injure was nothing more than a cover-up of police brutality writ large. His account of the matter has him merely driving around in his new Porsche and being randomly stopped by the Los Angeles police. After asking the officer the reason for the stop, “I was taken out of my car and beaten,” he said. Moreover, his car was impounded and he was arrested.

Despite his allegations of police brutality, Mehdizadeh did not press charges, sue or even file a complaint. Rather, he pleaded no contest to both charges, was given two years probation and paid thousands of dollars to retrieve his impounded car. (A spokeswoman for the Los Angeles Police Department said she could not discuss details about the arrest with the Southern Investigative Reporting Foundation, citing California privacy statutes.)

“If something like this happened today, I would be holding a press conference and sticking up for myself,” Mehdizadeh said. “I was a lot more green back then — still smart but much more green.”

As for the Los Angeles County district attorney’s case against him? Well, now Mehdizadeh is gearing up to fight back by suing the Los Angeles County department of consumer affairs, he said. “They need to be held accountable for their lies,” he harrumphed.

One area where there is little room for debate is Mehdizadeh’s penchant for posing as a lawyer. After the raid on his marijuana dispensary he wrote in a signed December 2007 post on Weedtracker.com, a dormant pro-marijuana legalization website, “I have a law degree and made managing partner in my firm before the age of 26.”

Moreover, in a testimonial for a Web marketing company, Mehdizadeh signed his name “Vincent Mehdizadeh, J.D.” Short for juris doctor, J.D. signals an accredited law school awarded a degree.

After Mehdizadeh initially strongly denied that he had posed as a lawyer, the Southern Investigative Reporting Foundation presented these two online claims to him and he acknowledged the fabrication: “I felt really insecure for many years not having gone to college, and it just came easily, occasionally telling people I was a lawyer,” he said. “That was a dark place and time for me. I don’t do anything like that anymore.”

Mehdizadeh’s many legal problems have never been disclosed to Medbox investors—except for a 2007 incident when he failed to produce a clear title to a car he was selling yet accepted a credit card payment for the vehicle anyway. The consumer affairs investigation, which had been headed for trial with the possibility of prison time for Mehdizadeh before he pleaded no contest, was blithely waved away in a Medbox filing as “a private matter.”

When questioned about his past, Mehdizadeh endlessly repeated a simple mantra: “I made mistakes long ago and I want to show investors that I can build and run a good company.”

But whether investors would agree with Medizadeh’s definition of what’s “good” for their capital is another story.

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At first glance, Medbox appears to be a growth stock on steroids, perched at the leading edge of an industry in which demand is effectively doubling every year.

But linger for a time with its filings and Medbox looks less like something in the vanguard of a revolution and more like a throwback to 1980s Wall Street bucket shop deals.

Medbox began life as an outfit called MindfulEye Inc., a collapsed penny stock that had tried to make a business from selling downloadable movies through a network of shopping mall kiosks. Mehdizadeh bought 50 percent of the shares  in November 2011 with a man named Shannon Illingworth and the rest in August 2012.  [module align=”left” width=”half” type=”aside”] Find out more about Shannon Illingworth’s business track record in “The Man Behind the Marijuana Boxes.”[/module]

For its audits and filing preparation, Medbox turned to Irvine, Calif.-based Q Accountancy. But Q Accountancy had a problematic history of its own with regulators and a legacy of troubled clients. In 2012, a congressionally appointed industry watchdog group — the Public Company Accounting Oversight Board — uncovered a sweeping array of deficiencies in Q Accountancy’s auditing practices. And last November the SEC sued Q’s founder, Timothy Quintanilla, for issuing misleading audits based on “reckless and deficient work.”

In June, Medbox dumped Q Accountancy and turned to Alexander Anguiano LLC, the two-man auditing outfit helping Mehdizadeh out of his IRS problems. This firm signed off on a six-page second quarter earnings release issued on Aug. 20; it lacked a cash flow statement and footnotes, was formatted in the manner a college student would track expenses and filed at the very last moment. (One day later the company released a 20-page document with standard disclosures.)

How does a company that’s trying to smarten its profile before selling more stock get into these jams? One way is to have no one in charge of financial oversight on a full-time basis. Until Sept. 1, the company’s finance chief, Leila Guieb, was moonlighting part-time at Medbox while she worked as an employee at Toyota Financial Services. (Thomas Iwanski, a full-time finance executive, has since assumed her duties.)

Another interesting hire in Medbox’s crucial first years of existence was that of William Smith III, a man the company’s fawning December press release framed as the Warren Buffett of the pet insurance industry. He was charged with launching a mergers and acquisitions department in a company with six full-time employees. Smith’s numerous academic degrees on the press statement suggested that he had more accounting experience than the legendary Abraham Briloff.

But what was not disclosed is telling: He was chairman of a pet insurance venture called Ensurapet Inc. when the SEC tossed it from the markets because it failed to file annual and quarterly reports. Moreover, what business the company did do appears to have been centered around the ancient practice of selling unregistered securities in the form of promissory notes to retail investors, as a 2009 claim from the Arkansas Securities Commission argued.

That’s not the only blot on Smith. During his tenure at the company,  the general counsel was Joseph Emas, someone the SEC had barred for two years from advising publicly traded clients in 2010 for drafting misleading filings for another client.

Smith was terminated from Medbox within months of his hire, according to a disclosure in the prospectus and has filed an arbitration claim against Medbox. And that’s about par for the course for Medbox’s  M&A effort, as two of the three companies it had sought to merge with are now litigating against the company, according to a footnote in the S-1.

The tangled tale of Medbox becomes somewhat clearer when the role of a veteran penny stock lawyer named Phillip Koehnke is understood.

Listed as the company’s primary legal adviser, Koehnke was supposed to be especially valuable because he knew MindfulEye “like the back of his hand,” according to Mehdizadeh, and for his suggesting the hiring of Tim Quintanilla and other moves. But the volume of disclosure issues indicate that he either did not press terribly hard to learn the truth about his client, did not ask or did not think investors needed to know these  things.[module align=”right” width=”half” type=”aside”] Learn more about Phillip Koehnke’s legal advisory work in“The Penny Stock Lawyer.”[/module]

Then there is the share transfer incident. When Mehdizadeh and the Los Angeles district attorney’s office negotiated a plea in the legal advisory firm case, Mehdizadeh transferred Vincent Chase Inc., a holding company possessing more than 7 million shares of company stock, to Bedrick, Medbox’s chief executive. (Mehdizadeh had named the holding company after the lead character in the HBO series “Entourage— an interesting choice, given the character’s drug habit and prodigious love life.)

In effect for only two months and disclosed only briefly in the S-1, the move appeared to have little precedent. Mehdizadeh denied there was a problem, saying the sale was performed “for the good of the shareholders.”

How shareholders were protected is not clear, though, and the Southern Investigative Reporting Foundation could find no instance of a corporate executive temporarily deeding his holdings to a colleague.

Mehdizadeh is firmly convinced that had he gone to prison, Bedrick’s control of Vincent Chase Inc. would have protected shareholders from harm. He is astounded that anyone would question the wisdom of the move: “Are you seriously asking me what impact a control person of a public company going to trial on 15 felony counts would have on investor confidence?” he said in reply to repeated requests from the Southern Investigative Reporting Foundation to clarify the reasons behind the move.

What the move did accomplish, however, was to keep the shares — potentially worth potentially hundreds of millions of dollars when they are registered — out of any settlement negotiations.

And questionable share transfers aren’t the only things standing out in the Medbox filings.

On March 8, a Medbox press release announced a $6 million equity cash infusion, with $1 million already paid and $5 million to arrive in May. Yet, there’s no sign of any of this in the company’s SEC filings.

In April, Medbox filed a Form 10 as part of its effort to register its shares; the only reference to stock sales was this line in a footnote at the very end: “During January 2013, the Company received a total of $71,520 as payment for the sale of 16,000 shares of common stock during that period.”

The S-1 filed in July offered no clues about the whereabouts of the promised millions.

Share sales did take place, but not along the lines promised by the press release. A note toward the back of the document stated, “From January 1 through July 11, 2013, the Company sold a total of 331,450 shares of common stock to accredited investors for $5 per share, or an aggregate of $1,407,250.”

One of the market’s longer standing measures of value is what investors will pay for shares even if they have to accept reduced liquidity or even none, for a period of time. The accredited investors who ponied up $5 a share from January to mid-July, when the share price ranged from $65 to $26, certainly locked in a discount. They also sent a clear signal of their view on whether the market was fairly valuing Medbox’s prospects.

One might expect that with marijuana legalization a near reality that Medbox would be, to use a phrase, “rolling in the green,” but that’s not the case. The company’s 2013 midyear revenues approached $3 million, according to a quarterly earnings release, putting it on track to eclipse last year’s $3.5 million. But the company lost almost $419,000 in the second quarter and accounts receivables amounted to more than 50 percent of its assets. Mehdizadeh said this is largely a function of the company’s having to fight an expensive (and successful) legal battle in Arizona on behalf of its dispensary clients — something that won’t be repeated. But there’s the possibility of unforeseen headaches emerging in other states and having to spend six figures in legal fees per state would be more than Medbox can bear.

And with receivables greater than last quarter’s revenues, if anything happens to Medbox’s clients and payments don’t emerge, a write-down of bad debt would prove devastating to Medbox’s balance sheet.

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In preparing this article, the Southern Investigative Reporting Foundation examined numerous legal briefs, public filings and interviewed many former clients of Vincent Mehdizadeh, who responded to many requests for comment on the record by both phone and email.

Worried greatly that Medbox would be harshly treated in a full-length investigative article, Mehdizadeh remarked via email, “I fully realize that your hard-hitting journalistic pieces don’t work if the company you are reporting on is beyond reproach. We make no illusions of being a mistake-free seasoned public company. However, no one can doubt our effort in becoming a solid company.”

Clarification: Neither Vincent Mehdizadeh nor Bruce Bedrick are selling shares in a proposed stock offering as the story earlier stated. The selling shareholders mentioned in the prospectus are not the management, but rather investors who had purchased shares months earlier during a private fundraising effort.

Correction: Vincent Mehdizadeh’s initial IRS liability for back taxes was $1.99 million, not $2.2 million as the story earlier stated. The back taxes were accrued between 2003 and 2007, per his bankruptcy claim, not 2002 and 2007.

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The Man Behind the Marijuana Boxes

Shannon Illingworth is the founder and chief executive of AVT Inc., a Corona, Calif.-based maker of automated dispensing machines that manufactures the pot-vending units for Medbox.

A former college offensive lineman who spent a season on the Los Angeles Rams in 1993-1994 and who now touts the lessons learned on the gridiron, Illingworth is perhaps more reticent about discussing his 1992 arrest for possession of methandrostenolone, a popular anabolic steroid. That turn of events forced him to spend a little time cooling his heels in prison.

In November 2011 Vincent Mehdizadeh bought from Illingworth 50 percent of the broken-down shell of MindfulEye Inc. and in August 2012 the other half (all for what Mehdizadeh referred to as “less than $1 million”) and renamed the company Medbox. Once the holder of a large block of Medbox preferred stock, Illingworth now owns only about 10,000 shares of common stock. (AVT billed Medbox about $500,000 last year for the sale of machines.)

Why the suddenly lower profile for Illingworth? “Shannon is a very aggressive businessman and our risk tolerance and instincts are different,” Mehdizadeh said.

Being aggressive gave Illingworth about 15 minutes of capital markets’ fame when, according to author Randall Lane, Illingworth gave former market pundit and New York Met Lenny Dykstra $250,000 in (undisclosed) AVT shares for pumping the stock in his then widely followed TheStreet.com column. According to Lane, Dykstra was introduced to Illingworth via financial adviser Richard O’Connor, who was a co-defendant with Illingworth in a 2003 suit filed by investor Kurt Knecht over losses he sustained in Out-Takes, an old Stratton Oakmont deal. Apparently Knecht’s sore feelings quickly faded and by 2006 he was an investor in AVT.

Certainly Illingworth’s AVT is an odd sort of corporate duck: It makes a real product that has found willing buyers, but because  of significant amounts of related-party transactions involving Illingworth’s father Jon, a consistent pattern of missed filing deadlines and the firing of its auditor, its shares have been on an uninterrupted slide south this year.

More recently, AVT disclosed that it had received more than $1 million in funding from private equity shop Ironridge, an investor with a profitable niche in taking stakes in a host of struggling and profoundly troubled companies. AB Analytical Services analyst Alan Brochstein has argued that the investment is little more than standard death spiral financing whereby Ironridge purchases shares at a sharp discount and then becomes  eligible to obtain as many shares as triple its initial stake should AVT fail to meet specific goals.

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For more coverage of Medbox, read “Tinkerer, Lawyer, Hustler, Lies: One Man’s Path to a Dope Fortune.”

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The Penny Stock Lawyer

For anyone in need of a lawyer in Southern California who understands the needs of a company that may exist largely on paper (and may never materialize), Phillip Koehnke is the person to see.

The 45-year-old former Colorado State wrestler, who serves as Medbox’s chief legal adviser, has carved out a niche representing penny stock companies in their brief interludes as going concerns. Koehnke’s clients are virtually identical: Exceptionally small and barely capitalized, they often have the skimpiest outline of a serious business plan and little in the way of experienced management or serious governance and operational controls.

His ability to earn a living in the bowels of the capital markets has placed Koehnke in proximity to the rich tapestry of the penny stock universe’s movers and shakers. A licensed broker, Koehnke has served as a legal adviser to a series of firms whose business model appears centered on small cap stock trading and promotion and possessing extensive regulatory problems.

One of these was Scottsdale Capital Advisors, an Arizona-based brokerage run by John and Justine Hurry, a husband and wife duo who are no strangers to litigation or censure. Koehnke advised Scottsdale when it hired a pair of brokers, Andrea Ritchie and Joseph Padilla, who were under investigation by the Securities and Exchange Commission for a stock promotion scam related to football player Daniel “Rudy” Ruettiger’s  erstwhile sports drink company. (The two brokers received three-year suspensions from the securities industry; the company is no longer publicly traded.)

Both of Koehnke’s other brokerage firm clients, OC Securities and Aaron Capital, have also run afoul of market regulators on several occasions.

Not shy about starting a fight on behalf of a client, Koehnke sent Seeking Alpha contributor Alan Brochstein a cease and desist letter threatening legal action if he didn’t remove his article critical of AVT. (Brochstein didn’t comply and has continued to criticize the company.)

According to Mehdizadeh, Koehnke came up with the idea to select Tim Quintanilla as the company’s accountant. After the SEC and Public Company Accounting Oversight Board faulted Quintanilla’s diligence, Koehnke approved the appointment of Alexander Anguiano, Mehdizadeh’s personal accountant. In addition, Koehnke also did not stop the internal transfer of Mehdizadeh’s holding company to Medbox’s chief executive, a highly unusual maneuver.

Pressed on the matter of how Koehnke’s continuing advisory work jibes with Medbox’s desire to be seen as a serious company, Mehdizadeh said, “[Medbox] is looking to phase Phillip out soon.”

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For more coverage of Medbox, read “Tinkerer, Lawyer, Hustler, Lies: One Man’s Path to a Dope Fortune.”