Bank Fraud Allegations Are Testing The Marijuana Business


US medical and recreational marijuana industries operate in a legal gray zone.

According to The Wall Street Journal, prosecutors alleged a scheme to disguise $100 million in cannabis product sales in a case that could have major implications for the industry.

On March 9, a German businessman named Ruben Weigand was arrested at Los Angeles International Airport, during a layover on his way to Costa Rica. “In an indictment unsealed later that week, federal prosecutors in Manhattan charged Mr. Weigand with a single count of conspiracy to commit bank fraud, stemming from an alleged scheme to trick banks into processing more than $100 million in marijuana sales,” The Journal reported.

The “underlying sales seem to have been legal under state laws,” the report continued. Prosecutors “appear aimed at the alleged banking transactions and what they described in one court hearing as a multinational ‘criminal network’ at work in the international financial system, according to court filings and people familiar with the case.”

The Journal wrote that “at the heart of the indictment is one of the country’s largest on-demand marijuana marketplaces, Eaze Technologies Inc., a platform through which customers can buy marijuana for delivery from a network of dispensaries. Eaze wasn’t named in the indictment and hasn’t been charged; the company is cooperating with the federal investigation in hopes of leniency, court filings show.

“We are aware of this matter and are fully cooperating with the relevant authorities,” Eaze said Monday. “Eaze transitioned to supporting new payment systems over a year ago, and this matter does not impact the current customer experience.”

While the purchase and sale of marijuana for personal use has been decriminalized in many states, it remains illegal on the federal level and most US banks “aren’t willing to process payments related to its sale. Cannabis businesses instead rely on cash, or use workarounds, including private mobile-payment processors,” The Journal wrote. Prosecutors “allege that Eaze executives and other unnamed co-conspirators worked with Mr. Weigand and another businessman, Hamid ‘Ray’ Akhavan, to devise a ‘transaction laundering scheme’ that hid the true nature of the transactions from banks.”

According to the report, prosecutors allege that Messrs. Weigand and Akhavan and others “disguised the Eaze transactions as payments to phony online merchants and businesses they created, and worked with third-party payment processors to create phony offshore corporations and open offshore bank accounts. The alleged scheme also entailed using merchant codes for other products—a technique known as ‘miscoding’—to conceal the true nature of the transactions.”

In a June 26 motion to dismiss the indictment, lawyers for Mr. Weigand said “the government had failed to support the bank-fraud conspiracy charge. ‘At most, it alleges a scheme to deceive but not cheat a U.S. bank of any property,’ they wrote. In fact, the U.S. issuing banks made significant amounts of money on the transactions, the motion says.” The Journal also reported that “in a parallel motion, lawyers for Mr. Akhavan said: ‘This appears to be the first indictment for economic fraud that lacks any victim, whether potential, actual, or intended.’”

Read the full report here.


Economics, Finance and Investing