Aurora cannabis, former execs accused of sham sales to inflate earnings, lawsuit alleges — article

Aurora Cannabis, former execs accused of ‘shamsales to inflate earnings, lawsuit alleges

Aurora Cannabis Inc. and several of its former and current executives allegedly inflated one of its quarterly earnings results in 2019 through a fraudulent scheme that involved selling $ 21.7 million worth of cannabis back to itself through a company it had significant influence over, according to a lawsuit filed in a U.S. federal court.

The class-action lawsuit, which was filed in a U.S. District Court in New Jersey on Tuesday, alleged that Aurora and its executives engineered a way to artificially inflate the company’s fiscal 2019 fourth-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by selling $ 21.7 million worth of dried cannabis to Radient Technologies Inc. in June 2019 in a deal that «lacked commercial substance». The filing further alleged that Aurora later repurchased that same amount of dried flower back from Radient, an Edmonton-based cannabis extraction firm in which Aurora has a 12 per cent ownership stake as well as control of one board seat.

While the class action has yet to be certified by a U.S. federal judge and the claims have not been tested in court, the allegations highlight the operational challenges that many Canadian cannabis producers undertook in the early days of Canada’s recreational marijuana market, some of which ran afoul of regulations in order to meet the high consumer demand for those legal products and lofty investor expectations.

The plaintiffs allege that as the defendants continued to misrepresent the true condition of Aurora s business, the company’s stock was trading at «artificially inflated prices», which have subsequently plunged by more than 90 per cent since mid-2019. The plaintiffs for the lawsuit allege Aurora violated two counts of the U.S. Exchange Act and requested a trial by jury.

Other defendants named in the lawsuit include former chief executive officer Terry Booth, former president and board member Stephen Dobler, chief financial officer Glen Ibbott, former chief corporate officer Cam Battley, executive chairman Michael Singer, board member Jason Dyck and former chief operating officer Allan Cleiren, who also sat on Radient’s board.

In a statement, an Aurora spokesperson said that the company does not comment on legal matters. «We maintain our standard of business practice is in accordance with all relevant securities law and fulfill any obligation to respond accordingly,» the spokesperson said.

Booth, Dobler, Battley, and Cleiren did not immediately respond to multiple requests for comment on the lawsuit‘s allegations. A representative from Radient was not immediately available.

The lawsuit claims that Aurora allegedly conducted its «roundtrip sale» of dried cannabis as the company was increasingly unable to meet financial targets that its executives stated it would hit during the early months of cannabis legalization in Canada when supply issues weighed on several marijuana producers ‘bottom lines.

As those supply issues mounted, Aurora moved to further increase the size of its production capacity to a level that surpassed the actual annual demand believed to exist in the Canadian recreational market, the lawsuit alleges. As the company began to suffer financially from sluggish cannabis sales, the defendants allegedly devised a scheme that would ensure Aurora would meet projections of positive adjusted EBITDA by the end of its fiscal 2019 through a «sham, round-trip wholesale cannabis transaction with a related party.»

As a result of the «roundtrip sale», Aurora reported a negative adjusted EBITDA of $ 11.7 million in its fiscal 2019 fourth quarter despite several executives, including Ibbott and Battley, claiming the company would be in positive EBITDA territory by the end of its fiscal 2019. That negative adjusted EBITDA was allegedly understated by a further $ 10.5 million and that «but for the sham transaction, Aurora would have missed its projection by a much wider margin», the lawsuit claims.

According to comments provided by four former Radient employees contained in the filing, there was no plausible business reason for the cannabis processor to buy $ 21.7 million of cannabis from Aurora. One former employee alleged in the filing that Radient’s operations were not large enough to process so much cannabis in a reasonable amount of time, while another former staffer alleged it made «no sense» for Radient to make that purchase as the company itself was having trouble paying its day-to-day operating expenses and its extraction technology was still in the testing stage at that time.

The lawsuit alleges that the cannabis material was stored in a warehouse until it was subsequently returned to Aurora, which should not have recorded any revenue from the deal, according to international accounting standards.

Aurora’s «roundtrip sale» of cannabis to Radient was first highlighted in several research reports authored by Craig Wiggins of the cannabis industry research group The Cannalysts and first reported by Yahoo Finance Canada. In an Oct. 2019 report, which was included in the court filing, Wiggins raised the possibility that Aurora and Radient were engaged in financial engineering if the two companies were circumventing a service agreement to artificially boost their revenue.

«If Radient was an arm s length company, not reliant on Aurora economically, then this would not be as big a potential issue,» Wiggins said in the report.

Stocks fall on Wall Street, giving up the week’s gains

FILE -A sign for Wall Street hangs in front of the New York Stock Exchange, July 8, 2 021. Stocks are off to a mostly lower start on Wall Street Friday, Sept. 17, as the market heads for a weak ending to an up-and-down week of trading. Associated Press

Wall Street capped an up-and-down week of trading Friday with a broad sell-off that wiped out the major indexes ‘gains for the week.

The SP 500 lost 0.9% and posted its second straight weekly loss. Roughly 80% of the stocks in the benchmark index fell. Technology and communication companies accounted for much of the pullback. Industrial and financial stocks also were big drags on the index. Only the index’s health care sector managed a gain.

Small-company stocks bucked the overall market slide. Bond yields rose broadly. Energy prices fell.

Trading has been choppy throughout the week as investors weighed a mixed bag of economic data reflecting how the economy is weathering a spike in COVID-19 cases and how it might continue its recovery in the coming months. Wall Street is also looking ahead to next Wednesday, when the Federal Reserve is due to deliver its latest economic and interest rate policy update.

«We’ve seen a gradual deterioration over the course of the week, with two little up periods, but for the most part, generally a weakening (stock) market, ‘said Alan McKnight, chief investment officer at Regions Asset Management.

The SP 500 fell 40.76 points to 4,432.99. Despite being down about 0.6% for the week, the index is within 2.3% of the all-time high it set Sept. 2.

The Dow Jones Industrial Average fell 166.44 points, or 0.5%, to 34,584.88, while the tech-heavy Nasdaq composite slid 137.96 points, or 0.9%, to 15,043.97.

The Russell 2000 index of smaller companies recovered from an early slide and rose 3.96 points, or 0.2%, to 2,236.87.

Bond yields rose. The yield on the 10-year Treasury rose to 1.38% from 1.33% late Thursday.

Technology and communication stocks were the biggest weights on the market. Apple fell 1.8% and Facebook dropped 2.2%.

Oil prices fell 0.9% and natural gas prices fell 4.3%. The weak energy prices helped pull down energy stocks. Oilfield services company Schlumberger fell 1.9%.

Health care stocks eked out gains. Lab equipment maker Thermo Fisher Scientific was a standout with a 6.5% jump after giving investors an encouraging business update. Some travel-related stocks made solid gains. Cruise line operator Carnival rose 2%, while Norwegian Cruise Line gained 2.1%.

Also influencing the market’s gyrations was ‘quadruple witching,’ the simultaneous expiration of four kinds of options and futures contracts. The phenomenon happens four times a year and forces traders to tie up loose ends in contracts they hold. More than 750 billion single stock options were due to mature Friday, said McKnight.

‘Just the sheer size of that plays into this,’ he said. ‘It creates more volume in the market and some of the volatility associated with that.’

Much of this week’s economic data pointed to an economy struggling to move forward in the last few months. Inflation remains a concern for businesses, which are dealing with supply chain problems and facing higher costs. Concerns about the highly contagious delta variant also have analysts worried that consumer spending, a key piece of economic growth, could stall.

Investors will have their eye on the Fed next week to see whether the central bank takes any action to address the impact of rising prices on businesses and consumers. The Fed has said higher costs for raw materials and consumer goods will likely remain temporary as the economy recovers, but analysts are concerned that the higher prices could stick around and dent companies ‘bottom lines while also crimping spending.

Azure Firewall Introduces New Security Features

Microsoft recently announced new features for Azure Firewall, the managed network security service to protect Azure Virtual Network resources.

A highly available stateful firewall, Azure Firewall now supports auto-generated self-signed certificates for Azure Firewall Premium SKU and can be deployed without public IP in forced tunnel mode, with the ability to update existing firewalls using stop and start commands. Furthermore, secure virtual hubs can now span to multiple availability zones for an increased availability, and the service is available in three additional public regions: West 3, Jio India West, and Brazil Southeast.

Gopikrishna Kannan, principal program manager at Microsoft, explains the use case for self-signed certificates:

For non-production deployments, you can use the Azure Firewall Premium certification auto-generation mechanism, which automatically creates for you the following three resources, ties them together, and sets up transport layer security (TLS) inspection with a single click of a button : managed identity, key vault and self-signed intermediate CA certificate.

Joe Carlyle, Microsoft MVP and Azure practice lead at Evros Technology Group, tweets:

Some nice updates announced for Azure Firewall, especially like AV zones, and reconfigure to forced tunnel mode with a stop / start

As reported on InfoQ, last February Microsoft announced the preview of Azure Firewall Premium, a version with additional functionalities to target highly sensitive and regulated environments. Microsoft announced in July the general availability of the premium version and the support of TLS inspection, intrusion detection and prevention system and URL filtering.

Aidan Finn, principal consultant at Innofactor Norge, recently wrote an article on testing Azure Firewall IDPS, including test exploits and explained why he prefers Azure Firewall over a virtual firewall appliance to create network and application-level rules:

Azure Firewall scales and it is highly available. (. ) It was designed for how we should use the cloud, at scale. And that scale isn t just about Mbps, but in terms of backend services and networks. From what I have seen so far, the same can not be said for firewall NVAs.

Eliran Azulai, principal product manager in the Azure networking security team, recorded a presentation on how to utilize the new capabilities of Azure Firewall Premium to better protect cloud network resources.

Microsoft s platform includes as well Azure Web Application Firewall, a centralized protection from common exploits and vulnerabilities for web applications. Azure is not the only cloud provider offering a managed network firewall. Google has Google Cloud firewalls and Amazon offers AWS Network Firewall, a managed service to deploy network protections for VPCs.

The pricing of Azure Firewall is determined by two components: a data processing fee that depends on the amount of data processed by the firewall and a fixed hourly fee that is charged for any firewall deployment and varies for standard and premium versions.

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