Cronos Group, Inc, (NASDAQ:CRON) announced that it had reached final settlement agreements with each of the U.S. Securities and Exchange Commission and staff of the Ontario Securities Commission (the "OSC") to resolve investigations regarding the previously disclosed restatements by the Cronos of its financial statements for the first three quarters of 2019 and the second quarter of 2021.
"We are pleased to have resolved these matters," said Mike Gorenstein, chairman, president and CEO of Cronos. "Important steps have been taken to strengthen our internal controls, and we are committed to continuing this work."
What Happened
On Monday, Oct. 24, the SEC charged the Toronto-based Cronos Group for improperly accounting for millions of dollars of revenue as well as other accounting misconduct over multiple reporting periods.
The SEC also charged Cronos’s former chief commercial officer, William Hilson, with fraud and aiding and abetting the company’s violations. In an agreement to settle with Cronos, the Commission determined that the company should not incur a financial penalty, given its timely self-reporting, significant cooperation and remediation.
The SEC order also found that, in one of the quarters between 2019 and 2021, Hilson entered into an undisclosed oral agreement to sell cannabis raw materials and repurchase cannabis products during the following quarter. The agreement was not known nor accounted for by Cronos, which discovered the $2.3 million accounting error during an internal investigation.
Cronos reported the misconduct to the SEC once finding it and then cooperated with the Commission’s investigation. It also took effective remedial steps to enhance its internal accounting controls.
“It is critically important for issuers to have adequate controls in place before they take on the reporting obligations required of public companies,” said Mark Cave, the associate director of the SEC’s Enforcement Division. “While today’s order finds that Cronos’s controls were not up to standards when it began filing financial statements with the SEC, Cronos avoided penalties by promptly self-reporting its accounting misconduct as it came to light within the company, cooperating with our investigation, and promptly taking effective remedial steps.”
The SEC’s order against Cronos finds that the company violated the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. The SEC’s order against Hilson finds that he violated the antifraud provisions of the federal securities laws and further aided and abetted and caused Cronos’s violations of the reporting, books and records, and internal controls provisions.
Without admitting or denying the SEC’s findings, Cronos and Hilson offered to settle the matter by agreeing to cease and desist from future violations of the charged provisions and retain an independent compliance consultant to review all company financial and accounting reports.
