SEC Charges Texas CBD-Inhaler Company and Its CEO in Fraudulent Securities Offerings

The Securities and Exchange Commission (SEC) has made an announcement regarding a civil action filed on September 18, 2023, in the U.S. District Court for the Northern District of Texas. This action alleges that Rapid Therapeutic Science Laboratories, Inc. and its CEO, Donal R. Schmidt, Jr., were involved in fraudulent unregistered securities offerings that raised a minimum of $3.25 million from over 50 investors across 15 states. Rapid is a publicly traded company headquartered in Dallas, Texas, specializing in the manufacturing and sale of inhaler devices containing cannabidiol (CBD), a substance derived from the hemp plant.

According to the SEC’s complaint, Rapid and Schmidt made false statements in a Rapid press release and multiple Rapid SEC filings, creating the misleading impression that their compliance with manufacturing standards related to public health and safety had been certified by an industry-standards board known as the Cannabinoid Multi Dose Inhaler Certification Board (CMDICB). In reality, an associate of Schmidt who held Rapid shares invented the CMDICB and unilaterally granted the so-called certification to Rapid. The complaint also alleges that Rapid and Schmidt issued false claims in Rapid press releases, including statements about securing major sales contracts, completing a new laboratory meeting international standard “ISO 13485,” and exaggerating the academic and professional credentials of Rapid’s Chief Science Officer. Furthermore, in investor communications, Rapid and Schmidt asserted that Rapid’s CBD inhalers were “safe, legal, and effective active pharmaceutical ingredients” and served as “safe replacements for vape pens,” despite an FDA warning letter regarding the safety and legality of Rapid’s inhalers. Lastly, the complaint accuses Rapid and Schmidt of making false claims in investor communications, stating that the Nasdaq had approved Rapid’s listing application “pending pricing requirements being met,” when, in fact, no such approval was granted by Nasdaq.

The SEC’s complaint charges Rapid and Schmidt with violations of securities-registration provisions outlined in Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act), anti-fraud provisions as defined in Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), as well as Rule 10b-5 under the Exchange Act. Additionally, it cites violations of issuer-reporting and certification provisions stated in Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 13a-14 under the same Act. The SEC seeks permanent injunctions, civil penalties, disgorgement of ill-gotten gains with prejudgment interest against both defendants, as well as an officer-and-director bar and a penny-stock bar against Schmidt.