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A man accused of being the mastermind behind a $2 million cannabis crowdfunding scheme must find a new lawyer after stiffing his previous counsel for nearly two years, a Michigan federal judge said Monday.
Robert Samuel Shumake Jr., who recently officially changed his name to Bobby Shumake Japhia, has 30 days to either find new counsel or let the court know he plans to represent himself on the U.S. Securities and Exchange Commission's allegations that he was the "driving force" behind a scheme to divert crowdfund offerings for cannabis and hemp real estate ventures.
U.S. District Judge Matthew F. Leitman said on Monday that the request by Jonathan Uretsky of the law firm PULLP to stop representing Japhia because of nonpayment of fees was a "legitimate basis to withdraw."
Uretsky asked the court in January for permission to withdraw as Japhia's counsel, stating that he and his client were no longer getting along well, and that his firm had not been paid since April 2022. Japhia owed about $36,000 at the time of that filing. Uretsky's motion said attempts to arrange a payment plan failed.
Judge Leitman, who referred to the defendant as "Mr. Shumake" throughout the Monday hearing, asked Japhia if he had anything to add about the circumstances.
Japhia said he "did not have enough funds" to keep paying his attorney and reminded the court that he had filed for personal bankruptcy in California.
After the hearing Monday, Uretsky told Law360 that SEC cases are expensive for individuals and that he wishes his former client well.
Japhia told Judge Leitman his bankruptcy attorney told him that once he filed for bankruptcy, other cases against him would pause.
Judge Leitman told Japhia that normally, "in a lot of cases," if there is a bankruptcy filing, other cases must "come to a halt." But the SEC has urged the judge to let it press on with its claims, arguing that Japhia is using the bankruptcy proceeding to seek "refuge." The SEC argued that its enforcement action is considered a "police power" that is exempt from the automatic stay provision in bankruptcy code.
After Japhia lets the court know he will represent himself or finds a new attorney, he will have 21 days to respond to the SEC's request, Judge Leitman said.
An attorney for the SEC, John E. Birkenheier, reminded Judge Leitman that the agency has a pending request to amend its complaint to include Japhia's new name. Japhia changed his name in Georgia state court, but did not tell the SEC, which learned about the change months later, the SEC said.
Judge Leitman told the parties he wanted to focus first on whether Japhia's bankruptcy halts proceedings.
"It seems to me the first order of business is to see if we can continue," Judge Leiman said in the remote hearing Monday.
The SEC initiated its action in September 2021, alleging that the principals of two companies that claimed to be cannabis and hemp real estate ventures raised millions of dollars through fraudulent crowdfunding offerings. The agency said Japhia worked with others to lie to investors during two rounds of securities sales from September 2018 to May 2019 and again from May 2019 through June 2020.
"Japhia was the driving force behind both offerings, but he kept his participation secret in order to hide a past criminal conviction arising from a mortgage fraud scheme," according to the SEC's latest proposed amended complaint.
The SEC says hundreds of thousands of dollars were diverted from the businesses – 420 Real Estate LLC and Transatlantic Real Estate LLC – and used for Japhia's and his two business partners' personal benefits. The SEC alleged that Japhia persuaded Nicole Birch and Willard Jackson, former defendants, to act as CEOs of the companies. The group made misleading and false statements to investors, including that Transatlantic Real Estate had a management team with "significant experience" in real estate, according to the complaint.
Japhia is the last defendant in the action.
In December 2021, the crowdfunding company Fundanna and its CEO, Vincent Petrescu, agreed to pay $243,747 and $9,700, respectively, to end claims that they ignored red flags about Japhia and his two cannabis-related companies.
Birch was found liable for disgorgement of $600,000 and was issued a $200,000 civil penalty, according to the final judgment issued in December 2021.
In January 2022, Jackson consented to a permanent ban on violating certain securities laws without admitting or denying the SEC's allegations.
All the companies and individuals the SEC went after are now named as defendants in a proposed class action filed in January by those who claimed to have invested in the cannabis and hemp companies.
Separately, Japhia has also pled guilty in 2017 to violating Michigan's Credit Services Protection Act in connection with a mortgage audit services business.
