Court Orders Cannabis Company and Its CEO to Pay Millions as SEC's Fraudulent Offering Case Against American Patriot Brands Ends

Published Oct. 12, 2026. Case statuses are current as of that date. This article is based only on documents published by the U.S. Securities and Exchange Commission.

A federal judge in Los Angeles has closed the book on the Securities and Exchange Commission's fraud case against a cannabis company and its top two executives, ordering more than $17 million in disgorgement plus penalties.

On July 10, 2026, the U.S. District Court for the Central District of California entered a final judgment against American Patriot Brands, Inc. (APB), its CEO Robert Y. Lee, its COO Brian L. Pallas, and APB subsidiaries Urban Pharms, LLC, TSL Distribution, LLC and DJ&S Property #1, LLC [1][2].

Unlike many SEC cases, this one was not settled by the company and executives. The SEC says the judgment follows the court's June 16, 2025, order granting the SEC's motion for partial summary judgment and a July 10, 2026, amended order on remedies [1][3]. Summary judgment means the court decided the claims based on the record without a trial, finding no genuine dispute on key facts.

What the case was about

The SEC filed the case on March 16, 2023, charging the defendants with fraud in connection with a securities offering by the cannabis company [1]. The 2026 litigation release describes the outcome and the remedies but does not restate the details of the original allegations, and we were not able to review the original complaint for this article. We have therefore limited this article to what the release and the court's orders say.

What the court ordered

The final judgment [1]:

• permanently enjoins APB, Urban Pharms, TSL, DJ&S, Lee and Pallas from violating the antifraud provisions of the Securities Act and Exchange Act;
• permanently bars Lee and Pallas from participating in the issuance, purchase, offer or sale of securities (except for their personal accounts), and prohibits both from serving as an officer or director of a public company;
• orders APB, Urban Pharms, TSL and DJ&S, jointly and severally, to pay $17,786,703 in disgorgement plus $6,202,777 in prejudgment interest; and
• sets these civil penalties and payments:

Defendant	Ordered to pay
American Patriot Brands, Inc.	$4,729,004 civil penalty (plus joint disgorgement)
Urban Pharms, LLC	$4,729,004 civil penalty (plus joint disgorgement)
TSL Distribution, LLC	$2,364,502 civil penalty (plus joint disgorgement)
DJ&S Property #1, LLC	$1,182,251 civil penalty (plus joint disgorgement)
Robert Y. Lee (CEO)	$6,399,792 total: $2,687,061 disgorgement, $1,025,670 prejudgment interest, $2,687,061 civil penalty
Brian L. Pallas (COO)	$472,902 civil penalty

Others named in the case

• Former CFO: On March 13, 2026, the court entered a final judgment by consent against J. Bernard Rice, whom the SEC describes as APB's alleged former CFO [1]. The release does not describe the terms.
• Relief defendants: The judgment ruled in favor of relief defendant Castro Business Enterprises, LLC on the SEC's unjust-enrichment claim. The SEC's unjust-enrichment claims against two other relief defendants, Puerto Rico One Corporation and Legion Accounting Services, Inc., were dismissed by stipulation [1]. Relief defendants are not accused of wrongdoing; they are named only because the SEC claims they received funds.

The SEC says the final judgment concludes the litigation [1]. The case is SEC v. American Patriot Brands, Inc., et al., No. 2:23-cv-05379, U.S. District Court for the Central District of California. The release does not mention a parallel criminal case.

What a consent judgment means

This is a civil case brought by the Securities and Exchange Commission, not a criminal prosecution. The SEC cannot send anyone to prison; it asks a federal judge for orders such as injunctions, repayment of allegedly ill-gotten gains (called disgorgement), interest on that money, civil penalties and industry bars.

A consent judgment is an order a judge has signed after the defendant agreed to its terms. In SEC settlements, defendants typically agree without admitting or denying the allegations. The judgment is binding and enforceable, but it is not a finding by a court that the allegations are true and it is not a criminal conviction.

Red flags to watch for

• Private offerings from businesses that can't use regular banks or capital markets.
• No audited financials.
• Money flowing among many related subsidiaries.

What to do if you invested

1. Keep every record: account statements, promissory notes, subscription agreements, emails, texts, wire confirmations and screenshots of websites or videos.
2. Report it to the SEC at sec.gov/tcr.
3. Check who you are dealing with. Before investing, search the person and firm on the SEC's Investor.gov adviser search and FINRA's BrokerCheck.
4. Beware of "recovery" offers. People who lost money in investment frauds are often contacted by scammers who promise to recover it for an upfront fee. Government agencies and court-appointed receivers do not charge victims to file claims.

Case status (as of Oct. 12, 2026)

Defendant	Court	Status as of Oct. 12, 2026	Source
Robert Y. Lee (CEO)	U.S. District Court, C.D. Cal. (No. 2:23-cv-05379)	Partial summary judgment for SEC June 16, 2025; final judgment July 10, 2026: $6,399,792 total, injunctions, offering and officer/director bars	[1], [2]
Brian L. Pallas (COO)	Same	Final judgment July 10, 2026: $472,902 penalty, injunctions, offering and officer/director bars	[1], [2]
American Patriot Brands, Inc.; Urban Pharms, LLC; TSL Distribution, LLC; DJ&S Property #1, LLC	Same	Final judgment July 10, 2026: $17.79M joint disgorgement + $6.20M interest; penalties as listed	[1], [2]
Castro Business Enterprises, LLC (relief defendant)	Same	Judgment in its favor on SEC unjust-enrichment claim	[1]

Statuses can change. An SEC complaint contains allegations, and a settlement without admitting or denying them is not a finding of wrongdoing.

Sources

1. U.S. Securities and Exchange Commission, Litigation Release No. 26587, "SEC Obtains Final Judgment as to Cannabis Company, its Subsidiaries, CEO, and COO Charged in Fraudulent Offering," July 17, 2026. https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26587
2. Final Judgment, SEC v. American Patriot Brands, Inc., et al., No. 2:23-cv-05379 (C.D. Cal. July 10, 2026). https://www.sec.gov/files/litigation/litreleases/2026/judg26587.pdf
3. Amended Order Granting in Part and Denying in Part Remedies and Entry of Final Judgment (C.D. Cal. July 10, 2026). https://www.sec.gov/files/litigation/litreleases/2026/order26587.pdf

---

Corrections and updates: If you are named in this article, or represent someone who is, and believe anything here is inaccurate or out of date (including a dismissal, a court ruling on a proposed judgment, or any other change in case status), please contact us at editorandchief@scammers.com. We will review it and update the article promptly.