Did Miami hemp entrepreneur use PPP loan to buy jet? No, he says — and money was given back
A Miami businessman’s organic hemp company was approved for a federal Paycheck Protection Program loan valued between $150,000 and $350,000 months after the business had been shut down, according to a lawsuit filed last Friday by investors in the company.
What’s more, the investors allege that the businessman, Patrick Horsman, purchased a private plane for more than $1 million after the CBD business had crashed and burned — and after he had applied for the loan from the program, a signature part of the federal COVID-19 relief package, which was designed to help struggling small businesses keep employees on the payroll.
The loans are forgiven if used for payroll and other approved expenses. The program, which allowed banks to largely take borrowers at their word for much of the financial information they were required to submit, was seen by experts as particularly vulnerable to fraud.
Federal records show that a Montana-based company managed by Horsman registered a Canadair Challenger 600 plane on April 28, one day before his hemp company, Integrated CBD, was awarded a PPP loan.
Investors say that Horsman and two partners in Integrated CBD misled them about the company’s prospects, engaged in self-dealing and used funds from the company to pay personal expenses, including Horsman’s credit card bills.
(Horsman initially declined to comment before publication, but after the story was published he did respond, first through a legal representative, then through a public relations professional, then directly. He said the plane was purchased with his own money — not through business proceeds -- to protect his family during the COVID-19 pandemic.)
(He said his intention was to restart the business and rehire employees but that he could not do so because creditors had frozen the company’s assets, including the PPP loan proceeds. Because of that, the loan proceeds were returned several days after the lawsuit was filed and the story was published.)
Horsman owns two apartments on Bay Harbor Islands, including a penthouse apartment boasting a private terrace and unobstructed Biscayne Bay view that he purchased last year for nearly $1.6 million.
Horsman, a veteran investment executive who specializes in pairing investors with niche investments, was censured in 2017 by FINRA, the regulator of investment brokers, for violating rules on investing in initial public offerings and failing to disclose several brokerage accounts to his company, Blue Sand Securities, in writing for several months. Horsman was fined $20,000, forced to return the profits from his IPO investments and suspended for 10 days.
The hemp company was based in Arizona and Horsman and his partners, Jeffrey Dreyer and Ari Schiff, told investors in 2019 that they had access to 10,000 acres of organic farmland, which they would use to grow organic hemp and extract CBD.
The Arizona lawsuit, filed in Maricopa County, alleges that Horsman’s group overstated the amount of land it controlled and the quality of the land — saying that the land was already successfully producing hemp when it was not.
Additionally, investors say that Horsman and his partners overstated how much funding they had acquired from other sources, announcing in late 2019 that they had raised $50 million in secured debt.
But in January 2020, Horsman told the investors that the company had burned through all of its cash and would need more money to continue. When the investors examined the company’s financial records, they discovered that the company had used company funds to pay roughly $2 million in credit card bills in Horsman’s name.
(Horsman, responding after the story was published online, said the spending racked up on the company’s AMEX card was not all his, providing a spreadsheet of individual billings under various names, and adding that in any event it was all for legitimate business purposes.)
And investors say that Horsman and his associates also made millions of dollars from a scheme by which entities they controlled purchased the Arizona farmland that was to be used by the company, and then leased it back to the company at an inflated price.
The lawsuit alleges that Horsman laid off all of Integrated CBD’s employees no later than February 2020 but still applied for and received the PPP loan in late April.
The U.S. Small Business Administration, which is administering the program, said that it does not comment on pending litigation.
Earlier in April, the company scheduled an auction for its farming and processing equipment. The two firms conducting the auction did not respond to questions from the Miami Herald about whether the auction took place and was successful.
One of the jilted investors said in the lawsuit that when he confronted Horsman about the alleged misappropriation of funds, Horsman replied, “[W]hy do you care, you only lost 50 grand?”
This article has been updated to include comments from Patrick Horsman, who declined to comment before publication online but did so afterward.
This story was originally published October 6, 2020 at 7:30 AM.
