genius fund
Editor's Note
The story is pieced together from interviews with more than 40 former employees and business associates, active and retired county officials, as well as federal and county law enforcement; state court records, arbitration, arrest and corporate records in the U.S. and Canada; other public records in six California counties; Genius Fund corporate records and emails. Some former employees and business associates spoke to dot.LA on condition that their names not be mentioned out of fear of reprisals.
This is the fifth and final story in our "Green Rush" series. Read more:
Part 1: Rise and Collapse of LA's Genius Fund | Part 2: Growing Pains in Plumas County | Part 3: A Line of Failed Products | Part 4: What Happened in Adelanto
Bosov, 52, was a father of five who reportedly ice skated with Putin. He was 86th on Forbes' richest Russian billionaires, with an estimated net worth of $1.1 billion in 2020.
Because he died alone, of an apparent gunshot wound to the head, the oligarch's passing resulted in a great amount of speculation in Russian and other media reports that he was murdered. Russian authorities have been investigating his death as a suicide or accident.
One early report was in Kremlin-controlled news outlet Sputnik. It provided few details other than that the billionaire was "found with a gunshot wound to the head" with a gun next to his body.
But Genius Fund executive Ari Stiegler told people he believed it was murder, according to a business associate with whom Stiegler spoke.
Stiegler told him "Putin took one of Dmitry's coal mines" and "that's what happens when a $1 billion oligarch gets in a fight with a $5 billion oligarch."
A representative of the Bosov family told dot.LA they want Russian authorities to investigate whether foul play was involved in Bosov's death.
A screenshot of an online memorial to Dmitry"Dima" Bosov.
Turmoil in Russia
Bosov's last months alive were turbulent. Genius Fund was trying to restructure itself under Bosov's advisor, Gary "Igor" Shinder, and evaluate its financial losses. Bosov was also dealing with drama in Russia.
Bosov was known in Russia as a coal industrialist who more recently sought to build the largest railway infrastructure project for Russian Federation President Vladimir Putin. The eccentric billionaire was a majority owner in multiple Russia-based companies that are involved in the production of coal-linked projects.
He was the chairman of the board of directors and the owner of 86% of Moscow-based Alltech Group, a 27-year-old private investment company that manages oil and gas, coal and anthracite, as well as residential and commercial real estate, according to Genius Fund documents and Alltech's website. The investment group controls Sibanthracite Group, a coal exporter that calls itself Russia's largest producer of metallurgical coal — a crucial component for making steel, Sibanthracite's website states.
Bosov was also co-owner of other coal companies including VostokCoal MC, which manages coal extraction projects, with his longtime business partner Alexander Isaev, according to a Russian media interview on Sibanthracite's website.
Russian media reported that the state's environmental agency fined it roughly $8.4 million for illegal mining. The fine was related to a 2018 case against Bosov and Isaev's VostokCoal subsidiary, which was involved in a project to mine vast coal reserves in the Arctic's Taymyr Peninsula, Russia's largest nature reserve and a haven for wildlife like the muskox.
The Russian Federal Security Service, or FSB, also opened a criminal case against the management of Bosov's company for the illegal mining and sale of that coal, Russian media reported in April 2019. That was the same month Bosov and his wife's visas were rescinded by the U.S., said Genius Fund ex-CEO Francis Racioppi in a whistleblower retaliation lawsuit filed this past April.
A few months into 2020, Russian media reported that the Russian state's nuclear power company created by Putin sought to buy VostokCoal MC.
In early April, weeks before his death, Russian media and Forbes Russia reported that Bosov accused his longtime business partner Isaev of "egregious abuse and theft," and had him removed from his position atop coal company VostokCoal MC and also from the board at Sibanthracite. Isaev has denied the accusation.
It was later reported that less than 24 hours before Bosov's death, a former business partner was arrested in Russia on suspicion of ordering contract killings in the 1990s. Russian media outlets speculated that Bosov was about to be called as a witness.
During this period, the price of coal dropped precipitously in the face of the ongoing COVID-19 pandemic, putting the companies "in a desperate crisis," Anders Åslund, a senior fellow and Russia expert at the Atlantic Council think tank, told dot.LA.
A person familiar with Bosov's state of mind in the months prior to his death told dot.LA that he had talked about increasing turmoil, including theft, at a company.
As the pandemic spread, Bosov reportedly armed himself, believing rampant crime would break out, and yelled at people to "stay home or die."
"It's clear that since the beginning of the year, there had been something going on," said Brian Whitmore, director of the Russia Program for the Washington, D.C.-based Center for European Policy Analysis. "Russian media was reporting that his financial affairs appeared to be in turmoil since the beginning of the year, when he began transferring assets and dismissing employees."
Whitmore said despite much speculation in the Russia media it's hard to know exactly what may have led to Bosov's death. Whitemore said the billionaire was known for "adventurous," high-risk investments.
"We had a saying in Russia: was it suicide or were they suicided?" Whitmore told dot.LA.
In April, as the turmoil at his Russian companies' was unfolding, Genius Fund ex-CEO Francis Racioppi filed a more than $3.5 million whistleblower retaliation lawsuit in Los Angeles federal court against Bosov and Genius Fund. And in June Genius Fund, itself, filed a second arbitration claim alleging their former business associates embezzled and unjustly enriched themselves.
Bosov's manner of financing and lack of strict accounting controls prompted speculation among Genius Fund staff. In particular, as to why he was "repeatedly dumping millions of dollars into the company without requiring any accountability from company management or executives as to how the money was being spent," according to allegations in Racioppi's lawsuit.
"I'm surprised the company didn't get raided by federal authorities only because there's one investor," a former Genius Fund employee told dot.LA. "He's a billionaire oligarch and it looks like a classic play of moving assets to the West."
Bosov's Plans
Just how much Bosov was involved in day-to-day decision-making at Genius Fund remains unclear.
In his whistleblower retaliation lawsuit, Racioppi contends that Bosov was not a passive investor but exerted "complete control" over the business. A Bosov family member told dot.LA this was not true. That person declined to provide details beyond that the family hoped Genius Fund would be "grown as father wished and be a great company."
Racioppi's lawsuit alleges that Bosov ran Genius Fund's day-to-day operations while living in the U.S. from fall of 2018 to the around May 2019, just as the company was getting off the ground.
During that time, Bosov lived in a garish Beverly Hills mansion described as a modern-day tribute to Versailles that he eventually purchased through an entity created a few weeks prior, paying $30 million in cash, according to property and court records.
In his lawsuit, Racioppi alleges Bosov mixed his personal funds with Genius Fund's, blurring the lines between corporate and personal investments.
Attorneys representing the defendants denied the allegations and characterized Racioppi as a disgruntled CEO who was unwilling to take direction from the new owner, and was never terminated.
Amit Sharma, a former U.S. Treasury Department official and a startup owner himself, said it's crucial that there be a firewall between business funds and personal funds. "Commingling is a notable red flag in the money laundering world," he said.
Genius Fund operated more than 50 entities, but had only one main account through which the investor's money came in and from which money was spent, according to corporate documents and former employees.
The Beginnings of the Power Struggle
By fall of 2019, back at Genius Fund's Culver City office, Racioppi said he was communicating with Bosov daily regarding the company's growing debt, according to his lawsuit.
As the year went on, funds wired from Bosov's company, Alltech Group, to Genius Fund became less frequent. Genius Fund's sole investor began requiring more details on profits and losses before sending additional funds, multiple employees said.
"In the past, these two kids, whenever they wanted money, he just sent it," Evan Kagan, an executive in one of Genius Fund's ventures, said of Stiegler and Borden.
Internal company records and former employees show the plan had been that Genius Fund expected to be financially self-sufficient by the fall of 2019. But by that December the company was still not cash flow positive, and it looked unlikely it would be anytime soon, according to company records.
Bosov summoned the team to the Mexican resort town of Cabo San Lucas for a meeting, according to multiple employees and company records. He made Stiegler and Racioppi co-CEOs and made it clear that they should not meddle in the staff's future financial projections, according to multiple former employees. The billionaire introduced his friend, Shinder, who lives in the U.S., as his new consultant on matters related to Genius Fund.
When the executives returned in early December, former staff members realized that many of them had received the same calendar invitation.
They told dot.LA that one by one, they were brought over to talk to a representative of HR and legal and told they were being let go. The casualties included the C-suite of products, the THC team and anyone redundant, three former employees said. Stiegler and Borden stayed away and waited it all out, the three remembered.
The next day, Stiegler went over to the product team and said, "If you're around, congratulations, get ready to work really fucking hard," according to the three former employees.
In a video clip of a Genius Fund meeting reviewed by dot.LA, Stiegler announced at a staff meeting that he and Racioppi are now co-CEOs and said he's in charge of "investment decisions." Stiegler told his employees, "I'm deciding where our money is going."
The mid-January 2020 forecast prepared for Bosov found if Genius Fund wanted to continue operating in the same fashion, he would need to invest tens of millions — on top of the more than $150 million he'd already spent without profit, two former employees said.
"Until it became a problem, they probably never thought they had a financial problem," Kagan said of Stiegler and Borden.
Things were unraveling.
The Incident in Mexico
Stiegler occasionally set aside samples of the company's branded product with the words "this one's for Dima," according to former employees who saw and heard him do this.
Racioppi's lawsuit alleges that "Bosov insisted that a Genius Group employee transport a sample of its commercial cannabis product to him in Italy" despite Racioppi's objections. The suit describes an executive organizing the transport behind Racioppi's back.
In December, on another visit to Mexico, Stiegler stashed some of Genius Fund's marijuana in his backpack for another visit to meet Bosov. But before Stiegler could exit the airport, he was randomly selected for a search, three former employees said.
He was arrested.
"The one thing I can tell you about the Mexico trip," Stiegler told dot.LA. "There was, like it was kind of like some dirty Mexican cops, who obviously saw me as a rich American and they wanted to exploit that. They were, like, trying to extort me and scare me and stuff like what you see in the movies."
Stiegler added he had a "couple joints, literally like three, four joints in a bag" in a side pocket. "They saw it, then they just really scared me."
He said he was in jail for a "pretty short" amount of time.
Firing
As Genius Fund underwent a crisis at its top ranks in February of this year, the company continued to spend on what some within the company said were unrealistic ventures. An employee flew to Rotterdam in order to research automated greenhouses and hold meetings about potentially buying a $92 million project, a former employee said.
Stiegler also tried to develop a new real estate investment trust to operate as a Genius affiliate, spending investor money on research and travel to meet people in those last months, former employees and business associates said.
Racioppi alleges he told Bosov of the "the gravity of the company's dire financial situation" during meetings in Mexico, presenting him with a plan to turn the company profitable with a minimal additional cash infusion. In court filings he said Bosov then directed him to "implement a reorganization plan" with Shinder overseeing that effort.
By the end of February, Racioppi called a staff meeting where he stood up and told everyone, "I don't know if I have money to pay you or not. So you guys can go home. Don't come back. I'm so sorry. You'll get a letter from us," said several former employees.
For the many off-site employees, the conference call piping them into the meeting didn't work -- callers heard a bunch of people talking in the background before the line went dead, two former employees, who were on the phone call, said. They said they learned they had lost their jobs when they could no longer log into their work Gmail accounts. A week or so later, employees said they received a letter telling them they were laid off.
In the final months, ex-employees described efforts by the company to sell whatever it could, including farm equipment, to make payroll. In March, the company's coffee table and couch disappeared from the office, they said.
The layoff letter was dated the same day Racioppi accepted a new position as sole CEO. His contract was to run through 2021 with an annual base salary of $700,000 plus a $300,000 signing bonus, along with $30,000 in moving expenses and a guaranteed bonus of no less than $350,000 a year, according to Racioppi's lawsuit, which alleges he is owed the remainder of his contract.
But according to the lawsuit, shortly after he was promoted, Bosov pulled the funding and sold the company, its entities and assets to Shinder.
In his final written executive order as Genius Fund's board chair, Bosov detailed the murky corporate structure that made him the company's ultimate beneficiary. He said he indirectly owned the company through a majority stake in Cyprus-based Goldhawk Investments Limited, according to the order. But that name had never appeared on monetary wires to Genius Fund, said four former employees. Bosov's other company, Alltech Group, was cited on internal paperwork as the source of funds. The relationship between the private companies is unclear.
After Bosov washed his hands of Genius Fund in March, Shinder made himself the company's president and chairman of the board of directors, according to Racioppi's whistleblower retaliation lawsuit.
By the end of March, Shinder established a new Genius Fund board of directors that included three active members: Shinder as president, as well as his two attorneys, lawyers at the Washington, D.C.-based law firm Freeh Sporkin & Sullivan.
With the transfer of power complete, Shinder worked for weeks with lawyers to get a handle on the company's financial picture.
The new board's first executive order, submitted as part of Racioppi's lawsuit, was to audit Genius Fund and all of its entities, ban distribution of any assets or funds without written approval from Shinder, and to order an independent investigation regarding "possible fraud and negligence" because of apparently "severe deviations" in the fund's financials, structure and management, the document said.
Liquidation
By the end of March, Shinder laid off all existing staff, including management, citing the "substantial business interruption caused by the ongoing COVID-19 outbreak," even though the state and city said cannabis shops were allowed to remain open. Just a month earlier, the company had set records for daily and weekly revenue, Racioppi alleges in his whistleblower retaliation lawsuit.
But Genius Fund's time and financial backing had run out.
Former employees told dot.LA that the sudden dissolution of Genius Fund left them and their colleagues with thousands of dollars in expenses unreimbursed thus far. In a letter dated April 22 reviewed by dot.LA, employees received a "notice of unavailability of COBRA (healthcare) continuation coverage."
Some upset employees sold heavy machinery in the field to a competitor and then split and pocketed the cash, two people familiar with the sale said. Meanwhile, the company notified vendors it was terminating their relationships even though many of them were still owed money, according to recorded liens, Racioppi's lawsuit, and interviews with former employees and vendors.
Today Genius Fund's website is just a landing page with an email address. Slowly assets have been sold or appeared for sale, according to property records and documents submitted as part of Racioppi's lawsuit.
The company grew more than one million pounds of industrial hemp, but none of it ended up in any of Genius Fund's branded products during the company's less than two years of operation, multiple ex-employees said.
In April, property records show that Genius Fund sold its Santa Barbara County land for $5.4 million. The Adelanto site, used to manufacture CBD and THC oils and extract, is for sale, according to an arbitration claim Genius Fund filed in June against its former partners at the site, which alleges they stole, embezzled funds and were grossly negligent.
The arbitration has since been settled, according to Kagan, one of the parties to the claim.
Genius Fund's new owner, Gary Shinder, did not reply to repeated requests for an interview, but said in a letter to dot.LA that after significant examination, "I did not find anything that could support any allegations of embezzlement, theft, or mismanagement by Heli Holdings or its principals." He wrote that he instead found what was likely "the only successful project in the Genius Fund portfolio."
"Everybody's just trying to get what they can out of it," said former Genius employee Jeff Davis in May. Davis lives with Stiegler and is one of the people Racioppi's lawsuit said is helping on a commission basis to distribute remaining assets for what Davis called the now "defunct" company.
In the meantime, the FBI has shown some interest in talking to Stiegler. Federal agents showed up at Stiegler's house, but he wasn't home, Stiegler told dot.LA.
Stiegler said an FBI agent called him afterward and asked if he was OK in light of Bosov's death saying, "we want to make sure you're safe." The agent then proceeded to ask him questions about Bosov, but Stiegler said he didn't want to speak about him.
A spokeswoman for the FBI declined to comment.
'A Case Study in Excess'
Former VP of Cultivation Jason Taylor told dot.LA that the company could have been the largest player in the cannabis industry today, but "they just couldn't get out of their own way. They were too busy on drug fueled binges and parties."
"He gave them everything. The ability to have a private chef at the offices…they bought vehicles, all kinds of stuff," Taylor said of Bosov. "This was a billionaire who stood up and stopped meetings to shake my hand. He was not a monster, he just wanted results."
Borden and Stiegler were also let go in the final round of layoffs, but Shinder subsequently hired them back on a commission basis — along with a skeleton crew of at least six others — to "liquidate" the multi-millions in assets, including 1.7 million pounds of hemp, real estate assets, business entities, vehicles and other equipment, as quickly as possible, Racioppi said in his sworn declaration filed in his whistleblower retaliation lawsuit.
Stiegler said "that's not accurate," and that there were "two or three remaining employees and I'm pretty sure they've all been fired or quit now."
In his letter to dotLA, Shinder wrote: "While the public relishes in the success stories of young brash entrepreneurs in Silicon Valley, they usually don't hear about the colossal failures... To everyone's embarrassment, the prior Genius management can serve as a case study in immaturity, ego, financial irresponsibility, and excess."
He declined to comment further.
One former employee called it a "tragedy" that hundreds of people lost their jobs. So far, no one has accepted responsibility for the company's failings.
Stiegler said since Genius Fund's dissolution he's been working on new investments and new projects, "just kind of on to the next."
He's also hired a public relations and crisis management firm to improve his online image, a former business associate with direct knowledge told dot.LA.
Former employees who spoke to dot.LA say they are still dealing with the sudden job loss.
"It'd be great for some kind of justice to come out of (everything that happened)," said a former employee." There were a lot of good people who were trying to do right."
--
This is the fifth and final story in dot.LA's "Green Rush" series looking at the rise and fall of cannabis-related startup Genius Fund. Read part one, part two, part three, and part four and sign up for dot.LA's newsletter to be notified about new stories.
Do you have a story that needs to be told? My DMs are open on Twitter @latams. You can also email me at tami(at)dot.la, or ask for my contact on Signal, for more secure and private communications.
Lead art and illustrations by Candice Navi.
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Inside, shiny black tiled floors, chrome utilities and floor-to-ceiling glass walls give the facility a sleek, antiseptic feel. A table in the shape of a large aircraft wing spans its conference room.
The site has three buildings. One was used for CBD extraction, another was for THC extraction, and a third was for storage, according to local government planning and corporate documents.
Editor's Note
The story is pieced together from interviews with more than 40 former employees and business associates, active and retired county officials, as well as federal and county law enforcement; state court records, arbitration, arrest and corporate records in the U.S. and Canada; other public records in six California counties; Genius Fund corporate records and emails. Some former employees and business associates spoke to dot.LA on condition that their names not be mentioned out of fear of reprisals.
This is fourth story in our "Green Rush" series. Read more:
Part 1: Rise and Collapse of LA's Genius Fund | Part 2: Growing Pains in Plumas County | Part 3: A Line of Failed Products | Part 5: The Sudden Death of Dmitry Bosov And His Dream of a California Cannabis Empire
At the compound, Genius Fund intended to produce barrels of THC and CBD oil and extract from their marijuana and hemp grows.
Many cannabis manufacturing businesses have moved to Adelanto in recent years. The city has become known for being friendly to the cannabis industry, in part because of its need for revenue. A third of its residents live below the poverty line.
But Genius Fund did little to help the city. A spokesman for the California Department of Public Health said "there has not been an active state cannabis manufacturing license at this address since April 2019." The company continued to manufacture cannabis throughout 2019, according to corporate records. A former employee who directly dealt with the issue at the compound told dot.LA the company was lacking permits.
A video promotion for Heli's Adelanto production facility, which was rebranded as Purest Biotech, shows the facility's interior.
The Agreement with Heli
Genius Fund, an L.A.-based startup, was run by Ari Stiegler and Gabriel Borden, two twenty-something friends who had lofty ambitions of dominating the cannabis market, first in the U.S. and then internationally. Funding it all was a more than $160 million bet from a Russian coal oligarch, Dmitry Bosov, according to corporate and court records.
To get it done, Genius joined up with Joseph "Joey" Ohayon and his business partner Evan Kagan to form multiple "Heli"-branded entities, in which Genius held a majority stake, according to court records and interviews.
Former employees described Ohayon, 31, as a smooth talker who often wore a designer shirt, baseball cap and tight jeans and traveled nearly everywhere in a cream-colored Rolls Royce with his head of security. They said he talked a lot about his criminal record of assaults. Arrest and court records in Florida show a conviction for felony battery.
To rapidly scale up their fledgling company, Genius Fund invested big into Heli's ventures, agreeing to spend over $21 million. Much of that would go to purchase THC and CBD biomass for Genius Fund's line of products, according to records later filed in an arbitration between Ohayon and Kagan on one side and Genius Fund on the other. Their 2019 business agreement — which was submitted in those arbitration proceedings — gave Genius Fund first priority for manufacturing THC and hemp products, as well as first dibs on the marijuana flower, pre-rolls and other products.
A video for Francis Racioppi's "Aim Small Big Miss" YouTube series. Video embedded from YouTube.
Enter Racioppi
As Genius Fund's ambitions grew, so did its management team.
Francis Racioppi wowed the executives at Genius Fund with his background as a U.S. Special Forces officer and an executive at Snap Inc. Former employees describe him as a tall, intense guy with an athletic build. He was hired in April 2019 as the chief security officer. At the time, the company was moving in several directions at once to get its lab, grows, products and manufacturing processes off the ground.
He quickly rose up to the executive rank, convincing Borden and Stiegler that the marijuana business, which heavily depends on cash because it is illegal under federal law, had multiple security vulnerabilities that required new protocols.
Former employees said Racioppi placed cameras everywhere at the company's headquarters. They described him as relentlessly focused on his goals and often short with people and said he rubbed many employees the wrong way. He gained a reputation among the rank-and-file as someone to avoid, former employees said. They added that he surrounded himself with allies along the way.
"He was very textbook about pulling himself all the way up to the top," said one former employee.
Neither Racioppi nor his attorney replied to requests for comment on this story.
Within a month of his arrival, he was flying to Russia with Stiegler and Borden to meet with Bosov, two former employees said.
Racioppi hired a large group of employees — many were friends from his days at Snap or former military. They were paid hefty salaries, according to multiple former employees and corporate records.
At its height, at least 40% of Genius Fund's direct employees were security, accounting for at least half of the company's payroll costs, according to people familiar with the company books.
"I'm like, 'This guy [Racioppi] is literally about to stage a coup'," said an ex-employee, whose sentiments were independently echoed by his former colleagues. "He hired at least 20 of his military friends, all making exorbitant amounts per year. That's when I knew, this guy is going to take over."
Former employees also wondered whether executives, so taken by Racioppi's Special Forces background, failed to do even a Google search to find out why he left Snap.
The Wall Street Journal reported he was fired as Snap's head of global security in late 2018 after an investigation uncovered an inappropriate relationship with a contractor. Her contract was ended around the time she stopped seeing him.
As his prominence in the company grew, employees said they saw Racioppi try to gain Bosov's trust, in part by warning Genius Fund's principal investor of the company's financial situation. In his more than $3.5 million whistleblower retaliation lawsuit filed in April in federal court in L.A., Racioppi details his efforts to try to inform Bosov of mismanagement at the company.
One place where he saw the company's losses piling up: the compound in Adelanto.
Illustration by Candice
Evicting Ohayon
As he cracked down on waste, Racioppi and the company's finance team pushed Heli Ventures' Ohayon to provide more transparency on spending, and the alliance with Heli grew rocky. Arbitration records filed by Genius Fund accused Ohayon and Kagan of embezzlement and unjust enrichment.
Genius Fund executives purchased the Adelanto property for $7 million, according to documents submitted as part of Racioppi's lawsuit. One former employee told dot.LA the purchase was partly made to ensure Genius Fund could access the site should relations with Ohayon deteriorate further.
Kagan agreed with that latter assessment, telling dot.LA he tried to distance himself from the business as the drama unfolded.
"They bought it out of necessity to take control," Kagan said. "They were going to use that to evict [Ohayon]."
Roughly a year into working with the company, Ohayon allegedly threatened to go after Stiegler in a September 2019 conference call, saying, "I'll beat his ass up," "I'll fuck him up" and "I'll kill that kid," according to an application for a temporary restraining order filed by Stiegler and other Genius Fund executives later that month. Ohayon denied the allegation to dot.LA.
In a sworn declaration filed in court to obtain the restraining order, Stiegler said he grew increasingly worried about his safety and that he added round-the-clock personal security and bumped up security at all Genius Fund offices and at the Adelanto facility.
Bosov terminated Ohayon and Kagan's agreement with Genius Fund two days after the conference call.
As the company's legal team went through Heli's books, they were unable to locate more than $4.5 million in cash that had been listed on Heli's balance sheet just a couple of weeks earlier, according to documents filed in support of the restraining order.
Separately, arbitration records also allege the company could not find an additional $2.5 million and further alleged that Ohayon used some of the company's money to pay himself.
"Despite repeated requests for an accounting by Genius Fund," those documents state, "Ohayon has failed to provide one and failed to explain the reduction of $2.5 million in the cash log."
The filings also accuse Ohayon of contracting with several entities to pay $4 million to purchase 150,000 pounds of hemp. The market price at the time would have put the value at $259,500. One of those entities then purchased 3.5% of Heli Holdings, "which is merely an operational company with minimal assets and no revenue to date," for $4 million in cash. "Thus, effectively," the arbitration documents allege, "respondents paid themselves $4 million with Genius Fund's money."
Also in the documents: Genius Fund accused Ohayon of using the company's American Express card to pay for dogs, dentist visits and personal travel. They accused him of providing a company credit card to a friend unrelated to the business who used it for personal expenses.
Ohayon's partner, Kagan, told dot.LA that Ohayon had purchased dogs on the American Express to serve as security for the compound. He had originally wanted wolves, he said, but was talked down.
Ohayon initially declined to comment for this story. Later he sent an email response.
"These statements are false," Ohayon said, referring to the application for a restraining order. "They made these accusations solely to exert leverage and try to push me out and deprive me of my interest."
Ohayon said all hemp purchases were disclosed and approved by Genius, Bosov and his representative. He added that he never used his business credit card for personal expenses.
Ohayon said he sold the dogs and returned the money. The arbitration claims, he added, were settled.
Security footage shows Joseph "Joey" Ohayon and his security detail being let on to the Adelanto facility's grounds by the head of Heli's security.
Lockdown
Genius Fund appointed one of its own as a new interim head of Heli. A message to all Heli company employees reviewed by dot.LA told them that previous management had failed to make payroll and that Genius Fund would pick up the entity's tab. The next day, which was typically payday, the new interim CEO stood outside the company's Adelanto gate so that employees could pick up paper checks.
But things worsened. The following week no one showed up to work at Adelanto. Heli's new interim CEO surmised that Ohayon had threatened the employees or told them not to go in, according to documents submitted to the court in support of Genius Fund's application for the temporary restraining order.
"I never threatened them," Ohayon told dot.LA "They decided against working for Genius due to their conversations with other Genius employees."
Security footage from Sept. 26, submitted as part of the same application showed Ohayon's security staff attempted to take over the property. The video showed Ohayon and his security detail being let onto the Adelanto facility's grounds by the head of Heli's security. A minute-by-minute account in the court documents describes the company's vans barricading entrances and the apparent theft of "high terpene extract material" from the facility's refrigerator while more than a dozen armed security followed Ohayon around site.
Ohayon traveled to Italy to negotiate a settlement with Bosov, which was signed by Stiegler on behalf of Genius Fund, according to a copy submitted to the court in Racioppi's whistleblower retaliation lawsuit.
"We disagreed on some stuff, but at the end of the day Dima said: 'Hey, Joey gets to run this and Ari run that, let's just see what happens,'" Stiegler said.
As part of the settlement, the company renewed its relationship with Ohayon and Kagan, who agreed to decrease their membership shares in the Heli partnerships from 49% to 39% and withdraw their security operations from the Adelanto compound, according to court records in Racioppi's lawsuit. The settlement left the facility's security in Genius Fund's hands. The request for a temporary restraining order against Ohayon was partly granted in October, but was dismissed by the court 10 days later because none of the plaintiffs showed up for the next hearing.
Genius Fund's current owner, Gary Shinder, did not reply to repeated requests for an interview, but said in a letter that after significant examination, "I did not find anything that could support any allegations of embezzlement, theft, or mismanagement by Heli Holdings or its principals." He wrote that he instead found what was likely "the only successful project in the Genius Fund portfolio."
Genius Fund ended up pouring tens of millions into the Heli operation, but it was never profitable, according to Kagan and corporate records.
An image of the land Genius Fund purchased in Santa Barbara County.Photo submitted from a source who prefers to remain anonymous.
Cannabis in Wine Country
The company's relationship with Ohayon and Kagan went beyond the Adelanto property. In 2019, Genius Fund executives had also signed an agreement with them that included purchasing a 350-acre plot of land in Santa Barbara County's wine country — known locally as the Domingos family ranch — for $23 million. Most of it was paid in cash upfront, county and corporate records show.
Just a year earlier, the land records show the property had sold for nearly $655,000. It was appraised at the time of Genius Fund's purchase at roughly $5.5 million, according to court documents filed in Racioppi's lawsuit.
It was another hefty expense for the company that required Bosov to wire over cash infusions so that the company could meet payroll while vendors went unpaid, according to Racioppi's lawsuit, as well as several former employees and vendors.
Genius Fund called the Santa Barbara enterprise Genius Farm 2, according to property and corporate records. With proper permitting, it could have complemented Heli's other operations and helped fulfill the company's vision of creating a full ground-up supply chain for Genius Fund.
But according to former employees and court documents submitted as part of Raccioppi's lawsuit, Genius Fund went into the deal without a land use permit to grow cannabis — in a region protective of its wine crop.
Ohayon told dot.LA that was the result of infighting at Genius Fund. "Genius management sabotaged the project hoping to eliminate us prior to getting the final LUP [land use permit]," he wrote in an email.
"They had the seller and all consultants involved in that project sign NDAs to ensure that they didn't communicate with us" at a critical time in the permitting process. "Due to a personal vendetta, Stiegler was willing to 'burn the house down'," Ohayon said.
The company would never get the permit to plant cannabis in Santa Barbara. Months later, it would sell the land for millions less than what it was purchased for, according to property and county records.
Soon, Bosov would grow tired of just dreams.
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This is the fourth in dot.LA's "Green Rush" series looking at the rise and fall of cannabis-related startup Genius Fund. Read part one, part two, part three and part five, and sign up for dot.LA's newsletter to be notified about new stories.
Do you have a story that needs to be told? My DMs are open on Twitter @latams. You can also email me at tami(at)dot.la, or ask for my contact on Signal, for more secure and private communications.
Lead art by Candice Navi.
- Is the Green Rush Over? - dot.LA ›
- The Rise and Fall of Genius Fund's $164M Cannabis Empire - dot.LA ›
- The Death of Dmitry Bosov and His Dream of a Cannabis Empire - dot.LA ›
A Note on Our 'Green Rush' Series
The story is pieced together from interviews with more than 40 former employees and business associates, active and retired county officials, as well as federal and county law enforcement; state court records, arbitration, arrest and corporate records in the U.S. and Canada; other public records in six California counties; Genius Fund corporate records and emails. Some former employees and business associates spoke to dot.LA on condition that their names not be mentioned out of fear of reprisals.
This is the third in dot.LA's "Green Rush" series. Read more:
Part 1: Rise and Collapse of LA's Genius Fund | Part 2: Growing Pains in Plumas County | Part 4: What Went Down in Adelanto | Part 5: The Sudden Death of Dmitry Bosov And His Dream of a California Cannabis Empire
In Vernon, California, the company created Full Circle Labs with David French, a corporate finance instructor at UCLA Extension, as its head.
Genius would sink millions into an 80,000-square-foot gated facility to house it, according to corporate records and government documents.
The effort was one of many undertaken by the ambitious cannabis startup. Company records and government filings expose a sprawling operation spanning dozens of corporate entities.
The Search for a Better Way to Process CBD
By early 2019, French, who employees say they called Dr. French, was brought on to run the Full Circle Labs research and production operation to create an ethanol-free extraction process that would produce a purer version of CBD oil.
* For the Record
After the August 6, 2020 publication of Part 3 in this series, Ari Stiegler's public relations representative told dot.LA that Stiegler "never altered historical financials, but often adjusted future projections in response to different assumptions or scenarios, which is standard in business."
A favorite professor of Genius Fund executive Gabriel Borden from his time at Loyola Marymount University, French was given leeway to run the operation as he saw fit, former employees said. In addition to technical staff, French hired around five additional consultants, paying them for a few hours of work a week, two former employees said.
Full Circle Labs research and production facility in Vernon, California.Photo by Tami Abdollah
Attempts to find a new method to extract a purer CBD oil did not go well, according to former employees. French did not respond to repeated efforts to reach him.
The distilled CBD oil the lab created contained levels of THC that exceeded the 0.3% maximum allowed under federal law, according to a former Genius Fund employee with direct knowledge. That person added that the company was forced to spend more money to dilute it to an acceptable level.
Months later, the lab came under scrutiny from the new chief operating officer, who was increasingly trying to rein in spending. Francis Racioppi, who later became CEO, pressed French for details on the consultants and their work. French then let them go.
The lab was disbanded a few months into 2020, as part of a series of layoffs across the company. The warehouse was converted to storage space for the farmed hemp and other equipment, including furniture from the main Culver City, California, office, former employees said.
The company had 13,000 square feet of cold storage built for Full Circle Labs in Vernon, California. Hansen Cold Storage Construction president, Steven D. Hansen, told dot.LA he's still owed more than $100,000 for the work. Los Angeles County records show he placed a mechanic's lien on the property.
A Line of Failed Products
Genius Products rolled out in the spring of 2019. Genius Fund hired dozens of employees — including some product development veterans — to work at its Culver City headquarters. The goal: To create new edible, beauty and health brand lines to feed the vertically integrated cannabis startup. For nearly a year, the more veteran Genius Products employees worked on a slew of ideas, including lip balm, toothpaste and pet chews. But those concepts all came to naught, former employees with direct knowledge said.
"A lot of people there left really, really amazing jobs to come join this organization," one former employee told dot.LA. For the creatives, the promise was to be able to build new products with "endless budgets."
One former employee recalled working 80-hour weeks to produce something that was then quickly dismissed. Another said he worked harder than he had ever worked before, with little to show for it.
"They didn't try to do one thing," said an ex-employee. "They tried to do everything. And whatever happened to be the flavor of that day."
Genius Fund executive Ari Stiegler disagreed with that assessment.
"The real story is, look at the success," he said. "Look at the beautiful stores, look at the beautiful brands."
One of Genius Fund's cannabis kiosks. Photo provided by a source who has asked to remain anonymous.
Cannabis Kiosks
Company executives wanted to develop a delivery model for their products. In early 2019, they pushed forward with the idea of kiosks that would provide cannabis to consumers at stores around the state.
Unlike those using delivery apps, such as Eaze, customers placing orders through the kiosks would have to wait on site for roughly 20 minutes for their cannabis to be delivered by car, former employees said.
Genius Fund paid barbershop and liquor store owners $200 up front to host their kiosks and $100 a month thereafter, corporate records show. On top of those payments, the salesperson who placed the kiosk was paid a commission, as was the salesperson's manager and the sales VP.
It was a financial flop.
Three former employees said that Genius Fund had agreements to put hundreds of kiosks in locations throughout California. Many of them would be in stores that were right next to each other, but most of the kiosks the company ordered were never placed, the former employees said.
One such kiosk sat in the living room of Stiegler's Los Angeles home, a business associate with direct knowledge said.
"They were beautiful, worthless vending machines," one former employee said.
An image of a Day One sparkling CBD water can. Photo provided by a source who has asked to remain anonymous
Day One
Another effort, CBD-infused sparkling water branded "Day One," also fizzled.
Genius Fund contracted with Wisconsin-based Octopi Brewing to produce a drink that would contain 20 mg of CBD. But obtaining a consistent mix of CBD in the sparkling water was hard to achieve, according to former employees with direct knowledge.
An internal Genius Fund testing record reviewed by dot.LA showed one batch of Day One contained just 1.3 mg of the 20 mg of the CBD its label advertised. The U.S. Food and Drug Administration, which regulates labeling, has found that CBD amounts are often inaccurate.
Octopi's CEO and founder, Isaac Showaki, said his company disposed of the pallets of inconsistent product and offered to redo them for free.
"We were using a wrong type of CBD that wouldn't hold up in a can, and that was when we were prototyping," Stiegler told dot.LA. "After a month of prototyping, we found the right type" of shelf-stable CBD, he added. In the summer of 2019, Day One was distributed regionally to a "couple hundred" stores. "We were in 7-Elevens and all that stuff."
Stiegler said a couple thousand noncompliant Day One cans were directed to Genius Fund's Culver City office for internal use only, and Genius Fund records show their sales, marketing and events teams had CBD-infused Day One sparkling water sent "for inhouse guests; events (pouring); and sales team pitches."
"We never obviously sold it, obviously, we didn't want to sell...a product that said 20 mg but it was only maybe 15, or maybe 25," Stiegler said. "It was just for free internal consumption."
The use of out-of-spec cans made some employees uncomfortable. Emails reviewed by dot.LA show an effort by some employees at Genius Products to stop the team's executives from bringing more out-of-spec product into the office later in August.
"I do not want to be associated with this," one employee wrote.
A Natural Hemp Company CBD candle made by Unique Candles for Genius Fund. Photo provided by a source who has asked to remain anonymous
The Collapse of CBD Candles
Genius Fund executives wanted to roll out a product line of Genius-branded CBD candles. The company ordered thousands of them, in five scents, from Northridge, California-based Unique Candles, former employees said.
Mixed and poured by hand, the candles were more labor-intensive to produce, giving them an artisanal, small-batch feel that could command a higher price.
"The least they could do is put it on the box that it's hand-poured and it's made in the U.S.," said a former employee involved in the effort. "Otherwise, we might as well produce everything in China."
Ultimately, the company did add the hand-poured, made in U.S. labeling to its website.
The continuous turnover at Genius Fund also proved to be a problem. Unique Candles founder Naji Absi complained that a new Genius representative would reach out to him on a monthly basis.
"There were just too many people. They were all over the place," Absi said, declining to elaborate.
In the end, few of the candles, priced online at $47.99, were sold, according to former employees with direct knowledge. None of them included Genius Fund's homegrown hemp.
The interior of the Genius store's retail store on Melrose Ave.Photo courtesy of Ari Stiegler
The Genius Store
Genius Fund executives intended to sell their THC products out of a company-owned retail store on Melrose Avenue in Los Angeles, which they hoped to have set up a few months into 2019, according to former employees. But that did not go as planned.
Executive Gabriel Borden hired his mother's firm, GRAYmatter Architecture, to design the space. The project's completion was delayed by months and cost more than $10 million, according to corporate records and three former employees.
Stiegler said his own mother's architectural firm provided designs for what was supposed to be their second store on La Brea, but there were construction problems that prevented it from ever being completed.
"We had some bad general contractors, basically," he said.
Approximately 40 retail store employees were hired in April 2019, and then let go shortly thereafter because the store was not complete, according to two former employees. The store opening was pushed back multiple times, from close to Spring Break to Memorial Day, then to the Fourth of July.
Borden's mother, Melinda Gray, told dot.LA that work began around March and was "very quick, as projects go," even though "the people ... who were involved in the project, were constantly changing."
Stiegler said the Melrose store took so long to open because it required "a ton of design changes." "There's lots of compliance involved with cannabis," he added, which meant they had to renovate the entire location.
The retail store's grand opening was finally held in October. A gif posted on Twitter shows Stiegler and Borden wearing baseball caps and shades, cutting a large red ribbon in front of the Melrose location.
"They really could have been a real business," said a former employee. "They could have made money if they would have done things differently."
A Nissan labeled with Day One's logo. Photo by a source who wishes to remain anonymous.
Expenses Add Up
The company's American Express bill ballooned from about $500,000 a month to more than $1.6 million in one month over the summer, company documents reviewed by dot.LA show. In response, two former employees said, Stiegler limited who had access to the credit cards.
Four former employees said that for much of the company's operation, there were few formal restrictions or guidelines on spending. In August alone, the company spent nearly $21 million, company documents show.
Former employees said they raised concerns about spending to Stiegler, but felt like he brushed them off.
Then came claims that financial records were manipulated.
In a sworn declaration from his more than $3.5 million whistleblower retaliation lawsuit filed in April in federal court in L.A. against the company and Dmitry "Dima" Bosov, its Russian oligarch investor, former Genius Fund CEO Francis Racioppi alleged that one Genius Fund executive "secretly manipulated the company's bookkeeping records and revenue records to reflect substantially lower expenditures and greater revenue than the company was actually generating." Attorneys for the defendants say Racioppi was a disgruntled CEO who didn't want to abide by his arbitration agreement and was unwilling to take direction.
Multiple former employees say the man Bosov sent to check on his investment, Alltech Group CEO Dmitry Aga, was given the same inaccurate revenue reports that Racioppi alleges (in his court declaration) Bosov was given.
Based on those reports, Bosov gave the green light for Genius Fund to overpay for certain purchases, employees told dot.LA. The wire transfers came from Alltech, according to Racioppi's court filings and Genius Fund's corporate documents.
"That's absolutely not what happened," Stiegler said. "Sure, maybe I moved [numbers] down." But, he added, "a million edits" go into "future expectations." *
"It's really anyone's guess," he said. "Like, are we going to be in 100 stores for Day One, or 200 stores?"
At least two members of the finance team and the company's chief economist quit to protest the way financial reports and projections were presented to Bosov and his representatives, multiple employees told dot.LA.
Stiegler said some people did quit, but he did not know why. "We had a lot of employees," he said. He added that Bosov "had all the financials. He had everything. He saw exactly what was going on."
Former vice president of cultivation Jason Taylor was one of Genius Fund's first hires. "The main decision makers were Ari and Gabe," he told dot.LA. "They told Dima what they wanted him to see and hear. Nothing else."
"I was the guy that was helping them build the proposals that were being given to Dima," he added.
The company was living beyond its means. Soon money would slow to a trickle.
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This is the third story in dot.LA's "Green Rush" series looking at the rise and fall of cannabis-related startup Genius Fund. Read part one, part two, part four and part five, and sign up for dot.LA's newsletter to be notified about new stories.
Do you have a story that needs to be told? My DMs are open on Twitter @latams. You can also email me at tami(at)dot.la, or ask for my contact on Signal, for more secure and private communications.
Lead art by Candice Navi
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