Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 1 of 52

AO 106 (Rev. 04/10) Application for a Search Warrant

UNITED STATES DISTRICT COURT

for the District of Colorado
In the Matter of the Search of
) Case No. 14-sw-05988-MEH
(Briefly describe the property to be searched or identify the person by name and
address)
)
)
The email accounts listed below and information associated with such
email accounts that are in the possession of or under the control of the )
Email Provider, GoDaddy.com LLC, whose office is located at 14455 )
North Hayden Rd., Suite 219, Scottsdale, AZ 85260: )
)
1. william@williamjsears.com 4. jscott@pharmpods.com )
2. wsears@vertifresh.com 5. sdittman@fusionpharminc.com )
3. admin@pharmpods.com 6. craig@fusionpharminc.com )
)
APPLICATION FOR A SEARCH WARRANT

I, a federal law enforcement officer or an attorney for the government, request a search warrant and state under
penalty of perjury that I have reason to believe that there is now concealed on the following person or property
located in the State and District of Colorado and elsewhere (identify the person or describe property to be searched and give its location):

SEE “ATTACHMENT A”, which is attached to and incorporated in this Application and Affidavit

The person or property to be searched, described above, is believed to conceal (identify the person or describe the
property to be seized):

SEE “ATTACHMENT B”, which is attached to and incorporated in this Application and Affidavit

The basis for the search under Fed. R. Crim. P. 41(c) is (check one or more):
X evidence of a crime;
contraband, fruits of crime, or other items illegally possessed;
X property designed for use, intended for use, or used in committing a crime;
a person to be arrested or a person who is unlawfully restrained.
The search is related to a violation of 18 U.S.C. § 1343 and 15 U.S.C. §§ 78(b) and 78ff(a) and the application is based on
these facts:
X Continued on the attached affidavit, which is incorporated by reference.
Delayed notice of days (give exact ending date if more than 30 days: ) is requested
under 18 U.S.C. § 3103a, the basis of which is set forth on the attached sheet.

s/ Kate E. Funk
Applicant’s signature

Kate E. Funk, Special Agent Federal Bureau of Investigation

Printed name and title
Sworn to before me and: signed in my presence.
submitted, attested to, and acknowledged
cknowledged by reliable eelectronic
leecttro
r nic means.

Date: 28August
Nov 2014
25, 2012
JJudge’s
g signature
g

City and state: Denver, CO

Printed
P i d name and
d title
il
Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 2 of 52

Attachment A


Description of Location to be Searched

The email accounts listed below and information associated with the email accounts
known as (hereinafter and in Attachment B as "SUBJECT ACCOUNTS") that is in the
possession of or under the control of the Email Provider, GoDaddy.com LLC, whose
office is located at 14455 North Hayden Rd., Suite 219, Scottsdale, AZ 85260
(hereinafter and in Attachment B as "PROVIDER.")

1. william@williamjsears.com
2. wsears@vertifresh.com
3. admin@pharmpods.com
4. jscott@pharmpods.com
5. sdittman@fusionpharminc.com
6. craig@fusionpharminc.com

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Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 3 of 52

Attachment B

Description of Items to be Searched and Seized

Pursuant to 18 U.S.C. § 2703, PROVIDER as described in Attachment A is

hereby ordered as follows:

I. SEARCH PROCEDURE

A. The search warrant will be presented to personnel of the PROVIDER, who will be
directed to isolate those accounts and files described in Section II below;

B. In order to minimize any disruption of computer service to innocent third parties,

the PROVIDER'S employees and/or law enforcement personnel trained in the
operation of computers will create an exact duplicate of the computer accounts
and files described in Section II below, including an exact duplicate of all
information stored in the computer accounts and files described therein;

C. The PROVIDER's employees will provide the exact duplicate in electronic form of
the accounts and files described in Section II below and all information stored in
those accounts and files to the agent who serves the search warrant; and

D. Law enforcement personnel will thereafter review all information and records
received from the PROVIDER's employees to determine the information to be
seized by law enforcement personnel specified in Section III.

II. FILES AND ACCOUNTS TO BE COPIED BY THE PROVIDER'S EMPLOYEES

A. For the SUBJECT ACCOUNTS listed in Attachment A from November 15, 2010
to May 16, 2014, the PROVIDER shall disclose the following information, and the
disclosure shall include all information even if deleted yet still available to the
PROVIDER, and all information preserved pursuant to a request under 18 U.S.C.
§ 2703(f):

1. The contents of all emails and attachments associated with the SUBJECT
ACCOUNTS, including deleted, stored, or preserved (pursuant to 18
U.S.C. § 2703(f) or otherwise) emails sent to and from the account, draft
emails, existing printouts of any such emails, the source and destination
addresses associated with each email, the date and time at which each
email was sent, and the size and length of each email;

2. All records or other information regarding the identification of the

SUBJECT ACCOUNTS, to include full name, physical address, telephone
numbers and other identifiers, records of session times and durations, the
date on which the account was created, the length of service, the IP
address used to register the account, log-in IP addresses associated with
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session times and dates, account status, alternative email addresses,

phone numbers, or other identifying information provided during
registration, other associated email accounts, all screen names associated
with the subscribers and/or accounts, methods of connecting, log files,
and means and source of payment (including any credit or bank account
number);

3. All records indicating the services available to subscribers of the

SUBJECT ACCOUNTS;

4. The services the SUBJECT ACCOUNTS utilized and all records

generated by those services.

5. All records or other information stored at any time by an individual using

the SUBJECT ACCOUNTS, including address books, contact and buddy
lists, calendar data, pictures, and files;

6. All records pertaining to communications between the PROVIDER and

any person regarding the SUBJECT ACCOUNTS, including contacts with
support services and records of actions taken.

III. INFORMATION TO BE SEIZED BY LAW ENFORCEMENT PERSONNEL

A. The following items from those described above in Section II related to,
evidencing or concerning (a) the formation, ownership, control and/or operations
of FusionPharm, Inc., Meadpoint Venture Partners, LLC, VertiFresh, LLC,
Bayside Realty Holdings, LLC, and Microcap Management, LLC (hereinafter,
collectively, the “Enumerated Entities”); and (b) the scheme and activities which
are described and are the subject of the affidavit in support of this warrant (which
affidavit is incorporated by reference herein), which items constitute evidence
and/or instrumentalities of violations of Title 18, United States Code, Section
1343 (wire fraud) and Title 15 United States Codes, Section 78j(b) and 78ff(a),
excluding, however, any items constituting privileged attorney-client
communications :

1. All electronic mail, attachments and related computer files relating to the
foregoing subjects.

B. All "address books" or other lists of correspondents.

C. Records relating to who created, used, or communicated with the SUBJECT

ACCOUNTS or user of that account, including records about their identities and
whereabouts.

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D. If evidence located in the SUBJECT ACCOUNTS is not otherwise listed herein,

and appears to relate to criminal acts other than violations of 18 U.S.C. § 1343 or
15 U.S.C. §§78(b) and 78ff(a), those items will not be further examined unless
and until a search warrant is applied for and issued for evidence of any such
separate criminal act.

IV. NON-DISCLOSURE TO SUBSCRIBER BY ORDER OF THE COURT

A. Pursuant to 18 U.S.C. § 2703(b)(1)(A) and 2705(b), GoDaddy, to whom this

search warrant is directed, shall not disclose the existence of the search warrant
or this Order of the Court, to the subscriber or to any other person, other than its
personnel essential for compliance with the search warrant of for the purpose of
receiving legal advice.

B. The Court further orders PROVIDER to continue to maintain the Subject

Accounts in an open and active status so as not to disrupt this ongoing
investigation.

V. PROVIDER PROCEDURES

A. The PROVIDER shall deliver the information set forth above within 14 days of the
service of this warrant and the PROVIDER shall send the information via
facsimile, United States mail, UPS, or Federal Express and where maintained in
electronic form, on CD-ROM or an equivalent electronic medium, to:

Special Agent Kate Funk

Federal Bureau of Investigation
8000 East 36th Avenue
Denver, Colorado 80238
(303) 629-7171

Pursuant to 18 U.S.C. § 2703(g) the presence of an agent is not required for service or
execution of this warrant.

VI. DEFINITIONS

A. As used above, the terms “records” and “information” include all of the foregoing
items of evidence in whatever form and by whatever means they may have been
created or stored.

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AFFIDAVIT IN SUPPORT OF APPLICATION FOR SEARCH WARRANT

I, KATE E. Funk, being duly sworn, depose and state the following:
1. I am a Special Agent employed by the Federal Bureau of Investigation
(“FBI”). I have been so employed for approximately four years. I am currently assigned
in Denver, Colorado to investigate economic or “white collar” crimes. I have participated
in several fraud investigations, with many of those investigations involving wire fraud,
mail fraud, money-laundering and mortgage fraud. Prior to my employment with the
FBI, I received an Accounting degree from the University of Kansas in 1995. I became
a Certified Public Accountant in 1996 through the state of Kansas.

2. At all times during the investigation described in this affidavit, I have been
acting in my official capacity as a Special Agent with the FBI. I have conducted
interviews, collected and reviewed documents, and obtained information from numerous
sources throughout my investigation. As detailed at length herein, my investigation,
which is ongoing, has revealed that there is a fair probability that evidence of a
microcap fraud scheme will be found in certain email accounts listed below.

3. I make this affidavit in support of an application for the issuance of a

search warrant for the following email accounts hosted by GoDaddy.com, LLC
(“GoDaddy”), with corporate headquarters located at 14455 North Hayden Rd., Suite
219, Scottsdale, Arizona 85260:

a. william@williamjsears.com
b. wsears@vertifresh.com
c. admin@pharmpods.com
d. jscott@pharmpods.com
e. sdittman@fusionpharminc.com
f. craig@fusionpharminc.com

4. The FBI, with the assistance of the Internal Revenue Service’s Criminal
Investigation Division (“IRS-CID”), is investigating whether Scott Dittman (“Dittman”),
President, CEO and co-founder of FusionPharm, Inc. (“FusionPharm”) and William
Sears (“Sears”), Dittman’s brother-in-law and co-founder and control person of
FusionPharm, orchestrated an offering fraud and “pump and dump” microcap stock
scheme. Your affiant’s investigation is assessing whether various suspected federal
criminal offenses occurred, including wire fraud in violation of 18 U.S.C. §1343 and
securities fraud in violation of 15 U.S.C. §§78(b) and 78ff(a), and 17 C.F.R. §240.10b-5.

5. The facts set forth in this affidavit are based upon my personal
observations, my review of documents discussed herein, my training and experience,
information from witnesses, and information and analyses obtained from other law
enforcement agencies, including the United States Securities and Exchange
Commission (“SEC”). This affidavit is intended for the limited purpose to show that
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there is probable cause for the requested search warrant and does not purport to set
forth all of my knowledge of, or investigation into this matter.

SUMMARY OF CRIMINAL INVESTIGATION TO DATE

6. Based on your affiant’s investigation to date and the supporting
information outlined in ¶¶6 - 119 below, your affiant concludes that Sears and Dittman
are the co-founders and controllers of FusionPharm and have been since its inception in
early 2011 via a reverse merger1 with a publicly traded company. Dittman and Sears
went to great lengths to hide Sears’ role with FusionPharm from the investing public to
engage in a multi-pronged scheme to reap millions of dollars in illicit profits: (a) after
acquiring control of the company, Dittman and Sears ensured that they would have
access to millions of shares of the company’s common stock through convertible
preferred shares and promissory notes; (b) after engineering a reverse stock split to
increase the value of their share interests, Dittman and Sears utilized multiple affiliated
entities to fabricate bogus deals and/or improperly recognize revenue; (c) in conjunction
with step (b), Sears and Dittman disseminated scores of false and/or misleading
financial disclosures and press releases touting and promoting the company and
overstating the company’s legitimate revenue by almost 90%; (d) while generating a
sufficient buzz for the company via steps (b) and (c), Sears and Dittman sold more than
4 million shares of the company’s stock through these affiliated entities, netting more
than $12 million in proceeds that they shared; and (e) Dittman and Sears pocketed
hundreds of thousands of dollars from FusionPharm and related entities through cash
withdrawals and checks.

7. Based on the evidence developed, described and detailed herein, your

affiant submits that there is probable cause to believe that: (a) Dittman and Sears have
committed the criminal offenses as listed in ¶4 above, and (b) evidence of these crimes
is located in the requested email accounts.

ORIGINS OF SEC’S INVESTIGATION

8. The matter which is currently the subject of a criminal investigation arose
from a referral on or about December 9, 2013 from the SEC’s Regional Office in


1
In a reverse merger transaction, an existing public “shell company,” which is a public reporting company
with few or no operations, acquires a private operating company—usually one that is seeking access to
funding in the U.S. capital markets. Typically, the shareholders of the private operating company ex-
change their shares for a large majority of the shares of the public company. Although the public shell
company survives the merger, the private operating company’s shareholders gain a controlling interest in
the voting power and outstanding shares of stock of the public shell company. The SEC’s Office of
Investor Education and Advocacy has issued an investor bulletin in the past warning about the risks of
investing in companies that have been involved in recent reverse mergers. (See
http://www.sec.gov/investor/alerts/reversemergers.pdf)

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Denver, Colorado. The SEC had been investigating a possible offering fraud and
pump-and-dump scheme being orchestrated by Dittman and Sears through
FusionPharm, a publicly traded microcap company.2

9. The genesis of the SEC’s investigation involved a complaint filed by

Cooperating Witness 1 (hereinafter referred to as “CW-1”), a former FusionPharm
employee from early 2013 through October 2013.3 In the complaint, CW-1 suspected
that FusionPharm was fraudulently misleading investors about the company’s
performance. FusionPharm publicly claimed via press releases and financial
disclosures to refurbish and sell modified shipping containers called “PharmPods” to
cannabis and organic produce customers, and with great success. CW-1 claimed that
Dittman and Sears were using multiple entities they had created to fabricate phony
business deals, and to perpetrate this fraud on FusionPharm investors, customers, and
the market as a whole. 4

10. The SEC conducted preliminary investigative work, which included: (a)
reviewing FusionPharm’s publicly available financial disclosures between June 2011
and September 2013; (b) reviewing publicly available information concerning
FusionPharm, Dittman, Sears, and the companies purportedly owned, operated and/or
controlled by Dittman or Sears; and (c) interviewing CW-1. The SEC suspected that
FusionPharm may have been fabricating revenues involving possible sham transactions
with companies owned, operated and/or controlled by Dittman and Sears, and
misrepresenting revenues to the public.

11. The SEC referred the matter to the FBI on December 9, 2013. Pursuant
to an access request dated December 13, 2013, the SEC provided your affiant with
records it had obtained as part of its investigation, which include: (a) financial records
(including bank account statements, checks, deposits, incoming wire information)

2
A microcap company is a company with market capitalization of less than $250 - $300 million. See
www.sec.gov/investor/pubs/microcapstock.htm.
3
CW-1 initially filed the complaint on a voluntary basis, and was subsequently debriefed as part of
parallel investigations conducted by the SEC’s Denver Regional Office and federal criminal law
enforcement authorities including the FBI. After voluntarily providing this information, CW-1 refiled his
initial complaint to claim status as a “Whistleblower”, as defined in the Dodd-Frank Wall Street Reform
and Consumer Protection Act (“Dodd-Frank”) [15 U.S.C. § 78u]. CW-1’s status as a Whistleblower means
that CW-1 receives certain identity disclosure protections and provides CW-1 with a right to a potential
monetary reward in the event that the information CW-1 voluntarily provided lead to a successful SEC
enforcement action resulting in monetary sanctions exceeding $1,000,000.00.
4
Although not a primary focus of my investigation, CW-1 noted that the PharmPods did not perform as
the company claimed through its advertisements, press releases and its website. Your affiant spoke with
multiple customers, many of whom complained about various deficiencies in the product compared to the
representations made by Dittman and Sears. One of Dittman’s and Sears’ biggest claims was the
product was “plug and play,” and that all any purchaser would need to do is plug the PharmPod in and
one could start growing in compliance with local government ordinances. This was false, and according
to CW-1, Dittman and Sears knew this was false when they made the representations.
3

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provided by various banks of accounts owned, operated or controlled by FusionPharm,

Dittman and Sears (“Bank Records”); (b) brokerage records (including account
statements, transaction history and wire transfers) provided by various brokers of
accounts owned, operated and/or controlled by Sears and other owners of
FusionPharm stock (“Brokerage Records”); (c) records provided by FusionPharm’s
transfer agent regarding stock issuances, transfers and transactions (“Transfer Agent
Records”); (d) investigative records provided by the Financial Industry Regulatory
Authority (“FINRA”) of its 2011 investigation of FusionPharm (“FINRA Records”); (e)
records obtained from the Blue Sheet System (a system used to collect data from “Blue
Sheet Requests,” which are electronic requests for detailed information on trades in
publicly traded securities sent to clearing firms, broker dealers and market
makers)(“Blue Sheet Data”); and (f) records of wire transfers in various bank accounts
owned, operated or controlled by FusionPharm, Dittman and Sears, as provided by the
Federal Reserve Bank (“FedWire Records”) (collectively “SEC Produced Records”).
THE CRIMINAL INVESTIGATION
12. Following the SEC’s referral, the FBI opened a criminal investigation and
your affiant enlisted IRS-CID to assist in financial and other aspects of the criminal
investigation.

13. Your affiant thereafter reviewed and has been reviewing the SEC
Produced Records on an ongoing basis. Additionally, your affiant was made privy to
SEC analyses of the Bank Records, Brokerage Records and Transfer Agent Records
(collectively “SEC Analyses”) and has reviewed the same on an ongoing basis.
Furthermore, the FBI and IRS-CID have acquired additional bank records as we have
discovered additional accounts and transactions, and your affiant has been reviewing
these records on an ongoing basis.

14. In addition to my review of the records set forth in ¶11, your affiant has
interviewed several current and former FusionPharm employees. On February 17,
2014, CW-1 voluntarily sat for a joint proffer session with your affiant and
representatives from the SEC, IRS-CID, and United States Attorney’s Office (“USAO”)
at the USAO offices in Denver, CO. CW-1 has an undergraduate degree in Philosophy
and is a former FusionPharm employee. (See ¶9 above). CW-1 met Dittman in
approximately 2009 or 2010 through CW-1’s medical marijuana business, Rocky
Mountain Organics. CW-1 sat for a second voluntary joint proffer session on February
28, 2014 with your affiant and representatives from the SEC, IRS-CID, and USAO at the
USAO offices. On March 12, 2014, your affiant and IRS-CID Special Agent Ronald
Loecker had a follow up meeting with CW-1, at which time CW-1 voluntarily provided
your affiant and IRS-CID Special Agent Loecker with e-mail and phone text message
communications between CW-1, and Dittman and Sears. Your affiant reviewed these
e-mail and phone text message communications after receipt from CW-1.

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15. As part of your affiant’s discussions with CW-1, CW-1 identified a former
FusionPharm employee, Cooperating Witness 2 (hereinafter referred to as “CW-2”).
Prior to working for FusionPharm, CW-2 worked for Dittman at his prior medical
marijuana company, Mountain High Wellness. Thereafter, CW-2 worked for Dittman
and Sears at FusionPharm from its inception in 2011 through June 2013. CW-2 has an
undergraduate degree in Accounting and is pursuing a master’s degree in Agriculture.
CW-2 was responsible for many tasks at FusionPharm, including writing checks,
reconciling bank statements and entering transaction data in Quickbooks software. On
March 5, 2014, your affiant and IRS-CID Special Agent Loecker interviewed CW-2.

16. As part of CW-1’s assistance, on or about March 28, 2014, CW-1

introduced Dittman to an FBI undercover agent (hereinafter referred to as “UC-1”). CW-
1 introduced UC-1 as a prospective FusionPharm investor. From March 28, 2014 to
July 18, 2014, UC-1 had telephonic and email contact with Dittman, and met with
Dittman on four separate occasions (April 18, 2014, May 1, 2014, May 14, 2014 and
July 18, 2014) to discuss a possible equity investment in FusionPharm. UC-1 also
inspected FusionPharm’s offices and other facilities located in Colorado, including the
subject premises located at 5850 East 58th Avenue Units F and 5750 East 58th Avenue
Unit J, Commerce City, Colorado, 80022 (hereinafter referred to as “Subject Premises”).

17. On May 16, 2014, the FBI and IRS-CID executed a federal search warrant
on Subject Premises. The FBI seized 24 items of evidence including six computers and
one tablet. The FBI also executed seizure warrants on four bank accounts and one
brokerage account containing illegal proceeds from the sale of FusionPharm stock. The
bank account seizure returns totaled approximately $269,616. The brokerage account
return was for approximately $8,462,621. Also on May 16, 2014, the SEC suspended
trading of FusionPharm’s common stock.

18. On May 16, 2014, shortly after the search warrant was executed, your
affiant briefly interviewed a FusionPharm contractor, Cooperating Witness 3 (hereinafter
referred to as “CW-3”). CW-3 held a CPA in Colorado from approximately 1993 through
2004 and worked in the accounting and auditing field from 1991 through 2013, including
over ten years with Arthur Anderson, LLP. CW-3 was a friend of Dittman’s from college
and they maintained a personal friendship after college. CW-3 started working for
FusionPharm on March 4, 2014 in a part-time contractor capacity, primarily to assist in
the preparation of the company’s 2013 and 2014 financial statements and disclosures.
On July 8, 2014, CW-3 voluntarily sat for a joint proffer session with your affiant, and
representatives from the SEC, IRS-CID, United States Postal Inspection Service
(“USPIS”), and the USAO at the USAO offices in Denver, Colorado. CW-3 sat for a
second voluntary joint proffer session on July 29, 2014 with your affiant, and
representatives from the SEC, IRS-CID, USPIS, and the USAO at the USAO offices in
Denver, Colorado.

19. Additionally, your affiant and IRS-CID have interviewed several

FusionPharm customers concerning their transactions with FusionPharm.
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BACKGROUND OF FUSIONPHARM, DITTMAN AND SEARS

20. FusionPharm, Inc. is a Nevada corporation headquartered in Commerce
City, Colorado. FusionPharm claims to develop, produce and sell PharmPods to
cannabis and organic produce companies. The company’s annual report for the period
ending December 31, 2013 claims that “[t]he Company’s primary focus is to
commercialize its patent pending5 PharmPods™ line of hydroponic cultivation systems.
Fusion Pharm, Inc. is the creator and manufacturer of the PharmPods hydroponic
cultivation container system. PharmPods are constructed of standard ISO steel
shipping containers that are repurposed for use in indoor plant cultivation and are
equipped with specialty lighting, irrigation systems, climate-control systems and
ventilation for a grow-ready, self-contained portable agricultural solution.” These
containers are primarily used to grow cannabis.

21. Dittman, age 45, is the President and CEO of FusionPharm. He is also a
Director for Greeneway Wellness Foundation, a private medical marijuana company
located in Massachusetts. Dittman was formerly a business consultant for Arthur
Anderson, LLP from 1991 through 1995. Dittman also held a California CPA license
from 1995 to 1997.

22. Sears, age 48, owns, operates and controls numerous companies that
have purported business dealings with FusionPharm. Sears is also married to
Dittman’s sister. Sears has been involved in a number of suspicious microcap stock
transactions over the last decade. Additionally, Sears has been arrested on multiple
occasions, including a 2004 arrest related to a fraudulent stock promotion scam which
resulted in his 2007 conviction (via guilty plea) in the Southern District of New York
(Case No. 04-cr-556-swk) to one count of conspiracy to commit securities fraud and
commercial bribery, and one count of securities fraud.

23. As detailed herein and according to CW-1, CW-2 and CW-3, Sears ran
and controlled FusionPharm along with Dittman. Sears was the person responsible for
acquiring the company that ultimately became FusionPharm (see ¶25 below).
According to CW-1, CW-2, and CW-3, and based on your affiant’s review of the SEC
Produced Records, Sears worked at FusionPharm from inception, often handling day-
to-day responsibilities reserved for an officer of the company. From the time of
FusionPharm’s inception, Sears (a) handled and managed incoming investor checks
and paperwork; (b) often corresponded with FusionPharm’s transfer agent in connection
with FusionPharm common stock transactions; (c) provided credit cards and company
funds to FusionPharm employees when they needed to make business purchases; (d)

5
Based on your affiant’s review of records provided to the SEC from the United States Patent and
Trademark Office (USPTO), FusionPharm did file an application for a provisional patent on PharmPods
on December 3, 2011. However, as of February 12, 2014, FusionPharm’s provisional patent has expired
and thus FusionPharm does not have an application for a patent pending with the USPTO for
PharmPods. FusionPharm may have filed an international patent outside of the USPTO but your affiant
has not reviewed any of these records.
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wrote payroll checks for FusionPharm employees, including many checks that came
from bank accounts in the name of the entities he controlled; and (e) made pitches to a
number of investors on FusionPharm’s behalf, including a pitch to UC-1. Furthermore,
as detailed below, Sears held millions of shares of FusionPharm’s common stock
through entities he controlled. Moreover, the most telling evidence of Sears’
clandestine control of FusionPharm comes from Sears himself. During UC-1’s visit to
the FusionPharm warehouse on May 14, 2014, when Sears was asked if he was the
guy who runs the show, he responded that he was the “hand up Mona Lisa’s skirt.”

24. Based on your affiant’s review of FusionPharm’s financial disclosures,

FusionPharm is the latest incarnation of a company with a wide-ranging corporate
history. From February 1998 through December 2003, the company was known as
Argent Capital Corp. From December 2003 through May 2006, the company was
known as Sequoia Interests Corp (“Sequoia”), which purportedly manufactured a
product called Diamond Flo, an alkaline detergent used to break down oil in sand. On
May 6, 2006, Sequoia became known as Baby Bee Bright Corp. (“Baby Bee Bright”)
following a reverse merger. Baby Bee Bright was purportedly the developer,
manufacturer and marketer of a prenatal communicator and related products servicing
the expectant mother/prenatal market.

25. Based on your affiant’s review of the FINRA Records, Sears acquired
Baby Bee Bright in 2010 from Baby Bee Bright’s CEO, Frederick Dahlman, Jr., without
paying any cash for the company.6 Dittman told FINRA that Dahlman retained 15,000
shares of preferred stock as consideration for the transaction. Based on your affiant’s
review of the FINRA Records, Dittman was appointed President and Director of Baby
Bee Bright on November 15, 2010. Additionally, Sandra L. Sears, Sears’ mother
(hereinafter “Mrs. Sears”), was appointed Treasurer & Secretary and Director on the
same date.

26. Based on your affiant’s review of the Transfer Agent Records, on January
25, 2011, Dahlman transferred 1,300,000 preferred shares of Baby Bee Bright’s stock to
Salt Investments, LLC, a single person LLC owned, operated and controlled by Dittman.
Dahlman retained the other 200,000 preferred shares until March 16, 2011 when he
transferred 185,000 of his remaining preferred shares to Microcap Management, LLC
(“Microcap”), an LLC owned, operated and controlled by Sears. Consistent with your
affiant’s review of the Transfer Agent Records detailed above, Dahlman retained 15,000
shares of FusionPharm preferred stock. (See ¶25 above). Your affiant does not have


6
In a January 2014 interview with iCannabis radio, Dittman also admitted Sears’ involvement in the
acquisition of Baby Bee Bright: “My brother-in-law who’s kinda from the public markets background
suggested that I should put this thing into a public entity for fundraising reasons. And, you know, good,
bad or indifferent, back then, we did so, and we, you know, we bought an existing entity and merged our
assets in there…” (emphasis added)

7

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 13 of 52

any evidence that Dittman or Sears paid any money or offered any consideration for the
shares.

27. After gaining control of the company and acquiring millions of shares of
preferred stock, Dittman and Sears engineered a 1:200 reverse stock split of the
company’s common stock.7 Before the reverse stock split, the company’s common
stock was trading at $.10/share. After the reverse stock split, the stock price
immediately jumped to trading at or above $1/share.8 Importantly, Dittman and Sears
collectively owned nearly 1.5 million shares of FusionPharm preferred stock at this
point, which could be converted to common stock at any time at a conversion rate of
100 shares of common stock in exchange for 1 share of preferred stock. (See ¶26
above). Based on my review of FusionPharm’s publicly traded stock information, the
reverse stock split caused the price of the company’s common stock to increase 10-fold,
meaning that Dittman and Sears effectively increased the value of their holdings by a
multiple of 10.9

28. Baby Bee Bright was previously traded on the over-the-counter (“OTC”)
market via OTC Link operated by OTC Markets Group Inc. (“OTC Link”) under the
symbol BBYB.10 On March 25, 2011, Baby Bee Bright filed an Issuer Company-
Related Action Notification Form with FINRA. This form certified to FINRA notification
of a corporate action change request in compliance with FINRA Rule 6490, specifically

7
A reverse stock split occurs when a company decreases the number of company stock shares that are
available. Given the reduction in number of shares outstanding, there is generally a corresponding
increase in the stock price.
8
Stock prices obtained from www.bloomberg.com.
9
The easiest way to explain this is through a comparative example. If an investor owned 2,000,000
shares of common stock with a stock price of $.05/share, she would own $100,000 worth of the stock. If
there was a 1:200 reverse stock split, she would then own 2,000,000/200 = 10,000 shares of stock. But
theoretically, the price of the stock would increase 200x to $.05*200 = $10/share. Therefore, she would
still own 10,000 * $10/share = $100,000 of stock. But if she owned 20,000 preferred shares, convertible
to common stock at 100 common shares/1 preferred share, the difference is clear. Prior to the reverse
stock split, the equivalent value of her common stock shares would be the same as the owner of
2,000,000 common stock shares: 20,000 preferred stock shares * 100 common stock shares at
conversion * $.05/share = $100,000. After the reverse stock split, the individual still owns 20,000
preferred shares, and can still convert them at 100 common stock shares per 1 preferred share.
However, the price of the common stock has theoretically increased 20x to $10/share. The holder of the
preferred shares now owns stock valued at 20,000 preferred shares * 100 common stock shares *
$10/share = $20,000,000, or a 200-fold increase. In the case of FusionPharm’s reverse split, the price
only increased by 10 fold, instead of 200. This can be due to a multitude of reasons including the stock
supply, demand, or the fact that FusionPharm was considered a “penny stock”. According to the SEC, a
“penny stock” generally refers to a security issued by a very small company that trades at less than
$5/share. Penny stocks typically trade on the OTC market.
10
In the OTC Market, trading is not done via an exchange but rather directly between two parties. OTC
trading in stocks is generally carried out using inter-dealer quotation services such as OTC Link and the
OTC Bulletin Board (operated by FINRA).
8

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 14 of 52

that Baby Bee Bright was changing its name to FusionPharm and its OTC Link stock
symbol to FSPM. The form was signed by Dittman, and Sears was listed as the Baby
Bee Bright “Administrative Officer.”

29. After Baby Bee Bright became FusionPharm, the Baby Bee Bright stock
shares were automatically converted to FusionPharm stock shares. FusionPharm’s
stock continued to be publicly traded via OTC Link. OTC Link has different “market
tiers” for companies, which indicate the level of financial and corporate disclosure
provided by the companies using the quotation system. The three tiers are: (a)
OTCQX; (b) OTCQB; and (c) OTC Pink. FusionPharm was part of the OTC Pink tier up
until the SEC trading suspension on May 16, 2014.

30. Within OTC Pink, companies are further categorized based on the level
and timeliness of the information they provide to investors. FusionPharm was classified
on the OTC Pink Limited tier from April 2011 until July 2013. According to the OTC
Markets website, the OTC Pink Limited tier is often reserved for companies that have
financial reporting problems, are in economic distress or are in bankruptcy.

31. Starting in July 2013, FusionPharm became part of the OTC Pink Current
Information category, which required FusionPharm to do the following: (a) prepare
financial reports in accordance with the U.S. Generally Accepted Accounting Principles
(“GAAP”); (b) finalize quarterly and annual reports in a timely fashion (within 45 days
after the end of a quarter); and (c) if the financial reports are not audited by an audit firm
registered with the Public Company Accounting Oversight Board, upload an Attorney
Letter within 120 days of the end of the fiscal year wherein the attorney represents,
among other things, that he or she has examined corporate records and other
documents, and that the information included in the filing is accurate and current.

32. FusionPharm’s stock resumed trading on the “Grey Market” after the
SEC’s trading suspension expired on May 30, 2014. According to the OTC Markets
website, a security traded on the Grey Market is “a security that is not currently traded
on the OTCQX, OTCQB, or OTC Pink marketplaces. Broker-dealers are not willing or
able to publicly quote OTC securities because of a lack of investor interest, company
information availability or regulatory compliance.”

33. As of August 11, 2014, FusionPharm had posted its balance sheets,
income statements, cash flow statements, and related notes to its financial disclosures
(collectively “Financial Disclosures”) on the OTC market website from 2011 through
March 31, 2014. According to an employee at OTC Markets Group, Inc., financial
statements are provided by electronic means through a portal on the website
www.otciq.com. The electronic transmission is routed through New Jersey and then
stored in Virginia. These disclosures are available to the investing public via
www.otcmarkets.com. Based on your affiant’s review of FusionPharm’s press releases,
FusionPharm makes references to these Financial Disclosures in its press releases.

9

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 15 of 52

PUBLIC PORTRAYAL OF FUSIONPHARM

AS A GROWING AND PROSPEROUS BUSINESS
34. Beginning in June 2011 and continuing to the present, FusionPharm has
posted its Financial Disclosures on the OTC Markets website. Based on your affiant’s
review of the FINRA Records, Dittman reviewed FusionPharm’s financial statements.
Additionally, although the Financial Disclosures were not audited, Dittman included a
signed certification in each of FusionPharm’s Annual and Quarterly reports starting in
the reporting period ending September 30, 2011, whereby he represented that the
information included in the Financial Disclosures fairly represented in all material
respects the financial condition of FusionPharm.

35. FusionPharm also maintained the websites www.pharmpods.com and

www.fusionpharminc.com which included purported facts about the PharmPods,
pictures and prices of the PharmPod models, purchasing and financing information, a
map of purported PharmPod facilities in the United States and Canada, and prominently
displayed quotes from purported customers touting the ability of the PharmPods.

36. Furthermore, FusionPharm disseminated press releases via numerous

news sources, such as OTC Market’s Disclosure and News Service, Globe Newswire
and PR Newswire, between 2011 and the present. Dittman also conducted at least
three publicly available interviews touting FusionPharm’s performance: (a) SmallCap
Voice – March 2013; (b) The Stock Radio – September 2013; and (c) iCannabis Radio –
January 2014. FusionPharm issued press releases advertising these interviews.

37. FusionPharm used the media detailed in ¶¶34-36 to tout its past and
present financial performance while enticing the public with news of future deals.
FusionPharm claimed to make approximately $1,934,811 in revenue from 2011 through
the first quarter of 2014. As set forth below, a large portion of this claimed revenue was
fabricated, falsified and/or misleading. At no point in the 2011-2014 time period did
FusionPharm ever disclose that the bulk of its claimed revenues were fabricated
through phony sales between FusionPharm and entities owned, operated or controlled
by Sears and Dittman. FusionPharm also never disclosed to investors that Sears –
convicted of a securities fraud scam in the past – was acting as an undisclosed control
person for FusionPharm.
SEARS’ NETWORK OF AFFILIATED ENTITIES
38. As noted above in ¶23, according to CW-1, CW-2 and CW-3, Sears ran
and controlled FusionPharm along with Dittman. Based on your affiant’s investigation,
Sears did this in at least two ways: (a) through his direct participation in FusionPharm’s
day-to-day business (see ¶23 above); and (b) through a number of entities he owned,
operated and controlled (collectively the “Sears Controlled Entities”).11

11
As noted above, CW-1 claimed that Dittman and Sears jointly controlled these entities. See, e.g., ¶9.
According to CW-2, Dittman and Sears coordinated to utilize the Sears Controlled Entities as an integral
10

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 16 of 52

39. Based on your affiant’s review of the SEC Produced Records and publicly
available information, Sears controlled the entities identified below. Specifically: (a) as
detailed herein, Sears had an active role in managing the Sears Controlled Entities; (b)
Sears controlled their bank and brokerage accounts, as he was a signor on each of the
bank accounts and the primary signatory on checks and deposits in these accounts12;
and (c) all of the addresses for the Sears Controlled Entities are connected to
FusionPharm’s warehouse or Sears’ personal addresses. This control is manifest and
evident with respect to each of the specific entities, as follows:

a. Meadpoint Venture Partners, LLC (“Meadpoint”): Meadpoint’s principal

business address was at 4360 Vine Street, Denver, CO 80216 – the same
address as FusionPharm’s prior warehouse. Based on your affiant’s
review of the Transfer Agent Records and Brokerage Records, Sears
represented himself as the “Managing Member” of Meadpoint. Sears was
also identified as the manager for Meadpoint in publicly available articles
and filings. Additionally, based on your affiant’s review of the Bank
Records, Sears was signor on all of Meadpoint’s bank accounts, and was
the primary signor of most of the checks drafted on the account.
Furthermore, based on your affiant’s review of the Brokerage Records,
Sears owned and controlled a brokerage account at Scottsdale Capital
Advisors in the name of Meadpoint. Notably, when UC-1 met with Dittman
on May 1, 2014, Dittman told UC-1 that Meadpoint was formed, and being
run, by Sears.

b. VertiFresh, LLC (“VertiFresh”): VertiFresh’s principal business address

was at 4360 Vine Street, Denver, CO 80216 – again, the same address as
FusionPharm’s prior warehouse. Based on your affiant’s review of the
Transfer Agent Records, Sears uses a VertiFresh email address
(wsears@VertiFresh.onmicrosoft.com). Your affiant also discovered
publicly available articles whereby Sears is identified as the “founder” of
VertiFresh. Furthermore, based on your affiant’s review of the Bank
Records, Sears was signor on all of VertiFresh’s bank accounts and was
the primary signor of most of the checks drafted on the account.


part of the overall scheme. Moreover, given the circumstantial evidence cited herein and other documents
your affiant has reviewed during the course of my investigation, Dittman collaborated with Sears on
utilizing these entities for their respective personal benefits. However, based on your affiant’s review of
the SEC Produced Records and publicly available information, Dittman was not identified in the
organizing documents for these entities or listed a signor on the bank accounts. Accordingly, for ease of
reference only, your affiant has referred to these entities as the Sears Controlled Entities.
12
Based on your affiant’s review of the Bank Records and statements from CW-1, Sears paid CW-1 with
checks drawn from various Sears Controlled Entities during the course of CW-1’s employment with
FusionPharm. This is one of many examples detailed herein of the incestuous relationship between
Dittman, Sears, FusionPharm and the Sears Controlled Entities.
11

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 17 of 52

c. Bayside Realty Holdings, LLC (“Bayside”): Bayside’s primary business

address was 4920 Morton Road, New Bern, NC 28562. This address is
the home address of Mrs. Sears. Mrs. Sears was listed on all the
organizing documents as Bayside’s managing member, but Sears
controlled Bayside. According to CW-2, Sears controlled Bayside and
would tell his mother what actions he wanted her to take on behalf of
Bayside. Mrs. Sears substantively confirmed CW-2’s statements during a
May 16, 2014 interview with the FBI at her home in North Carolina. Mrs.
Sears said that Sears requested her to open bank accounts in the name of
Bayside because she was the only person he could trust with his money.
Despite Mrs. Sears’ superficial management of Bayside, Sears ultimately
managed all deposits and withdrawals from the accounts. According to
Mrs. Sears, Sears would contact her when he wanted her to wire money
out of the accounts in her name.13 Even though Mrs. Sears had access
to the accounts to wire money, Sears was a signor on all of Bayside’s
accounts at the bank and was the signor of most, if not all, of the checks
drafted on the account. Additionally, Bayside had a brokerage account at
Scottsdale Capital Advisors. Based on your affiant’s review of the
Brokerage Records, the Bayside brokerage account was opened by Mrs.
Sears in December 2012. However, Sears was listed as an authorized
agent on the account dating back to February 2013, providing him with
unlimited access to buy, sell, and trade in all securities for the account.
(See also ¶41(c) below for more details on Sears’ clandestine control of
Bayside).

d. Microcap Management, LLC (“Microcap”): Microcap’s primary business

address was 13762 Colorado Blvd. #124-203, Thornton, Colorado 80602.
This address is the same address listed for Meadpoint with the Nevada
Secretary of State, a postnet store that provides mailbox rentals. Sears
has also used this address for personal reasons, such as the billing
address for his cable television provider. Unlike the other Sears
Controlled Entities, Sears was listed as a “manager” of the LLC in the
organizing documents. Based on your affiant’s review of the Bank
Records, Sears was signor on all of Microcap’s accounts at the bank and
was the signor of most of the checks drafted on the account. Additionally,
based on your affiant’s review of the Brokerage Records, Sears controlled
a brokerage account in the name of Microcap at Oppenheimer between


13
Mrs.SearsalsoopenedupotheraccountsforSears.AswiththeBaysideaccounts,SearswouldcontactMrs.
SearswithinstructionsonwhenandwheretotransfermoneyfromthoseaccountstoaccountsSearscontrolled.
12

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 18 of 52

2011-2012 and two accounts at Scottsdale Capital Advisors from 2012

through 2014.14

40. Based on your affiant’s overall review of evidence to include interviews

with several FusionPharm employees, there is little to distinguish FusionPharm from the
Sears Controlled Entities. Some examples of the incestuous relationship between the
entities:
a. VertiFresh and Meadpoint shared the same workspace and employees
with FusionPharm.

b. Sears paid FusionPharm employees with checks drawn from the Sears
Controlled Entities’ bank accounts.

c. Sears paid over $40,000 for shipping containers that went to FusionPharm
with checks drawn from the Microcap and Meadpoint bank accounts.

d. As detailed more herein, Dittman and Sears used the Sears Controlled
Entities to engage in an unlawful distribution of FusionPharm stock.

e. Based on your affiant’s review of the SEC Produced Records, multiple

investors drafted checks to the Sears Controlled Entities in exchange for
FusionPharm stock. While several of these transactions were for stock
owned by the Sears Controlled Entities, on at least one occasion, an
investor wired money to a Sears Controlled Entity and received a new
stock issuance from FusionPharm.
MEADPOINT AND BAYSIDE PROMISSORY NOTES
41. In addition to Sears’ and Dittman’s collective acquisition of approximately
1.5 million preferred shares (see ¶27 above), Dittman and Sears ensured that
FusionPharm issued millions of shares of FusionPharm’s common stock to two of the
Sears Controlled Entities through two convertible promissory notes. Based on your
affiant’s review of the Transfer Agent Records and the SEC’s Analyses, both notes
provided the note holder (in this case, Sears) with the option to convert $1 of debt into
100 shares of common stock, allowing Sears to obtain each share of FusionPharm at
$.01/share. Based on your affiant’s review of the Transfer Agent Records, I observed
the following details concerning these convertible notes:

a. Bayside Convertible Note: On May 2, 2011, Bayside and FusionPharm

purportedly entered into an agreement whereby Bayside provided

14
Based on your affiant’s review of the FINRA records, FINRA investigated Sears’ significant sales of
FusionPharm stock in 2011 through Microcap. In the midst of that investigation, Dittman represented to
FINRA that Sears no longer owned or controlled Microcap and did not own any FusionPharm stock.
Based on your affiant’s review of the SEC Produced Records and publicly available information, this is
not true.
13

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 19 of 52

FusionPharm with a line of credit up to $275,000, payable at 10% interest

annually. 15 FusionPharm’s stock was trading at approximately $1.30 on
May 2, 2011, meaning Sears could acquire FusionPharm stock at a 99.2%
discount from the market price (the “Bayside Note Discount”). Even when
compared to the discounts that other initial investors received around this
time, the Bayside Note Discount was significant. Around this time,
FusionPharm solicited investors in FusionPharm. According to the
Disclosure Statement for the period ending on June 30, 2011,
FusionPharm received $75,000 from investors on May 9, 2011 in
exchange for restricted stock at approximately $0.25/share, or 25 times
greater than the Bayside Note Discount. The Bayside Note Discount
suggests that the issuance of the note was not an arms-length transaction.

Furthermore, based on your affiant’s review of the Bank Records and

Transfer Agent records, Bayside did not loan FusionPharm money. In
accordance with the terms of the note, Bayside should have not have had
access to the shares. FusionPharm’s transfer agent requested bank
record support for drawdowns on the convertible note as part of its
analysis to determine Bayside’s “holding period” (see ¶108 below for
further discussion). Based on my discussions with attorneys at the SEC,
this holding period analysis is a critical component to determine whether a
stock can be transferred freely, or is restricted.16 On January 4, 2013,
FusionPharm’s counsel, Tod A. DiTommaso, provided a letter to the
transfer agent with supporting documentation for amounts purportedly
drawn down on the note, which included certain FusionPharm deposits as
the claimed documentation for the Bayside loan. Based on your affiant’s
review of the Bank Records, almost all of this money came from another
Sears Controlled Entity: Microcap.
DATE AMOUNT ACTUAL SOURCE OF MONEY
5/5/2011 $5,800 Microcap17
5/6/2011 $4,400 Microcap

15
As referenced in ¶39(c) above, Mrs. Sears was managing member of Bayside according to the
organizing documents. Although there is no information to support that Mrs. Sears ever worked for
FusionPharm, she did provide a letter of resignation as corporate secretary from FusionPharm on June 8,
2011, over a month after this note was issued. FusionPharm never disclosed that they entered into this
transaction with an officer of the company.
16
A stock owner’s holding period is a critical component of ensuring that a purchase or sale of stock is
not considered a violation Section 5 of the Securities Act of 1933. As detailed more herein, Sears and
Dittman utilized the Sears Controlled Entities to engage in unlawful distributions of stock.
17
In 2011, 97% of the $1,252,294 in incoming deposits into the Microcap account came from the sale of
FusionPharm stock. Based on the supporting documentation provided to the transfer agent in support of
the Bayside and Meadpoint loans, it is clear that the funds provided to FusionPharm were generated from
the sale of FusionPharm stock. (See ¶57 below for further discussion).

14

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 20 of 52

5/11/2011 $24,762 Microcap

5/18/2011 $27,285 Microcap
5/25/2011 $30,000 Microcap
5/25/2011 $300 Microcap
6/9/2011 $36,700 Microcap
9/19/2011 $14,000 Microcap
10/21/2011 $10,000 Microcap
11/16/2011 $15,00018 Microcap
12/28/2011 $9,000 Bayside
TOTAL $177,247

b. Meadpoint Note: On December 8, 2011, Meadpoint and FusionPharm

purportedly entered into an agreement whereby Meadpoint provided
$88,000 to FusionPharm at 10% interest annually. Notably, Sears signed
the note on behalf of Meadpoint. FusionPharm’s stock was trading at
approximately $2.41 on December 8, 2011, yet Sears’ conversion option
in the note allowed him to convert the debt for a 99.6% discount. As with
the Bayside note, when the transfer agent requested supporting
documents to evidence payment of the note, Meadpoint referenced
transactions from Microcap:

DATE AMOUNT SOURCE OF MONEY

6/15/2011 $50,000 Microcap
07/25/2011 $15,00019 Microcap
11/16/2011 $15,000 Microcap
12/8/2011 $8,000 Microcap
TOTAL $88,000

c. CW-3 stated that FusionPharm was not enforcing the promissory notes as
evidenced by both promissory notes running past their due date without a
documented extension agreement. When CW-3 notified Dittman in 2014,
FusionPharm drafted extension agreements. In April 2014, Sears signed
both extension agreements for Bayside and Meadpoint. Importantly, when
Sears signed the Bayside note extension, he asked CW-3 for a different
color pen and signed Mrs. Sears’ name.
MISREPRESENTING SALES REVENUE AND FINANCIAL PERFORMANCE IN 2011


18
This $15,000 deposit was provided as supporting documentation for both the Meadpoint and Bayside
loans. See ¶41(b).


15

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 21 of 52

42. Based on your affiant’s investigation, and as detailed below, FusionPharm

appears to have misled investors in a number of ways in 2011: (a) contrary to its stated
revenue recognition policy, FusionPharm did not deliver any PharmPods to any
customers until 2012 and the source of 2011 revenue was a 2012 lease that covered
multiple years; (b) FusionPharm seemingly attempted to recognize revenue in 2011
from a 2012 lease by “selling” the PharmPods to one of the Sears Controlled Entities, a
transaction that cannot be a basis for revenue recognition; (c) the Annual Report failed
to disclose Sears as a Related Party; and (d) the basis for claimed revenue was a
series of deposits from the Sears Controlled Entities that are likely traced back to sales
of FusionPharm’s common stock. 20

Improper Revenue Recognition

43. According to FusionPharm’s 2011 Annual Report, FusionPharm claimed
to have made $256,895 in revenues during the 2011 fiscal year. The 2011 revenue was
restated more than a year later in the 2012 annual report to $227,439 without any
explanation for the change.

44. FusionPharm’s 2011 annual report included the following statement

regarding revenue recognition: “The Company follows the guidance of the Securities
and Exchange Commission’s Staff Accounting Bulletin No.104 for revenue recognition.
The Company records revenue when all of the following have occurred; (1) persuasive
evidence of an arrangement exists, (2) product delivery has occurred, (3) the sales price
to the customer is fixed or determinable, and (4) collectability is reasonably assured.
The Company reports revenue net of sales and use taxes collected from customers and
remitted to governmental taxing authorities when applicable.” (emphasis added) An
Attorney Letter with Respect to Current Information dated April 9, 2012, from
FusionPharm attorney Tod DiTommaso posted to the OTC market website for
FusionPharm stated that the financial statements filed with the OTC market were
prepared with the assistance of Mike Kocinski, an accountant from MAK Consulting
Services, who has more than thirty years of experience reviewing and preparing
numerous financial statements. This letter also confirmed that the financial statements
were prepared in accordance with GAAP.

45. Mile High Green Cross (“MHGC”) signed a Business Equipment Lease
dated January 23, 2012 for the lease of 8 PharmPods for $227,415.68. The agreement
was not between MHGC and FusionPharm, but rather between MHGC and Meadpoint.


20
FusionPharm also claimed that “the organic foods industry” was “the primary focus of the Company’s
Pharm[P]ods strategy…” and touted its Collaboration Agreement with Circle Fresh Farms and a
partnership with Veterans to Farmers as 2011 business deals. FusionPharm did not do any business in
the organic foods industry in 2011. Based on, among other things, your affiant’s review of the SEC
Produced Records and SEC Analyses, FusionPharm did not generate any revenue in 2011 from: (a)
Circle Fresh Farms directly; or (b) any organics food industry business.

16

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 22 of 52

According to the lease agreement, MHGC was to pay Meadpoint $20,000 on January
23, 2012, and then make monthly rent payments of $8,642.32 starting in May 2012
through the term of the lease ending on April 30, 2014.

46. According to owners of MHGC, their lease was signed and executed
when the PharmPods were delivered in January 2012. By FusionPharm’s own stated
revenue recognition standards (see ¶44 above), they should not have recognized any
revenue until 2012 at the earliest.
Use of Meadpoint to Manipulate Revenues
47. During the execution of the search warrant (see ¶18 above), agents
seized a computer that stored a QuickBooks file that contained accounting and
transaction information for FusionPharm between 2011 and 2014 (hereinafter referred
to as “FusionPharm Quickbooks”). The file contained revenue transactions that exactly
matched FusionPharm financial statements posted on the OTC market for 2011, 2013
and 2014, and nearly matched the claimed 2012 revenue.21

48. FusionPharm QuickBooks revenue entries for 2011 showed approximately

$226,895 for “licensing revenue” from Meadpoint and $544 for interest income.
According to CW-3, FusionPharm could not recognize revenue from sales of
PharmPods to Meadpoint; there needed to be a legitimate third-party customer for
FusionPharm to recognize revenue. Based on your affiant’s review of the MHGC lease
agreement, FusionPharm Quickbooks, and CW-3’s statements, Dittman and Sears
engineered the purported “sale” from FusionPharm to Meadpoint in an attempt to
recognize the full amount of the multiyear lease as revenue in 2011.
49. Moreover, even if FusionPharm could have recognized any revenue from
this lease at any point between 2011 and 2014, they were not entitled to recognize the
entire amount as revenue. According to the terms of the November 11, 2011 Exclusive
License and Distribution Agreement (“Distribution Agreement”) between Meadpoint and
FusionPharm, Meadpoint was to be the exclusive distributor of PharmPods in North
America.22 Section 3.3.1 of the Distribution Agreement states Meadpoint would
purchase the PharmPods from FusionPharm at a 15% discount to the retail sales price.
Based on evidence included herein and statements from former FusionPharm
employees (including, but not limited to CW-3), FusionPharm could not recognize any
revenue on sales to Meadpoint. CW-1 stated that this was akin to FusionPharm selling
to itself. However, even if the Distribution Agreement was arms-length and legitimate,

21
The QuickBooks revenue for 2012 was $797,027.15 but the posted financial statements reported
$808,398 in revenue, a difference of less than 2%.
22
FusionPharm issued a press release on November 26, 2012, announcing that they signed a licensing
agreement with Meadpoint Venture Partners. The agreement referencing the 2011 date was provided by
CW-3 and also found in the hard-copy materials seized during the federal search warrant executed on
May 16, 2014.

17

Case 1:14-sw-05988-MEH Document 1 Filed 11/28/14 USDC Colorado Page 23 of 52

based on the explicit terms of the Distribution Agreement, FusionPharm could not have
recognized more than 85% of the amount of the lease as revenue at any point during
the 2011-2014 period, or .85*$227,415.68 = $193,303.33. This error alone overstates
the revenue from this transaction by 15%.

Failure to Disclose Sears as Related Party

50. As noted above in ¶44, FusionPharm represented to investors that its

financial statements were prepared in accordance with GAAP. According to the
Accounting Standards Codification23 section 850-10-50-1 on Related Party Disclosures
for Transactions, “[f]inancial statements shall include disclosures of material related
party transactions…” In pertinent part, these disclosures must include the following:

a. The nature of the relationship(s) involved;

b. A description of the transactions for each of the periods for which income
statements are presented, and such other information deemed necessary
to an understanding of the effects of the transactions on the financial
statements; and

c. The dollar amounts of transactions for each of the periods for which
income statements are presented; and

d. Amounts due from or to related parties as of the date of each balance

sheet presented and, if not otherwise apparent, the terms and manner of
settlement.

51. In turn, related parties are defined in Section 850-10-20 to include the
following:

a. Affiliates24 of the entity;

b. Principal owners of the entity and members of their immediate families;

c. Management of the entity and their immediate families;


23
The Accounting Standards Codification is the current single source of United States Generally
Accepted Accounting Principles (GAAP).
24
The Codification defines affiliate as a party that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is common control with an entity.
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d. Parties that “control or can significantly influence the management or

operating policies” to the extent that one of the transacting parties can fully
pursue its own separate interests; and

e. Parties that can “significantly influence the management or operating

policies of the transacting parties or that have an ownership interest in one
of the transacting parties and can significantly influence the other…”

52. According to CW-2, Sears was controlling FusionPharm and acting in a

capacity akin to an undisclosed officer and control person in 2011. Moreover, Sears is
Dittman’s brother-in-law and had a material interest in the 2011 revenue from
Meadpoint. Furthermore, according to CW-1 and CW-2, Dittman and Sears went to
great lengths to shield Sears’ involvement in the company from public disclosure. As
Dittman told UC-1 on July 18, 2014, “[t]here would be no company if it wasn't for Bill, I
just couldn't have him in the company” due to Sears’ criminal history. For example,
Sears attempted to get FusionPharm employees – including CW-1 and CW-2 – to open
up businesses and bank accounts in their name that he could control.

53. Based on your affiant’s investigation, Sears should have been disclosed
as a Related Party in 2011 in accordance with GAAP because Meadpoint had a
material transaction with FusionPharm, and he was (a) managing and/or controlling the
day-to-day operations at FusionPharm; (b) he had beneficial ownership of more than
5% of outstanding shares of FusionPharm; and (c) he was Dittman’s brother-in-law.

54. Moreover, even if we disregard the related party disclosures required

under GAAP, the 2011 Annual Report misrepresented Sears’ role as a related party in
the only purported revenue generating transaction. Specifically, FusionPharm’s 2011
Annual Report included the following sections where Sears was required to be
disclosed:

a. Management Structure and Financial Information – This section stated

that it included FusionPharm control persons and Sears was not listed;

b. Disclosure of Family Relationships - FusionPharm stated that there are no

family relationships among our directors, officers, or greater-than-10%
shareholders other than Robert Dittman, Scott Dittman’s brother. Sears is
Dittman’s brother-in-law, and was serving as a de-facto officer. 25;

25
The annual report claims that Dittman’s brother, Robert Dittman, owned 11.8% of the company’s
preferred shares. Based on your affiant’s discussions with Robert Dittman following the execution of the
May 2014 search warrant (see ¶17 above), Robert Dittman did not have any knowledge that he owned
these shares. Based on my investigation, it is likely that Sears continued to exercise control over these
shares and the transfer was implemented to shield Sears from disclosure. Based on your affiant’s review
of the Transfer Agent Records, Robert Dittman’s shares all originated from Microcap.

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c. Disclosure of Related Party Transactions – FusionPharm included the

following text:

“None of the following parties has, during the past two fiscal years, had
any material interest, direct or indirect, in any transaction with us or in any
presently proposed transaction that has or will materially affect us, other
than as noted in this section:”

(i) Any of our directors or executive officers…;

(ii) Any person who beneficially owns, directly or indirectly,

shares carrying more than 5% of the voting rights
attached to our outstanding shares of common stock…;26

(iii) Any member of the immediate family (including spouse,

parents, children, siblings and in-laws) of any of the
foregoing persons.

Even though Sears satisfied each of these criteria, he was not disclosed.

Use of Stock Sale Proceeds to Fund Sham Transaction

55. Furthermore, there are nine entries in FusionPharm Quickbooks related to
the 2011 Meadpoint licensing revenue that are linked to bank deposits into
FusionPharm’s bank account from July 2011 through December 2011. Based on your
affiant’s review of the Bank Records and SEC Analyses, the nine FusionPharm
Quickbooks entries were not traced back to Meadpoint, but to two other Sears
Controlled Entities: Bayside and Microcap:27
DATE AMOUNT SOURCE OF MONEY
7/12/11 $3,895.00 Microcap
7/25/11 $15,000.00 Microcap
8/16/11 $60,000.00 Bayside (originally from Microcap)
9/26/11 $20,000.00 Microcap


26
FusionPharm reported 2,156,781 shares of common stock outstanding on December 31, 2011 with
Bayside owning 210,000 of those shares. While FusionPharm disclosed Bayside’s holdings of the
210,000 shares, they never state that Sears is the controller of Bayside.

27
FusionPharm’s transfer agent requested supporting payment information in connection with the
Meadpoint note to verify that Meadpoint actually funded the note. Two of the transactions categorized as
revenue in ¶55 were classified by Dittman as Meadpoint payments in connection with the note discussed
in ¶41 above.

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9/30/11 $40,000.00 Microcap

10/18/11 $20,000.00 Microcap
10/31/11 $20,000.00 Microcap
11/2/11 $40,000.00 Microcap
12/8/11 $8,000.0028 Microcap
TOTAL $226,895.00

56. As noted in ¶26 above, Sears received 185,000 shares of FusionPharm

convertible preferred stock through his company Microcap. Based on your affiant’s
review of the SEC Produced Records, Sears converted thousands of these preferred
shares into FusionPharm common stock shares throughout 2011. Sears then sold
these common stock shares and funneled significant portions of the proceeds through
the Sears Controlled Entities and back to FusionPharm. Dittman then booked these
transfers as revenue.

57. Microcap received approximately $1,252,294 in deposits and incoming

wires in 2011. Of that amount, your affiant and the SEC traced approximately 97% of
those funds back to Microcap’s brokerage accounts.29 Based on the SEC Analyses
and your affiant’s review of the Brokerage Records, 92% ($1,106,830.10 of the
$1,206,809.77) of the proceeds generated in Microcap’s brokerage accounts in 2011
were from the sales of FusionPharm common stock.

58. Most or all of the 2011 payments from Bayside to FusionPharm can be
likely traced back to sales of FusionPharm common stock. Bayside received
approximately $287,071 in deposits and incoming wires in 2011. Of that amount,
approximately 89% of the incoming funds came from Microcap. The remaining deposits
were a $25,000 deposit from Mrs. Sears, $5,500 in cash and $450 from Enterprise.

MISREPRESENTING SALES REVENUE AND FINANCIAL PERFORMANCE IN

2012
59. Based on your affiant’s investigation, and as detailed below, FusionPharm
misled investors in a number of ways in 2012: (a) most of the 2012 claimed revenue
was the result of a sham licensing agreement with another one of the Sears Controlled
Entities; (b) even after restating its 2012 financials to remove a half million dollars of
claimed 2012 revenue, FusionPharm still misrepresented its restated 2012 revenue; (c)
the Annual Report failed to disclose Sears as a Related Party; and (d) through its
Annual Report and Dittman’s public interviews, FusionPharm and Dittman made specific
misrepresentations about FusionPharm’s future sales and financial success.

28
See FN 18 for details concerning the double counting of the July 25, 2011 $15,000 deposit and the
December 8, 2011 $8,000 deposit as both revenue and loan proceeds.
29
The remaining 3% were non-revenue deposits from other Sears Controlled Entities or investors.
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Sham License Agreement with Related Party VertiFresh

60. In its 2012 Annual Report, FusionPharm claimed that “[n]et revenues for
the year ended December 31, 2012 was $808,398, an increase of $580,959 (255.0%)
as compared with $227,439 for the year ended December 31, 2011.” FusionPharm
claimed that it made $265,213 in net income in FY 2012, an increase of $667,595 from
2011. An Attorney Letter with Respect to Current Information dated March 7, 2013,
from FusionPharm attorney Tod DiTommaso posted to the OTC market website for
FusionPharm stated that the financial statements filed with the OTC market for
FusionPharm to date were prepared with the assistance of Mike Kocinski and again
confirmed that the financial statements were prepared in accordance with GAAP.

61. According to FusionPharm’s 2012 Annual Report, “[r]evenue was derived

primarily from the sale of PharmPods and licensing fees.” Based on your affiant’s
review of the SEC Produced Records, FusionPharm Quickbooks and FusionPharm’s
2012 Annual Report, $750,000 in revenue was the result of a purported Exclusive
License Agreement between FusionPharm and VertiFresh (“License Agreement”).30

62. According to Exhibit A of the License Agreement, VertiFresh was to pay

FusionPharm $250,000 in 2012 for: (a) licensing rights to the “Territory” of Denver, CO;
and (b) the delivery of four PharmPods. For accounting purposes, the licensing fee
was valued at $90,000 and each PharmPod was valued at $40,000. Additionally,
VertiFresh was supposedly obligated to pay $250,000 in 2013 (for the New York, NY
Territory) and 2014 (for the Boston, MA Territory), with the delivery of four PharmPods
each year. In addition, Exhibit C of the License Agreement obligated VertiFresh to
order and pay for the production of a minimum of five PharmPods at $40,000 each in
2013 and a minimum of ten PharmPods at $40,000 each in 2014.31

63. For the 2012 fiscal year, FusionPharm QuickBooks entries provide a
breakdown of the VertiFresh revenue of $750,000 as follows: $270,000 for licensing and
$480,000 for PharmPod sales (12 PharmPods at $40,000 each) dated January 3, 2012.
However, similar to 2011, FusionPharm claimed that “revenue is recognized on the sale
of a product when the product is shipped, which is when the risk of loss transfers to our
customers, and collection of the sale is reasonably assured.” (emphasis added). The
fact that there were at least eight PharmPods associated with the Boston and New York
territories makes it clear that FusionPharm should not have recognized all of the
revenue associated with these territories in 2012. In fact, your affiant has not found any


30
When CW-3 reviewed the VertiFresh licensing agreement, he discovered the agreement was never
finalized or signed and did not include a time period, which is included in typical licensing agreements
31
In total, VertiFresh was obligated to purchase the following number of PharmPods between 2012 and
2014: (a) 2012 – 4 PharmPods; (b) 2013 – 9 PharmPods; (c) 2014 – 14 PharmPods.

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evidence that VertiFresh received any PharmPods in connection with the License
Agreement.32

64. Furthermore, your affiant has not uncovered any evidence of what exactly
VertiFresh was purportedly “licensing.” Based on your affiant’s review of VertiFresh’s
Bank Records and the SEC Analyses thereof, VertiFresh sold $2,086.00 worth of
produce to third parties in 2012. Yet, VertiFresh purportedly paid $250,000 to use the
pods for the right to earn this revenue.
Restatement of 2012 Annual Revenues Continue to Misrepresent 2012 Revenue
65. After CW-3 started working for FusionPharm in 2013, he reviewed the
License Agreement. CW-3 did not know why Dittman recognized $750,000 in revenue
in 2012 since there is not any accounting principle that would justify this recognition.
CW-3 suggested a restatement be included in the 2013 annual report. Dittman agreed.

66. On April 15, 2014, more than a year after issuing its 2012 Annual Report,
FusionPharm restated its 2012 annual revenue. The restatement reversed $500,000 of
2012 revenue. The newly stated revenue with the reversal was $308,398, and
FusionPharm’s prior claimed net income of $265,213 was adjusted to a net loss of
$234,787. The restatement explanation provided was as follows:
In connection with the finalization of our 2013 financial statements, we
restated our 2012 financial statements to reverse $500,000 of the
$750,000 in revenue that was recognized during 2012 for the previously
reported exclusive licensing arrangement with VertiFresh LLC
(“VertiFresh”) for the use of PharmPods growing technologies for
agricultural products. The restatement was based on reevaluating the
arrangement with VertiFresh which required $250,000 be paid during 2012
for the licensing of the Colorado territory (on a nonrefundable basis), and
the remaining $500,000 to be due in equal installments of $250,000 during
2013 and 2014 for the rights to two additional territories. The initial
$250,000 was paid during 2012 and was reflected as earned revenue. The
remaining $500,000 was set up as an accounts receivable and was
reflected as earned revenue in error under US GAAP as the formal
agreement was never finalized to account that the amounts due were for
future territories and therefore unearned during 2012 and collection of this
amount was never reasonably assured given the startup nature of
VertiFresh. No further payments are anticipated. This restatement
impacted our March 31, 2013 accounts receivable and accumulated deficit
balances for the $500,000 referenced above. (emphasis added)

32 According to CW-2, there were a maximum of three to four PharmPods in the FusionPharm
warehouse being used for lettuce operations at any time. CW-2 was maintaining the PharmPods and, as
referenced in ¶15, CW-2 was a FusionPharm employee, therefore illustrating that these PharmPods were
still owned and operated by FusionPharm, and not part of the VertiFresh License Agreement.
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67. CW-3 did not have an issue with the remaining $250,000 continuing to be
reflected as revenue in 2012 because Dittman told him that this was paid for by
VertiFresh in 2012.

68. However, based on your affiant’s review of the Bank Records and the
SEC Analyses thereof, the restated revenue remains misleading. VertiFresh
contributed at most approximately $147,000 to FusionPharm in 2012. Even assuming
the transaction was legitimate and arms-length, an unlikely assumption given the facts
detailed herein, $147,000 is the most revenue that FusionPharm could have recognized
from VertiFresh in 2012.33
Failure to Disclose Sears as a Related Party
69. As in 2011, FusionPharm was required to report Sears as a related party
for two reasons: (a) based on its representation that its financial statements were
prepared in accordance with GAAP (See ¶50-¶51 for required disclosure requirements
for compliance with GAAP); and (b) based on its own disclosures under Item XI.D of its
2012 Annual Report, which included the same sections as the 2011 report detailed in
¶54 above.

70. According to CW-2, Sears was still controlling FusionPharm and acting in
a capacity akin to an undisclosed officer and control person in 2012. Moreover, Sears
is Dittman’s brother-in-law and had a material interest in the VertiFresh licensing
agreement.34

71. As a result, FusionPharm needed to disclose Sears as a Related Party in

2012 because VertiFresh had a material transaction with FusionPharm, and he was (a)
managing and/or controlling the day-to-day operations at FusionPharm (See ¶23); and
(b) he was Dittman’s brother-in-law.


33
Furthermore, similar to 2011, there is strong likelihood that the proceeds transferred by VertiFresh were
originally from sales of FusionPharm’s common stock. Approximately 75% of the deposits into
VertiFresh’s account in 2012 were from Microcap and Bayside. Similar to 2011, Microcap received more
than 85% of its incoming proceeds from its brokerage accounts, which were solely used to buy and sell
FusionPharm stock at this time. Again, similar to 2011, Bayside’s account was funded primarily (more
than 80%) from Microcap transfers. Based on your affiant’s investigation to date, there is a strong
likelihood that the 2012 VertiFresh transfers claimed as revenue by FusionPharm were proceeds derived
from Microcap’s sales of FusionPharm stock on the open market, and re-circulating portions of those
proceeds to the other Sears Controlled Entities.
34
While Sears’ ownership of FusionPharm common stock did not exceed 5% as of December 31, 2012,
Bayside converted $1,400 of the note into 140,000 shares on January 18, 2013, shortly after the reporting
period of the 2012 Annual Report. In addition, Sears owned 64,500 shares of FusionPharm stock
through Microcap. There were 3,001,650 shares outstanding on January 18, 2013 with Sears owning
over 5% of the outstanding shares 18 days after the end of the 2012 reporting period. The transfer was
likely timed to shield Sears from disclosure. Also, Robert Dittman retained his 176,504 preferred shares,
or 11.82%, which was likely controlled by Sears.
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Specific Misrepresentations about FusionPharm’s Past and Future Performance

72. FusionPharm also misled investors about future performance. For
example, in its 2012 Annual Report, FusionPharm claimed that VertiFresh committed to
“the purchase of at least 20 PharmPods over the next three years.” Additionally, in the
November 26, 2012 press release, FusionPharm claimed that Meadpoint agreed to
“minimum purchase quantities of 50 containers in both 2013 and 2014.” According to
FusionPharm’s publicly available website, the minimum purchase price for a container is
$25,400 (www.pharmpods.com). The 2012 Annual Report and the November 26, 2012
press release misrepresent that FusionPharm would sell at least 120 PharmPods
between 2012 and 2014. Investors were thus under the impression that FusionPharm
would receive, at a minimum 120*$25,400 = $3,048,000 in revenue between 2012 and
2014 from purported arms-length transactions involving VertiFresh and Meadpoint
alone. As set forth in ¶37 above, FusionPharm only claimed to make $1,934,811 in
revenue between 2011 and the first quarter of 2014, a figure that was significantly
misleading and overstated as detailed herein. Accordingly, Dittman and Sears misled
investors concerning specifically identified future business deals that had no basis in
facts.

73. Dittman and Sears also misled investors through public

misrepresentations in interviews and other press releases. For example, on March 27,
2013, Dittman was interviewed on SmallCap Voice.com, Inc. FusionPharm advertised
this interview via a press release. Dittman made the following misleading
representations in the interview:
a. Dittman claimed that “VertiFresh uses our system to grow and sell in the
Denver marketplace to restaurants, specialty grocers, and things like that
and the product’s been, really, you know, really well received.” As noted
above in ¶64, VertiFresh only sold $2,086 worth of produce in 2012.

b. Concerning 2012 financial results, Dittman claimed: “2012 was certainly

an active year for FusionPharm in terms of overall results. We did a little
over $800,000 in revenue and $265,000, I think, in net income. That was
really mostly a research year for us in the lettuce and the leafy green
space.” As described in ¶59-¶68 above, revenue and net income were
overstated by a half million dollars. Furthermore, FusionPharm’s
“research” in “lettuce and leafy green space” was comprised solely of the
related party, sham transaction designed by Dittman and Sears between
FusionPharm and VertiFresh.

MISREPRESENTING SALES REVENUE AND FINANCIAL PERFORMANCE IN 2013

74. Based on your affiant’s investigation, and as detailed below, FusionPharm
appears to have misled investors in a number of ways in 2013: (a) FusionPharm booked
more than a quarter million dollars of revenue based on sham transactions with

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Meadpoint; (b) even where transactions involved potentially legitimate third-party

customers, FusionPharm improperly recognized revenue; (c) FusionPharm concealed
from investors that they were profiting from the growth and sale of marijuana; (d) as in
2011 and 2012, FusionPharm failed to disclose Sears as a related party and control
person; and (e) FusionPharm misled investors through press releases, Dittman’s
interviews and misrepresentations made to investors when they toured FusionPharm’s
warehouse.
Sham Transactions with Meadpoint
75. In its 2013 Annual Report, FusionPharm claimed that it made $594,397 in
revenue in 2013. FusionPharm claimed that it had a net loss of $42,080 in 2013, a
nearly $200,000 increase from the purported restated 2012 income. (See ¶65-¶68 for
errors on restated revenue). Notably, starting in the first quarter of 2013 through the
end of 2013, the Attorney Letters with Respect to Current Information indicate that the
financial statements were prepared by Dittman. These letters also state that Dittman
has extensive experience reviewing and preparing numerous financial statements, and
confirmed that the financial statements were prepared in accordance with GAAP.

76. During CW-3’s July 8, 2014 and July 29, 2014 proffers, CW-3 stated that
he was responsible for preparing FusionPharm’s 2013 financial statements and financial
disclosures. CW-3 attempted to obtain supporting documentation for the various 2013
transactions classified as revenue. Ultimately, CW-3 did not receive much supporting
documentation. According to CW-3, Dittman represented to him that there were third
parties purchasing the PharmPods from Meadpoint and, based on these
representations, CW-3 recognized all the revenue as claimed by Dittman. However,
this was not the case.

77. As in 2011 and 2012, Dittman utilized the Sears Controlled Entities as the
primary – if not sole - source for claimed revenues. Your affiant reviewed FusionPharm
Quickbooks for fiscal year 2013 and found the following entries comprising the
$594,397 in revenue: (a) January 29, 2013 - Meadpoint for “Pods built on site”:
$277,785.90 (Invoice #52015); (b) March 12, 2013 - Meadpoint for “Return of
Overpayment”: $1,100; 35 (c) May 15, 2013 – Meadpoint: $120,000 (Invoice #52013); (d)
August 13, 2013 – Meadpoint:$56,000 (Invoice #52022); (e) September 6, 2013 -
Meadpoint for “Pods Shipped” (Invoice #52018): $89,500; (f) December 4, 2013 -
Meadpoint “Deposit”: $15,000; (g) December 31, 2013: Fees Collected in Advance:
$37,200. There are numerous issues with these claimed revenues.

78. First, as in prior years, FusionPharm claimed it recognized revenue “when

the product is delivered, risk and collection of the sales proceeds is reasonably

35
Notably, the references associated with the return of an overpayment and the Meadpoint deposit (6)
are associated with Bayside’s checking account.

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assured.” It is not clear how FusionPharm could purport to recognize revenue for
“deposits” ($15,000) or “fees collected in advance” ($37,200) when it specifically
disclaimed in Note 9 to its 2013 Annual Report that customer deposits were not
recognized as revenue in 2013. As a result, $52,200 of these revenues should not have
been recognized.

79. Second, based on your affiant’s review of the FusionPharm Quickbooks

and my experience in accounting, FusionPharm recognized revenue when it purportedly
sold PharmPods to Meadpoint - without regard to whether or not there was a third-party
customer purchasing PharmPods from Meadpoint. As noted above in ¶49, there was
no basis to recognize revenue from these transactions of FusionPharm “selling to itself.”
Moreover, CW-3 said that FusionPharm could not recognize any revenue unless there
was an arms-length third-party purchasing the PharmPods.

80. For example, FusionPharm recognized $277,785.90 (Invoice ##52015) for

“pods built on site.” Based on your affiant’s review of the FusionPharm Quickbooks,
the Bank Records and the SEC Analyses thereof, these 8 PharmPods may have been
purchased by Groundswell, a Denver marijuana cultivator and retailer. However, there
are two factors that precluded FusionPharm from recognizing this revenue in 2013: (a)
FusionPharm did not deliver any PharmPods to Groundswell in 2013; and (b) there is
no evidence that Groundswell agreed to pay $277,785.90 for these PharmPods.

81. According to the owner of Groundswell, Cooperating Witness 4

(hereinafter referred to as “CW-4”), Groundswell purchased these 8 PharmPods – but
not until February 2014. Given that these pods were not delivered to a third-party
customer until 2014, there were no profits to recognize from this transaction.

82. Furthermore, even if FusionPharm could have recognized this revenue in

2014, there is no evidence that Groundswell agreed to pay $277,785.90. According to
CW-4, Groundswell paid $200,000 for the PharmPods, meaning that even if this was a
legitimate revenue generating transaction, FusionPharm overstated revenue by at least
$77,000 from this transaction alone.36
Misrepresentations about Growing and Selling Marijuana
83. When Dittman and Sears asked CW-1 to work at FusionPharm in
December 2012, they asked him to build a marijuana grow facility. At the meeting, CW-
1, Dittman and Sears agreed to a handwritten contract. CW-1’s specific job
responsibility was to “grow weed.”

36
Importantly, the Bill of Sale for the purchase of these PharmPods is not between Groundswell and
Meadpoint, but rather between Groundswell and 10mm Holdings, LLC. 10 mm Holdings, LLC is an entity
owned, operated and controlled by Dittman and Sears. Based on your affiant’s experience and training,
this type of arrangement would make little sense in a legitimate, arms-length transaction.
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84. CW-11 told your affiant that FusionPharm’s business model in 2013 was
focused on two primary revenue sources: (a) selling PharmPods in the marijuana
industry; and (b) growing and selling marijuana with Groundswell. In FusionPharm’s
2013 Annual Report, there is no mention that FusionPharm was cultivating marijuana or
receiving any proceeds from the sale of marijuana. In fact, during a January 2014
interview with iCannabis Radio, Dittman specifically stated that the company was not
involved in this business.

85. Yet FusionPharm was involved in cultivating and growing marijuana.

Additionally, FusionPharm failed to disclose to investors that it was sharing profits from
the marijuana that Groundswell sold to customers – an arrangement that Dittman and
Sears attempted to hide from investors by creating a separate entity to receive the
payments. Groundswell registered with the Colorado Medical Marijuana Enforcement
Division in February 2013 to grow and cultivate marijuana at 4360 Vine Street in Denver
– then FusionPharm’s warehouse. Around that same time, CW-4 and Dittman signed a
management agreement reflecting that FusionPharm would grow marijuana at the
warehouse and then Groundswell would sell the marijuana to customers. According to
the terms of the agreement, FusionPharm and Groundswell agreed to split the proceeds
after subtracting costs.

86. CW-4 said that he did not remit payments to FusionPharm, but rather to a
different entity that Sears and Dittman created, VF Management, Inc. (“VF
Management”). According to CW-4, Dittman created VF Management for the marijuana
operation revenue payments. A review of incorporation documents show that VF
Management’s principal office address was FusionPharm’s office space located at 4360
Vine Street in Denver with Mrs. Sears listed as the registered agent.

87. CW-4 estimated that he paid VF Management somewhere between

$30,000 and $40,000 under the agreement with the payments occurring from
approximately August through December 2013. CW-4 made these payments through
his LLC, CG Network. Your affiant reviewed VF Management’s bank statements, which
showed six checks from CG Network, LLC to VF Management between the dates
August 30, 2013 and February 28, 2014 for a total of $40,714.95. According to CW-4,
the management agreement ended in approximately October or November 2013 around
the time that FusionPharm moved to its new warehouse in Commerce City.

88. Based on your affiant’s investigation to date, FusionPharm was using the
same PharmPods to grow marijuana for Groundswell that Groundswell purportedly
purchased in 2014, creating further doubts about a legitimate, arms-length revenue
generating transaction.

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Improper Accounting of Meadpoint Discount

89. Even if we assume that the sales from FusionPharm to Meadpoint are
legitimate, FusionPharm still managed to misstate revenue. As noted in ¶49 above,
FusionPharm was to sell PharmPods to Meadpoint at a 15% discount from the sales
price. This means that FusionPharm could only recognize 85% of the sales price on
any PharmPods that Meadpoint purportedly sold to third parties. On at least two
instances in 2013, FusionPharm overstated revenue by this 15%.37

90. First, on May 17, 2013 Meadpoint purportedly sold 5 PharmPods to John
Scott. Scott worked for Meadpoint around this time, and is quoted on behalf of
Meadpoint in multiple press releases. According to Scott, the contract was for
$115,000. After the “sale,” Scott leased the PharmPods to Local Products, a medical
marijuana dispensary. However, based on your affiant’s review of the FusionPharm
Quickbooks, on May 15, 2013 (two days before the date of the agreement),
FusionPharm recognized $120,000.00 as revenue from this transaction. (FusionPharm
Quickbooks Invoice #52013). Even if a transaction whereby FusionPharm sold the
PharmPods to a Meadpoint employee could be a basis to recognize revenue, the most
FusionPharm could recognize from this transaction would have been 85%*$115,000 =
$97,750.

91. Second, on July 22, 2013, Meadpoint sold 2 PharmPods to a customer in

California for approximately $52,393.00. Based on your affiant’s review of the
FusionPharm Quickbooks, FusionPharm recognized $56,000 as revenue on August 13,
2013. (FusionPharm Quickbooks as Invoice #52022). Similar to the transaction
highlighted in ¶90 above, even if the transaction was legitimate, the most revenue that
FusionPharm could recognize would have been 85%*$52,393 = $44,534.05.

92. These two transactions are particularly important since they are, based on
your affiant’s investigation to date, the only transactions in 2013 where PharmPods
ultimately reached arms-length, third-party customers. Yet, these potentially legitimate
transactions alone still overstated FusionPharm’s total 2013 reported revenue of
$594,397 by, at a minimum, more than 5%.
Failure to Disclose Sears as a Related Party
93. As detailed in ¶54 above, FusionPharm previously included a separate
disclosure section for “Disclosure of Family Relationships” and “Related Party
Transactions.” In its 2013 Annual Report, FusionPharm did not include a similar
section. However, based on your affiant’s investigation, Sears remained a related party
and was required to be disclosed under GAAP. (See ¶¶50-51 above).


37
TheanalysisincludedinthesectioncanbeappliedtotheGroundswellPharmPodsdiscussedin¶82above.
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94. As detailed above in ¶¶75-82, the majority of FusionPharm’s 2013

revenue was derived from purported transactions between FusionPharm and
Meadpoint. According to CW-1, Sears was controlling FusionPharm at this time, and
acting in a capacity akin to an undisclosed officer in 2013. Furthermore, according to
CW-1, when Dittman and Sears asked CW-1 to “grow weed” for FusionPharm, they
presented themselves as equal, 50/50 partners in FusionPharm.

95. Moreover, throughout 2013, Sears controlled a significant portion of

FusionPharm’s common stock at various points throughout the year. Specifically, Sears
obtained and/or distributed almost 2.5 million shares of FusionPharm’s common stock
(see Exhibit A – Promissory Note Conversions to Common Stock). Based on your
affiant’s review of the Transfer Agent Records, that amount accounted for nearly 33% of
FusionPharm’s outstanding common stock.

96. During this time period, Dittman knew that he had to shield Sears’
involvement in FusionPharm from investors. Dittman made statements to UC-1 during
their July 18, 2014 meeting, where Dittman claimed that “[t]he reason Billy has never
been in FusionPharm is because Billy has a felony in his background.” Dittman later
said during the same meeting, “[t]here would be no company if it wasn't for Bill, I just
couldn't have him in the company”.
Specific Misrepresentations about FusionPharm’s Past and Future Performance
97. Beyond misrepresenting sales revenue in the Financial Disclosures,
Dittman and Sears made multiple misrepresentations to investors through press
releases. For example, on July 29, 2013, Meadpoint issued a press release that
appeared on the FusionPharm web page. A representative from Meadpoint – Scott
(see ¶90 above) - claimed that “we are optimistic that we will reach our annual sales
goal of 100 PharmPods by the end of the year.” CW-1 stated that selling 100
PharmPods in 2013 was “ridiculous” and not even close to the actual figures.

98. On August 20, 2013, Meadpoint issued a PRNewswire press release that
Groundswell made an 11 unit purchase. This is misleading for numerous reasons.
According to CW-4, Groundswell never discussed purchasing 11 PharmPods. In fact,
according to CW-4, the only possible order around this time by Groundswell was for
less than half of the claimed amount in the press release.38 Your affiant has found
specific evidence that the misrepresentation in the August 20, 2013 press release
increased potential investor interest in the company. For example, one website –
www.aimhighprofits.com – relied on the purported 11 unit order as a basis for possibly
investing in the company. Specifically, the website released an article titled
“FusionPharm Stock Could Easily Go Viral on the OTC,” in which it made the following

38
In addition, the article quotes CW-4 as saying, “Nowhere else but with PharmPods can you an 88 light
facility up and running in less than two weeks. It’s truly amazing!” CW-4 was not aware of this press
release and did not provide the quote. In August 2013, CW-4 did not know how long it would take to get
a PharmPod up and running.
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statement: “The deal in which Groundswell will incorporate the Company’s PharmPod
system with the additional 11 unit purchase suddenly makes FSPM stock worth
watching…”

99. In addition to misleading press releases, Dittman also made multiple

misrepresentations in publicized interviews. The most important related to
FusionPharm’s expected 2013 performance. On March 27, 2013, Dittman was
interviewed on SmallCap Voice.com, Inc. Concerning 2013 financial results, Dittman
claimed “2013 we expect to at least double [2012] results and maybe a good bit
more…” As noted above in ¶60, at the time of the interview, FusionPharm’s 2012
claimed revenue was over $800,000 and net income was over $265,000. Based on
FusionPharm’s actual sales, the specific prediction of “at least” doubling those results -
$1.6 million in legitimate 2013 revenue and over $500,000 in net income – did not have
any basis in fact and ultimately fell far short of the actual 2013 figures.

100. Finally, according to CW-1, Dittman and Sears used the marijuana grow
operation that CW-1 was hired to grow as another opportunity to mislead investors that
toured FusionPharm’s warehouse. Since the grow operation did not produce any
revenue until 2013 following the agreement with Groundswell, CW-1 repeatedly
attempted to devise ways to improve efficiencies and reduce costs. According to CW-1,
Dittman and Sears would repeatedly tell him that it did not matter if it was profitable
because “it’s just there to look nice for investors.” This didn’t make sense to him as he
was under the impression he was hired to build a profitable marijuana grow operation.

SUMMARY OF REVENUE OVERSTATEMENT

101. As detailed in ¶¶43-100 above, FusionPharm overstated revenue every

year between 2011 and 2013 through a combination of sham transactions, a phony
distribution agreement and improper revenue recognition. FusionPharm claimed that it
made $1,630,234 in revenue during this period. Based on your affiant’s investigation to
date, and as detailed throughout this affidavit, this figure is grossly inflated. Even when
making liberal assumptions about the legitimacy of certain transactions, and even after
FusionPharm lowered its 2012 revenues by a half million dollars in 2014, FusionPharm
overstated its revenue each year between 2011 and 2013 by at least 33%.

DITTMAN AND SEARS SELL SHARES AFTER PROMOTING STOCK

102. After obtaining sizeable share positions through convertible preferred

shares and promissory notes (see ¶¶26-27 and ¶41 above) 39, the overstatement of
FusionPharm revenues was the vehicle through which Sears and Dittman accomplished
one their main objectives: realizing millions of dollars in illicit profits through the sales of
FusionPharm’s common stock. However, in order to distribute shares through the

39
See Exhibit A, Promissory Note Conversions to Common Stock and Exhibit B - Conversions of
FusionPharm Preferred Shares By Dittman and Sears Controlled Entities for details on the conversions. 
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Sears Controlled Entities, Sears and Dittman had to misrepresent Sears’s role in the
company to FusionPharm’s transfer agent and attorney.

103. Based on my discussions with SEC Enforcement staff attorneys, I have

learned the following:

a. Section 5 of the Securities Act of 1933 (“Securities Act”) makes it unlawful

for any person, directly or indirectly, to offer or sell securities using the
United States mails or interstate commerce unless such offer or sale is
registered with the SEC or qualifies for an available exemption or safe
harbor.

b. When individuals are reselling securities, the most common resale

exemption from registration is Section 4(a)(1) under the Securities Act,
which exempts transactions “by any person other than an issuer,
underwriter or dealer.”

c. Rule 144 under the Securities Act (“Rule 144”) provides certain
requirements for resellers to avoid being classified as an underwriter.
These rules vary on whether or not an individual is classified as an
affiliate.

d. Rule 144(a) (1) defines an “affiliate” to mean “a person that directly, or

indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with the issuer.” In turn, Rule 405 of the
Securities Act defines “control” to mean “the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a person, whether through ownership of voting securities, by
contract, or otherwise.” As a result, the idea of “control” is critical to
determining whether an individual or entity is an affiliate.

e. Affiliates must comply with more requirements than non-affiliates in order

to avail themselves of the Rule 144 safe harbor. The requirements that an
affiliate must comply with include the following: (a) for non-reporting
companies, holding the securities for one year from the date of purchase;
(b) complying with the manner of sale requirements in Rule 144(f) and (g);
(c) filing a Form 144 with the SEC to provide notice of sale if the sale
involves more than 5,000 shares or the aggregate dollar amount is greater
than $50,000 in any three-month period; and (d) limit its sales to the
volume limitations set forth in Rule 144(e).

f. Concerning the volume limitations, an affiliate must limit its sales during a
three month period to the greatest of the following: (a) one percent of the
outstanding securities of the class being sold; (b) the average weekly
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trading volume during the four calendar weeks preceding the date of sale,
order or Form 144 notice; or (c) the average weekly trading volume of the
class of the securities.

104. Sears satisfies the criteria of an affiliate based on the information detailed
throughout this affidavit, as well as the following facts:

a. According to CW-1, Sears and Dittman were “50/50” partners in

FusionPharm and Sears worked side-by-side with Dittman controlling the
company. In fact, Dittman moved from Denver, Colorado to Pennsylvania
in mid-2013, leaving Sears in charge of the daily operations at
FusionPharm.

b. According to CW-2 and CW-3, Sears was in charge of dealing with

FusionPharm investors. Sears provided UC-1 a tour of the FusionPharm
facility on May 14, 2014. During the tour, Sears discussed the company
strategy and success. He said that they, Dittman and Sears, “put all this
together”, referring to FusionPharm. (See also ¶¶22-23 above for details
on Sears’ responsibilities at FusionPharm and his claim that he is the
“hand up Mona Lisa’s skirt.”).

c. Sears exchanged numerous emails with FusionPharm’s external

accountant, Kocinski, regarding the preparation of FusionPharm’s financial
statements posted on the OTC website. Additionally, Sears
communicated extensively with FusionPharm’s transfer agent concerning
the issuance of FusionPharm common stock.

d. Throughout the 2011-2013 time period, Sears was primarily responsible

for managing FusionPharm’s payroll. For example, Sears and Mrs. Sears
were the only signors on the primary FusionPharm bank account from its
opening date on March 24, 2011, through October 7, 2011, when Sears
and Mrs. Sears were removed as signors and Dittman was added. (See
also ¶52 for Dittman’s comments on Sears’s role in starting up the
company). Furthermore, as detailed above, Sears continued to pay
FusionPharm employees their FusionPharm wages through accounts in
the name of the Sears Controlled Entities, and provided FusionPharm
employees with checks and credit cards when they needed to make
FusionPharm purchases.

e. Furthermore, based on my investigation to date, your affiant has reviewed

numerous emails between Sears and Dittman discussing the management
and policies of FusionPharm related to potential business deals, investor
relations and the preparation of financial statements.

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105. Based on my discussions with SEC attorneys, whenever Sears converted

preferred shares or the promissory notes to common stock, the common stock shares
would be considered restricted shares under the federal securities laws. In order to sell
the restricted stock held by Bayside and Meadpoint, Dittman and Sears repeatedly
made misrepresentations to FusionPharm’s attorneys and the company’s transfer
agent.40 The misrepresentations by Sears and Dittman enabled Sears to sell millions of
shares of FusionPharm stock to third-party investors with the appearance that such
transactions could occur without violating Section 5 of the Securities Act.

106. Sears did not register his common stock sales with the SEC. As a result,
based on my discussions with SEC attorneys, he would have needed to satisfy some
exemption or safe harbor from registration, most notably the Rule 144 safe harbor.
Dittman and Sears misrepresented Sears’s status as an affiliate, meaning that
FusionPharm’s transfer agent and attorneys never analyzed potential compliance with
the affiliate requirements under Rule 144.

107. Based on the facts detailed herein, Sears failed to comply with those
requirements. First, Sears – through Microcap, Bayside and Meadpoint – sold millions
of shares of the company’s stock. (See ¶114 below for details). Based on your
affiant’s review of the Transfer Agent Records and Brokerage Records, on numerous
occasions between 2011 and 2013, Sears sold exponentially more than one percent of
FusionPharm’s outstanding class of securities during a three-month period.
Additionally, Sears never filed a Form 144 with the SEC concerning such sales.

108. Furthermore, based on my review of the Transfer Agent Records, the

transfer agent required evidence of payment from Meadpoint and Bayside in connection
with the promissory notes to calculate the proper holding period for compliance with
Rule 144. As detailed in ¶41 above, Sears and Dittman misrepresented the true source
of the funds in connection with the Meadpoint and Bayside notes. This
misrepresentation not only ensured that Sears could obtain access to the shares
through the notes without proper consideration, but also misrepresented critical facts in
connection with the holding period calculation.

UNAFFILIATED INVESTORS INVESTING IN FUSIONPHARM


40
Specifically, on numerous occasions, Dittman, Sears, and Mrs. Sears, directly and through their
attorneys, provided documentation to the transfer agent indicating that the Sears Controlled Entities of
Meadpoint and Bayside were not affiliates of FusionPharm according to Securities Act Rule 144.
Additionally, the transfer agent also provided email records on February 14, 2014, showing a
communication between Dittman and the transfer agent where the transfer agent indicates that they have
Sears listed as an Administrative Officer for FusionPharm making him an affiliate. Dittman responds to
the transfer agent on February 18, 2014 stating that Sears has never been employed by the company
and is not an affiliate. As detailed herein, this is also a misrepresentation.


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109. After Baby Bee Bright became FusionPharm, Dittman and Sears
supported the company’s stock price by generating much of the early activity. However,
since that time, numerous investors unaffiliated with FusionPharm have purchased the
stock.

110. Based on your affiant’s review of the Transfer Agent Records and
publicly available trading volume information, the Sears Controlled Entities accounted
for a large portion of FusionPharm’s daily trading volume in 2011. Based on your
affiant’s review of the SEC’s Analyses of Microcap’s brokerage account at
Oppenheimer, Microcap sold 489,500 shares of FusionPharm common stock in 2011.
Based on your affiant’s review of FusionPharm’s publicly available trading history on
otcmarkets.com, there were only 1,048,823 shares of FusionPharm common stock
transacted in during 2011. As a result, Microcap accounted for nearly 47% of
FusionPharm’s total 2011 trade volume. During this time period, FusionPharm’s stock
price traded between $.90/share and $3.15/share.

111. In 2012, once again, based on your affiant’s review of the SEC’s Analyses
of Microcap’s brokerage account at Oppenheimer and Scottsdale, Microcap sold
approximately 245,500 shares of FusionPharm. Based on your affiant’s review of
FusionPharm’s publicly available trading history on otcmarkets.com, there were only
724,539 shares of FusionPharm common stock transacted in during 2012. As a result,
Microcap accounted for more than 33% of FusionPharm’s total 2012 volume. The
company’s stock price traded above $2/share for large portions of 2012, trading
between $.60/share - $2.43/share.

112. In 2013, based on your affiant’s review of the SEC’s Analyses of the
Meadpoint and Bayside brokerage records, Sears traded in at least 1,064,355 shares of
FusionPharm in his Bayside and Meadpoint brokerage accounts. Based on your
affiant’s review of FusionPharm’s publicly available trading history on otcmarkets.com,
there were 5,222,458 shares traded in FusionPharm’s common stock in 2013. As a
result, Bayside and Meadpoint accounted for at least 20% of the total 2013 volume.
During this time, the company’s stock price traded between $.08/share and $1.04/share.

113. Starting on January 1, 2014, Colorado allowed recreational marijuana

sales to individuals over the age of 21. FusionPharm’s stock price and volume soared
after January 2, 2014, when the stock was trading for $.43/share. The stock price
reached a high closing price of $8.70 on March 4, 2014. Per your affiant’s review of
publicly available trade volume information, there have been over 44 million shares of
the company’s stock traded since January 1, 2014. As set forth in ¶¶114-115 below,
Meadpoint has sold millions of shares of the company’s stock during 2014 and realized
millions of dollars in profits. However, in comparison to prior years, Meadpoint and the
other Sears Controlled Entities have comprised a much smaller portion of the market
activity. Based on your affiant’s review of the Transfer Agent Records, as of July 7,
2014, FusionPharm had 17,253,875 shares of common stock outstanding. While

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Dittman owns 2,000,000 common stock shares and approximately 800,000 other shares
are publicly declared to be either owned by insiders or restricted shares, hundreds of
unaffiliated investors have purchased and currently own FusionPharm stock. Based on
your affiant’s review of the Transfer Agent Records, the vast majority of these
transactions have taken place via OTC Link in the secondary market, i.e., market where
investors purchase securities or assets from other investors, rather than directly from
FusionPharm.

DITTMAN AND SEARS REALIZE MILLIONS IN PROFITS

114. Given that Dittman had to disclose his stock transactions, Sears was able
to sell millions of shares for their mutual benefit through the Sears Controlled Entities
by: (a) selling shares of FusionPharm’s common stock; and (b) selling portions of the
Bayside and Meadpoint promissory notes. Based on your affiant’s review of the Blue
Sheet Data, Brokerage Records, Bank Records, and SEC’s Analyses regarding the
same, the following chart sets forth the sizeable profits the Sears Controlled Entities
earned by selling FusionPharm’s stock between April 2011 and May 2014.

SEARS ENTITY TIME PERIOD ACTIVITY

Microcap Apr 2011-July 2012 Microcap sold 678,727 shares of FusionPharm
stock through its Oppenheimer account,
resulting in proceeds of $1,505,786. These
were the only transactions in the account
during this time period.

Microcap August 2012–Dec. Microcap sold 56,273 shares through its

2012 Scottsdale account, resulting in proceeds of
$84,386.

Bayside Feb. 2013 Bayside sold its promissory note for $250,000
to five investors.

Bayside Feb. 2013 – Apr Bayside sold 140,000 shares of FusionPharm

2013 through an account at Scottsdale, resulting in
proceeds of $75,129.

Meadpoint May 2013-May Meadpoint sold 3,190,314 shares of

2014 FusionPharm through an account at Alpine
Securities, resulting in proceeds of
$10,188,925.

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115. These transactions alone accounted for $12,104,226 in proceeds. Based

on your affiant’s review of the Bank Records and SEC’s Analyses regarding the same,
these proceeds were used in two primary ways: (a) portions of the proceeds were
transferred among the Sears Controlled Entities, and then back to FusionPharm where
they were classified as revenue (see, e.g., ¶¶55-58 and FN27 above); (b) Sears and
Dittman used the funds for their own personal benefit.

116. Even though the transactions above were done solely through the Sears
Controlled Entities, Dittman received hundreds of thousands of dollars of these
proceeds. First, based on your affiant’s review of Dittman’s personal bank accounts
records, Dittman received over $100,000 in checks and transfers from Meadpoint in his
personal account between February 2014 and April 2014: (a) February 2014: $25,000
check from Meadpoint; (b) March 2014: $20,000 check from Meadpoint; and (c) April
2014: $70,000 transfer from Meadpoint. As set forth in Exhibit A and based on your
affiant’s review of the Brokerage Records, the time period of the deposits coincides with
the period when Meadpoint was converting most of its shares from the promissory note
and selling shares on the open market.

117. Moreover, hundreds of thousands of dollars of these proceeds were

funneled back to Dittman from Meadpoint so Dittman could purchase a $750,000.00
house in Pennsylvania. Based on your affiant’s review of Bank Records and Brokerage
Records, your affiant has discovered the following:

a. January 6, 2014 – May 15, 2014: Sears wired $9,923,125.14 in proceeds

from the sale of FusionPharm stock from the Meadpoint brokerage
account at Scottsdale Capital Advisors to a Meadpoint bank account.
b. March 12, 2014 and May 2, 2014: Sears transferred $9,630,202.83 of
those same funds from the Meadpoint bank account to another bank
account in the name of Mrs. Sears. (see ¶39(c) above)
c. May8, 2014 - May 12, 2014: Sears moved $9,360,000 of those same
funds to a brokerage account in Mrs. Sears name at Moors & Cabot, Inc.
d. May 15, 2014: The court previously issued a seizure warrant for the
above referenced Moors & Cabot account; however, on the day preceding
the execution of the seizure warrant, May 15, 2014, a wire transfer was
sent from the Moors & Cabot account to VIST Bank in the amount of
$688,000.

118. A review of Bank Records revealed these funds went to an account held
by Paragon Abstract, a title company in Pennsylvania. Records were obtained from
Paragon Abstract which confirmed the funds were used by Dittman for the purchase of
a home located at 194 Basket Road, Oley, PA 19547.

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119. Analysis of the bank accounts for the Sears Controlled Entities showed
that Dittman and his wife received large checks from these entities in 2011 through
2014 totaling $186,530.

SEARS CONTROLLED ENTITY DOLLAR AMOUNT

Meadpoint $153,250
Bayside $16,780
Vertifresh $5,500
Microcap $11,000
TOTAL $186,530

PROBABLE CAUSE TO BELIEVE THAT PARTICULAR FEDERAL CRIMES

HAVE BEEN COMMITTED
120. The evidence outlined above demonstrates that Dittman and Sears
devised and pursued a scheme to defraud prospective and actual investors of
FusionPharm securities (in particular, individuals who purchased shares of its common
stock in the secondary markets), among other ways, by fabricating and falsifying the
company’s reported revenues, and misrepresenting the company’s financial condition,
in periodic financial statements and disclosure documents made available to the
investing public through the OTC Link marketplace and through news release
disseminated through financial media outlets.

121. An integral part of the execution of this fraudulent scheme involved the
use of interstate transmission of wire communications. As set forth above, since 2011,
FusionPharm’s financial statements and disclosure documents have been periodically
uploaded to the OTC market website in a way that would have necessarily implicated
and involved internet communications routed through New Jersey and Virginia (see ¶33
above). Further, the news releases seen by your affiant from FusionPharm, Meadpoint
and VertiFresh -- which conveyed, among other things, false and misleading
information about purported FusionPharm sales -- were all disseminated and
rebroadcast by commercial news services (such as PR Newswire) over the internet and
so were necessarily transmitted and accessed through interstate and foreign
communication facilities. Each of these periodic postings and news release
disseminations thus constituted specific acts in execution of a wire fraud scheme in
violation of 18 U.S.C. § 1343.

122. Similarly, the evidence outlined above demonstrates probable cause to

believe that securities fraud offenses have been committed in violation of 15 U.S.C. §§
78j(b) and 78ff(a), and 17 C.F.R. §240.10b-5. Your affiant has learned through
conversations with SEC Enforcement staff attorneys that these statutory and regulatory
provisions, in general, prohibit a person from using or employing manipulative or
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deceptive devices in connection with the purchase and sale of securities, and, among
other things, make it unlawful to employ any device, scheme, or artifice to defraud, or to
make untrue statements of material facts or to make omissions of material facts in
connection with such sales and purchases. Willful violations of these statutory and
regulatory provisions constitute federal felony offenses.

123. As demonstrated above, the fraudulent scheme concerning

FusionPharm’s financial condition and operations involved various misstatements and
omissions concerning revenues and business transactions, among other things, and
was perpetrated in connection with securities transactions in the secondary market for
FusionPharm’s common stock; the sales of common stock held by the Sears Controlled
Entities described above, for example, were all primarily effectuated through this
secondary market and exploited the fraudulent scheme.
EVIDENCE & INSTRUMENTALITIES OF THE FRAUDULENT SCHEME TO BE
LOCATED IN THE EMAILS
124. The subject of the search warrant is the following email accounts hosted
by GoDaddy, with corporate headquarters located at 14455 North Hayden Rd., Suite
219, Scottsdale, AZ 85260, hereinafter referred to as “Subject Accounts”:

a. william@williamjsears.com
b. wsears@vertifresh.com
c. admin@pharmpods.com
d. jscott@pharmpods.com
e. sdittman@fusionpharminc.com
f. craig@fusionpharminc.com

125. Per records provided by GoDaddy on March 17, 2014, the active domains
www.fusionpharminc.com and www.pharmpods.com were set up by Sears. The above
active email accounts were also maintained by GoDaddy under the same account. On
April 17, 2014, I submitted a preservation request for the above listed e-mail accounts to
GoDaddy via fax number (480) 624-2546. The request identified the following records
to preserve:

a. The contents of any communication or file stored by or for the accounts

and any associated accounts, and any information associated with those
communications or files, such as the source and destination email
addresses or IP addresses.

b. All records and other information relating to the accounts and any
associated accounts including the following:

(i) Names (including subscriber names, user names, and

screen names);
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(ii) Addresses (including mailing addresses, residential

addresses, business addresses, and e-mail addresses);

(iii) Records of session times and durations, and the temporarily

assigned network addresses (such as Internet Protocol (“IP”)
addresses) associated with those sessions;

(iv) Length of service (including start date) and types of service

utilized;

(v) Telephone or instrument numbers (including MAC

addresses, Electronic Serial Numbers (“ESN”), Mobile
Electronic Identity Numbers (“MEIN”), Mobile Equipment
Identifier (“MEID”), Mobile Identification Numbers (“MIN”),
Subscriber Identity Modules (“SIM”), Mobile Subscriber
Integrated Services Digital Network Number (“MSISDN”),
International Mobile Subscriber Identifiers (“IMSI”), or
International Mobile Station Equipment Identities (“IMEI”);

(vi) Other subscriber numbers or identities (including the

registration Internet Protocol (“IP”) addresses); and

(vii) Means and source of payment for such service (including

any credit card or bank account number) and billing records.

126. A request to extend the preservation letter for an additional 90 days was
sent by fax on July 10, 2014 and again on October 6, 2014. GoDaddy responded on
August 27, 2014 and October 7, 2014 via e-mail that they received the requests and
would preserve the account data for 90 days from October 7, 2014.

127. As part of the investigation described herein, your affiant learned that each
of these email accounts was used by Dittman or others at FusionPharm as part of the
company’s operation or by Sears, in connection with his operation of Sears’ Controlled
Entities and his involvement with FusionPharm. Your affiant further has reason to
believe that these email accounts were used to engage in communications that involved
the conduct discussed above in this affidavit. Your affiant learned about the existence
and use of the email accounts, through various means, including the following: During
the search warrant executed on May 16, 2014, agents seized a number of computers.
Images of two of the computers were loaded into a forensic tool for review. During your
affiant’s cursory review of these two computer images, your affiant saw that there were
emails to or from each of the foregoing email accounts and that the communications
involved the operations of FusionPharm and the matters addressed herein. Your affiant
saw, for example, that:

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a. Dittman used the email account sdittman@fusionpharminc.com to send

Sears an email at account William@williamjsears.com to discuss the
VertiFresh licensing agreement.

b. Sears received an email using the account wsears@vertifresh.com to

discuss an investment in FusionPharm.

c. The admin@pharmpods.com email account was used to communicate

with Dittman and CW-3 regarding the FusionPharm financial statements.

d. The jscott@pharmpods.com email account was used to communicate with

Dittman about FusionPharm sales.

e. The craig@fusionpharminc.com email account was used to

communicate with Dittman about the FusionPharm financial statements.

128. CW-1 confirmed that Dittman used the email

sdittman@fusionpharminc.com, Sears used the email William@williamjsears.com, and
John Scott used the email jscott@pharmpods.com to communicate with CW-1 about
FusionPharm business. CW-3 confirmed that Dittman used the email
sdittman@fusionpharminc.com, Sears used the email William@williamjsears.com,
Mandy Cranmer, the FusionPharm bookkeeper, used the email
admin@pharmpods.com, and John Scott used the email jscott@pharmpods.com. CW-
3 confirmed that he used the email craig@fusionpharminc.com while he worked for
FusionPharm.

129. Additionally, Dittman used his sdittman@fusionpharminc.com email

account in a number of communications with UC-1 regarding FusionPharm and
provided UC-1 with information and materials about the company using this account.

130. Finally, several of the Subject Email accounts were used by Dittman and
others at FusionPharm to communicate with various third parties concerning matters
that are the subject of or relevant to this investigation, such as FusionPharm customers,
vendors, and personnel at the transfer agent.

PROCEDURES FOR ADDRESSING AND HANDLING

POTENTIALLY PRIVILEGED ATTORNEY COMMUNICATIONS

131. Following the May 16, 2014 execution of the search warrant on
FusionPharm’s premises, your affiant was made aware that corporate counsel for
Fusion Pharm and counsel for Dittman had reason to believe that records recovered in
the search, including emails stored on computers seized at FusionPharm’s premises,
could contain attorney-client privileged communications between attorneys representing
FusionPharm and FusionPharm employees, agents and others acting on its behalf.
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Additionally, during a cursory review of digital files residing on the seized computers,
your affiant saw emails that involved communications with persons understood to be
attorneys representing FusionPharm and FusionPharm personnel, although it was not
clear from this cursory review whether these communications actually constituted
privileged attorney-client communications. Further, your affiant reviewed records
produced by CW-3 which included emails that included similar types of attorney
communications. The discovery of these emails was made known to FusionPharm
counsel, whereupon counsel made mostly generalized assertions of possible attorney-
client privileged communications.

132. In order to address the possibility that items seized during the warranted
physical search of FusionPharm could contain privileged attorney-client
communications, a government “filter” or “taint” team, consisting of federal agents and
a federal prosecutor not assigned to the investigation of this case, has been established
to filter out any communications that may contain attorney client privileged
communications and segregate them from your affiant and other agents and
prosecutors involved in the investigation of this case. The team has been supplied a list
of attorneys who have represented FusionPharm by FusionPharm counsel and, using
this list, is currently undertaking to flag and segregate records obtained in the search
that contain communications involving these attorneys, so that these communications
are assessed to determine whether they are privileged attorney-client communications
before being made available to affiant and the rest of the criminal investigative team.
While it is the plan for the taint team to review the actual content of these segregated
communications as part of making these privilege determinations, the use of that taint
team has currently been held in abeyance pending preparation of a privilege log by
FusionPharm concerning these segregated records, which are being supplied to
FusionPharm counsel, and pending consideration and discussion of that log between
prosecutors assigned to this case and FusionPharm counsel. Prosecutors in this case
have reserved the right to have the taint team review the content of these segregated
records, at any point in this process, and so it is contemplated that the taint team may,
at some point, review these segregated communications as part of a privilege review.

133. As set forth above, your affiant has reason to believe that emails from
email accounts which are the subject of this search warrant also reside on computers
that were seized as part of the warranted search of FusionPharm’s premises and that
some of the same emails may reside both on these computers and on the servers of
GoDaddy. Because of this, your affiant further has reason to believe that some emails
that are being sought as part of this search warrant application may contain
communications between FusionPharm and attorneys representing FusionPharm that
may be deemed to be privileged communications or, at the very least, subject to a claim
of privilege by FusionPharm. In order to address possible claims of privilege relating to
attorney communications contained in emails that are provided to agents pursuant to
the requested search warrant that is the subject of this application, the same taint team
using the same procedures will be employed to filter out and segregate for privilege
review, emails which may contain privileged communications with attorneys
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representing Fusion Pharm. Any emails segregated as a result of this filtering are
currently planned to be provided to FusionPharm counsel for its review and use in
preparation of a privilege log and are will not be reviewed by the taint team until receipt
of a privilege log from FusionPharm counsel. However, as with segregated
communications contained in emails seized as part of the warranted search of
FusionPharm’s premises, it is anticipated that the taint team may eventually review the
content of these segregated emails as well as part of a privilege review.
CONCLUSION
134. Based on my training and experience as a Special Agent, all of the
foregoing constitutes probable cause to believe that:

a. Dittman and Sears have committed wire fraud and securities fraud
through, among other things, the dissemination of falsified quarterly and
annual Financial Disclosures and press releases (“the pump”) in order to
increase and/or sustain the price of the common stock of FusionPharm,
thereby allowing them to make millions of dollars when dumping their
company’s stock in the secondary OTC market (“the dump”); and

b. Evidence and instrumentalities of these crimes, as described in

Attachment B, are likely to be located in the Subject Accounts.

s/ Kate E. Funk
Kate E. Funk, Special Agent
Federal Bureau of Investigation

Reviewed by Scott T. Mascianica, Special Assistant U.S. Attorney, and submitted by

Kenneth M. Harmon, Assistant U.S. Attorney.

Sworn telephonically and signed electronically on this ____

28th day of November, 2014 at
Denver, CO.

___________________________________________
__________________________________
_________
_____
_ _
UNITED STATES MAGISTRATE
E JJUDGE
UDGE
E

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EXHIBIT A
Promissory Note Conversions to Common Stock

DATE ENTITY ACTION

December 6, Bayside Converted $1,400 of debt into 140,000 shares of

2012 common stock. FusionPharm issued the new
stock on January 18, 2013. Bayside transferred
these shares to its Alpine Securities account on
February 1, 2013.

February 5, 2013 Bayside Bayside sold its note to five investors for
$250,000: This provided each of the five new
investors to convert the debt at $.40/share (as
opposed to the $.01/share in the original
agreement).

March 14, 2013 Bayside The five investors above converted portions of
their debt into 200,000 shares.

March 29, 2013 Meadpoint Converted $4,750 of debt into 475,000 shares of
common stock. Sears signed the request to
convert on behalf of Meadpoint. Meadpoint
transferred these shares to its Alpine Securities
account on May 2, 2013.

August 15, 2013 Meadpoint Converted $5,000 of debt into 500,000 shares of
common stock. Sears signed the request on
behalf of Meadpoint. Meadpoint transferred
these shares to its Alpine Securities account on
September 3, 2013.

August 30, 2013 Meadpoint Converted $15,000 of debt into 1,500,000 shares
of common stock. Meadpoint. Sears signed the
requests on behalf of Meadpoint. Meadpoint
transferred all 1,500,000 shares to three people:
(1) Individual RS (500,000 shares); (2) Individual
ST (500,000 shares); and (3) Individual MT
(500,000 shares).

September 9, Bayside Two investors from the February 5 note purchase

2013 converted portions of their debt into 342,265
shares.

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January 6, 2014 Meadpoint Converted $8,000 of debt into 800,000 shares of

common stock. Meadpoint transferred these
shares to its Alpine Securities account on
February 4, 2014.

January 30, 2014 Bayside Three investors from the February 5 note
purchase converted portions of their debt into
120,687 shares.

February 18, 2014 Meadpoint Converted $6,000 of debt into 600,000 shares of
common stock. Meadpoint transferred these
shares to its Alpine Securities account in
February 2014.

March 7, 2014 Meadpoint Converted $3,700 of debt into 370,000 shares of

common stock. Meadpoint transferred these
shares to its Alpine Securities account on March
18, 2014.

April 17, 2014 Meadpoint Converted $9,000 of debt into 900,000 shares of
common stock. Meadpoint transferred these
shares to its Alpine Securities account on April
22, 2014.

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EXHIBIT B
Conversions of FusionPharm Preferred Shares to Common Stock

DATE ENTITY/INDIVIDUAL ACTION

April 15, 2011 Microcap Transfers 185,000 preferred shares as
follows: (1) 183,500 to La Dee Da, a company
owned by Sears’ wife, Sandra Sears; (2) 650
shares to Microcap; and (3) 800 shares to
Prestige Media. Microcap and Prestige
immediately convert these preferred shares to
common stock for 65,000 and 80,000 shares
respectively.

June 6, 2011 La Dee Da41 La Dee Da converted 1,500 preferred shares

to 150,000 shares of common stock. La Dee
Da had 182,050 shares of preferred
remaining.

July 6, 2011 La Dee Da/Microcap La Dee Da transferred 1,680 shares of

preferred to Microcap. Microcap converted
these shares to 168,000 shares of common
stock. La Dee Da had 180,370 shares of
preferred stock remaining.

July 29, 2011 La Dee La Dee Da transferred 1,700 preferred shares

Da/Bayside/Robert to Bayside, which Bayside immediately
Dittman converted to 170,000 shares of common
stock. La Dee Da transferred the remaining
178,670 preferred shares to Robert Dittman,
Scott Dittman’s brother.

December 29, Robert R. Dittman transferred 1,700 preferred shares

2011 Dittman/Bayside to Bayside Realty, which Bayside immediately
Realty Holdings converted to 170,000 shares of common
stock. Dittman kept 176,920 shares of
preferred stock.

41
La Dee Da’s primary business address is 13442 Jackson Drive, Thornton, CO 80241. This is Sears’
home address. La Dee Da is registered to Sandra Leanne Sears, Sears’ wife. Based on your affiant’s
review of the Bank Records, Sandra Sears had primary signature authority over La Dee Da’s bank
accounts. Based on your affiant’s review of the SEC Analyses, Sears did not utilize La Dee Da when
transferring funds amongst the Sears Controlled Entities and to FusionPharm. However, as detailed in
Exhibit A, La Dee Da received a large portion of stock via the Sears Controlled Entities.

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March 31, Robert R. Dittman transferred 1,440 preferred shares

2012 Dittman/Microcap to Microcap, which it immediately converted to
144,000 shares of common stock. R. Dittman
kept 175,480 preferred shares.

April 24, 2012 Robert Dittman R. Dittman converted 4,750 preferred shares
to 475,000 shares of common stock. He had
170,730 preferred shares remaining. Dittman
immediately transferred 475,000 shares to
four investors.

May 31, 2012 Robert R. Dittman transferred 85,365 shares of

Dittman/VertiFresh preferred stock to VertiFresh. He kept the
remaining 85,365 shares for himself.

March 27, Scott Dittman Scott Dittman converted 20,000 shares of his
2013 preferred stock (held in his single person LLC
Salt Investments, LLC) to 2,000,000 shares of
common stock. He has 1,280,000 shares of
preferred stock remaining.

February 21, VertiFresh/Robert VertiFresh transferred the 85,365 shares of

2014 Dittman preferred stock back to R. Dittman.

May 9, 2014 Frederick Dahlman Frederick Dahlman converted 5,000 shares of

his preferred stock to 500,000 shares of
common stock.

47