Corix Bioscience is a startup company seeking to begin operations manufacturing and selling cannabidiol
(CBD) products. To promote the company, Corix hires Harrelson, an independent research analyst, to
write and distribute a research report on the company. Corix informs Harrelson that it has a joint venture
with Native American tribes, enabling the company to access tribal lands for farming commercial hemp
and cannabis and to sell hemp and cannabis products in retail outlets on tribal lands. Corix also tells
Harrelson that the company has obtained a certificate of compliance from regulators that allows the
company to transport, process, and export industrial hemp products. Finally, Corix discloses to Harrelson
that the prior year’s harvest of hemp surpassed expectations in both quality and quantity, resulting in a
substantial inventory of product. Based on these statements by the company, Harrelson includes all of
this information in a research report and provides a positive analysis of the company.
In reality, Corix does not have agreements with Native American tribes; the company did not seek or
obtain regulatory approval; the certificate of compliance is a forgery; and Corix never cultivated, planted, or
harvested significant quantities of industrial hemp. Chong, a research analyst at Natures Harvest Investment
Management (NHIM), incorporates the information and conclusions from Harrelson’s research report as part
of his own internal research on Corix and includes a “buy” recommendation. Chong’s report is distributed
to only portfolio managers at NHIM. Broadus, a NHIM portfolio manager, reviews Chong’s research and
purchases substantial holdings in Corix for a number of his clients. Corix is ultimately shown to be a sham
operation, leading to substantial losses for Broadus’s clients.
