SEC sues Drake’s Organic Spirits founder in $2.4m fraud case
Why does this matter?
Important cautionary tale for BevTech founders about investor fraud in the beverage startup ecosystem, highlighting the importance of financial transparency and governance when raising capital.
Highlights
The US Securities and Exchange Commission (SEC) has filed a lawsuit against the founder of Drake’s Organic Spirits, alleging he fraudulently raised more than US$2.4 million from investors. The financial regulator filed the lawsuit in the US District Court for the District of Minnesota against Mark D Anderson, the founder and former CEO of Minneapolis-based Drake’s Organic Spirits. The business was founded in 2017 as the ‘first and only spirits line’ in the world certified organic, non-GMO Project Verified, gluten-free, vegan and kosher. The company produced vodka, rum and ready-to-drink cocktails until it ceased operations in 2023. In the court filing, the SEC accused Anderson of organising a fraudulent scheme to mislead investors by inflating the company’s sales figures. According to the SEC’s complaint, Anderson allegedly used two entities he controlled – BBFY USA and Captain Drake – along with an unregistered company called Liquid Solutions, to conduct several sham transactions designed to make it appear that Drake’s Organic Spirits had significantly higher revenue than it did. The SEC claims that in late December 2021, Anderson directed company staff to record approximately US$2.6m in fake sales through round-trip bank transfers. These funds were allegedly moved from accounts tied to Anderson into Drake’s accounts and then quickly transferred back out to another company controlled by the founder. The SEC claims that no actual product was sold, no inventory was transferred, and there were no supporting documents such as invoices or shipping records. The lawsuit also accuses Anderson of doing a similar scheme in mid-2022, when he was alleged to have transferred approximately US$391,000 from Liquid Solutions to Drake’s Organic Spirits, asking his employees to record the fees as bulk alcohol sales. The SEC believes the allegedly inflated sales figures were then used in offering documents to raise money from investors. Between February and December 2022, Drake’s reportedly raised about US$1.5m in a convertible debt offering. In early 2023, the company raised an additional US$923,974 through a rights offering, which allowed existing shareholders to buy extra stock shares, often at a discounted price. According to the court filing, Drake’s Organic Spirits gained approximately US$21m from about 180 investors before shuttering. The company was dissolved in January 2026, and the SEC states it has no assets remaining, leading to investors losing most of their investments. The SEC is seeking permanent injunctions against Anderson and his companies, as well as civil penalties.
The Spirits Business
