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Just before Thanksgiving we broke the news that Canopy Financial was cooking its books. Everyone involved tried to point the finger to someone else.

Well, now the SEC has weighed in with lawsuit alleging fraud on the part of Canopy and one of its co-founders Jeremy Blackburn, who was the COO. He misled investors about Canopy’s financial condition when raising a $75 million round. When the fund-raising was complete, he paid off existing investors to the tune of $40 million, and took about $1.7 million for himself, according to the complaint (embedded below).

According to the SEC:

The SEC’s complaint alleges that Canopy and Blackburn solicited investors from at least October 2008 through August 2009, providing them with documents devised to show that Canopy had a much healthier cash balance and larger client base than it actually did. Blackburn also falsified at least one bank statement to show an account balance of approximately $8.9 million, when in fact it was a custodial account of a Canopy client that held approximately $86,952. The SEC further alleges that Canopy raised approximately $75 million from investors and paid approximately $40 million in redemptions to existing investors, including Blackburn who redeemed 250,000 shares in exchange for approximately $1.625 million.

The complaint was filed on November 30, six days after our initial story ran.

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