BOZEMAN — The trial of a Bozeman lawyer facing charges of engaging in a conspiracy to defraud investors, farmers, and the State of Montana through various means, including a Ponzi scheme, continued Wednesday in Bozeman.
The charging documents allege that Michael Rabb, 44, and Byron Gruber (both Gallatin County residents), Jason Bradley Cross (a resident of Texas), and Eugene Elfrank (a resident of Washington) defrauded investors through their Texas-based company, Isotex Health, LLC. The company purported to be engaged in hemp harvesting and the isolation of CBD oil in Montana. According to a release, the fraud involved more than $6 million over several years. Each of the defendants is charged with operating a pyramid promotional scheme, securities fraud, operating as a commodities dealer without a license, forgery, false claims to a public agency, theft, and conspiracy to commit these crimes.
On day three of the ten-day jury trial, Montana farmers who contracted with a hemp company associated with Rabb and the others testified that they didn't receive all the payments they were promised.
Rabb, along with the other defendants, allegedly convinced farmers and investors to invest in the then-emerging hemp industry with a start-up business called Isotex Health LLC.
Documents show that Isotex reportedly operated as a commodities dealer handling more than $30,000 in agricultural products without proper licensing, despite repeated warnings from the Montana Department of Agriculture.
Isotex was formed in Texas in 2018. There were three distinct rounds of investors in Isotex's promotional scheme, where the state alleges that Rabb and the others told potential investors that Isotex was a lucrative hemp and CBD business with sales contracts, purchase orders, and letters of intent with various industry partners totalling billions of dollars.
Reportedly, Isotex paid earlier round investors with funds obtained from later rounds, rather than from any profits or income from the sale of CBD oil or distillates.
In May of 2019, Isotex had entered into agreements with Montana farmers to grow approximately 13,500 acres of hemp in exchange for down payments in excess of $750,000. Other farmers in the Choteau, Poplar, and Scobey areas entered into agreements with the company.
At the time of the farmers' agreements, Isotex lacked a hemp processor license to produce CBD as required by the MT Department of Agriculture.
The men also allegedly fraudulently obtained $307,500 in state economic development grants, misusing taxpayer funds from the Governor's Economic Development Program, intended to create jobs.
In addition, court documents claim:
- The men allegedly falsely claimed crop insurance coverage to investors and farmers while never actually obtaining insurance, leaving the farmers vulnerable to weather-related losses.
- The defendants reportedly altered hemp laboratory test results to inflate CBD content and hide failed tests for toxins.
- Gruber allegedly used threats of litigation and intimidation tactics to silence dissenting investors and employees, reportedly including recorded threats with profanity.
- The defendants allegedly diverted over $1 million in investors' funds for personal travel, entertainment, and other unauthorized expenses.
“As the Gallatin County Attorney, I want to thank Commissioner Downing for his diligent efforts investigating fraud within our County and across Montana,” Audrey Cromwell stated in June 2024. “His team’s dedication ensures the integrity of our financial systems and the safety of our community. We stand by ready to assist the CSI as they work to hold people accountable for their actions.”
