Two biopharmas today denied allegations of wrongdoing from the U.S. Securities and Exchange Commission (SEC), which has charged current and former principals of the companies among 10 individuals with participating in transactions that generated $27 million from unlawful stock sales to smaller investors whose shares became virtually worthless.
The SEC on Friday charged the 10 people and their associated entities for their participation in the stock sales, which the agency said in its court complaint amounted to “three highly profitable ‘pump-and-dump’ schemes” that took place between 2013 and earlier this year.
According to the SEC, a group of investors manipulated the share price of the stock of three companies in pump-and-dump schemes entailing the acquisition of large quantities of the issuer’s stock at steep discounts.
After securing a substantial ownership interest in the companies, the SEC alleges, the investor group engaged in illegal promotional activity and manipulative trading to artificially boost each issuer’s stock price, as well as to give the stock the appearance of active trading volume. The investors then dumped their shares into the inflated market, reaping millions of dollars at the expense of unsuspecting investors, the agency added.
Among the 10 individuals who were charged were Phillip Frost, M.D., chairman and CEO of OPKO Health; and Elliot Maza, the former CEO of Immune Pharmaceuticals. According to the SEC, Dr. Frost allegedly participated in two of the three schemes.
Dr. Frost ranked second in GEN’s 2017 list of “Top 10 Molecular Millionaires.” The list consisted of CEOs and other executives and relatives with the biggest stakes in biopharma companies.
OPKO Health and Immune Pharmaceuticals today issued statements denying wrongdoing by Dr. Frost and Maza, respectively.
OPKO Faults “Factual Inaccuracies”
OPKO—which was among the entities charged—said the SEC failed to provide notice of its intent to sue prior to filing its complaint, which according to the company “contains serious factual inaccuracies.”
“Had the SEC followed its own standard procedures, OPKO and Dr. Frost would gladly have provided information that would have answered a number of the SEC’s apparent questions, and filing of this lawsuit against them could have been avoided,” OPKO contended. “OPKO and Dr. Frost have always prided themselves on adhering to the highest standards of financial disclosure, and they are confident that once a proper investigation is completed and the facts of the case have been fully disclosed, the matter will be resolved favorably for them.” OPKO added that the SEC complaint did not contain any allegations about the company’s financial practices, financial statements or business practices.
Immune—which was not charged by the SEC—also noted in a statement that the SEC has not taken issue with the company’s activities or the market for its common stock. “Based on the information available to the Company, there is no evidence that any of the defendants, including the Company’s former CEO, attempted to manipulate the market for our common stock,” Immune asserted. “No participants in the Company’s financings completed during the former CEO’s tenure with the Company served or serve on Immune’s board of directors or in any position within the Company.”
The stock sales cited by the SEC were led by Barry Honig, a Florida investor who was once the largest shareholder in Riot Blockchain, which focuses on building, supporting and operating Blockchain technologies.
Riot’s CEO and chairman John O’Rourke has resigned after 10 months as CEO, the blockchain company disclosed on Saturday, a day after the SEC filed its complaint in U.S. District Court for the Southern District of New York. Riot was not charged in the complaint.
“Brazen Market Manipulation” Alleged
“As alleged, Honig and his associates engaged in brazen market manipulation that advanced their financial interests while fleecing innocent investors and undermining the integrity of our securities markets,” Sanjay Wadhwa, senior associate director in the SEC’s Division of enforcement, said in a statement issued by the agency. “They failed to appreciate, however, the SEC’s resolve to relentlessly pursue and punish participants in microcap fraud schemes.”
Honig and O’Rourke were also among the 10 who were charged. In addition to them, Dr. Frost and Maza, the other six individuals charged by the SEC were John Stetson, Michael Brauser, Mark Groussman, Robert Ladd, Brian Keller, and John H. Ford.
Also charged were Alpha Capital Anstalt, ATG Capital, GRQ Consultants, HS Contrarian Investments, Grander Holdings, Melechdavid, Southern Biotech, Stetson Capital Investments, and Dr. Frost’s investment entity, Frost Gamma Investments Trust.
The SEC said its continuing investigation is being conducted out of its New York Regional Office by Katherine Bromberg and Charu Chandrasekhar of the enforcement division’s retail strategy task force, Tim Nealon, Ricky Tong, Joseph Darragh, and Michael Paley of the Enforcement Division’s Microcap Fraud Task Force, and Jon Daniels of the Enforcement Division’s Cyber Unit, with the assistance of Edward Janowsky and Steven Vitulano of the New York Regional Office Broker-Dealer and Exchange Examination Program.