OPKO Health and its CEO and chairman Phillip Frost, M.D., said they have settled allegations of wrongdoing from the U.S. Securities and Exchange Commission (SEC) related to stock sales, under a proposed resolution that includes a combined $5.6 million in penalties and other payments.
Under a settlement subject to approval by the U.S. District Court for the Southern District of New York, where the SEC filed its complaint, OPKO and Dr. Frost neither confirmed nor denied the SEC allegations.
“We have reached an agreement with the SEC that will end a potentially expensive, contentious, and time-consuming litigation and I am happy that we can focus on an exciting and productive 2019 for OPKO Health,” Dr. Frost said yesterday in a statement.
The SEC in September charged OPKO and Dr. Frost among 10 people and their associated entities that the agency accused of participating in transactions that generated $27 million from unlawful stock sales to smaller investors whose shares became virtually worthless. OPKO and Dr. Frost denied any wrongdoing.
In settling with the SEC, Dr. Frost agreed to pay more than $5.5 million to the agency, consisting of a $5 million civil penalty, disgorgement of $433,181.06 representing profits gained as a result of the actions alleged in the complaint, and $90,206.46 in prejudgment interest.
Dr. Frost also agreed to a prohibition, with certain exceptions, from trading in penny stocks; and to injunctions from violations of the Securities Act of 1933 and Securities Exchange Act of 1934.
The proposed settlement added that Dr. Frost is not barred from holding or selling securities in any of the companies where he owned stock as of the final settlement date.
However, such sales must be limited to the number of shares of an issuer held by Dr. Frost as of the final judgment date—and in return for any funding provided by him to those companies, he must receive debt securities that do not allow current or future equity conversion, according to the proposed settlement.
OPKO Agrees to Committee, Consultant
OPKO agreed to a $100,000 penalty, an injunction from violations of the Securities Exchange Act of 1934; and the performance of certain undertakings related to the Act.
Among those undertakings is establishing a Management Investment Committee that will issue recommendations to an Independent Investment Committee of the Board of Directors for handling existing and future strategic minority investments as long as Dr. Frost is a shareholder in or holds any management or board-level position at OPKO.
OPKO also agreed to retain an Independent Compliance Consultant to review prior strategic minority investments made by the company at the suggestion of and in tandem with Dr. Frost. The consultant will advise the company on whether filings of those investments made under the Exchange Act should be made or amended based on a grouping of such investments by OPKO, Dr. Frost, several entities, and/or members of his immediate family.
The SEC alleged in its court complaint that Dr. Frost was among the group of investors that manipulated the share price of the stock of OPKO Health and two other 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 alleged, 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.
Dr. Frost ranked 8th in GEN’s list of “Top 10 Molecular Millionaires of 2018,” published December 3, based on his investments in OPKO and two other public companies, ChromaDex and Cocrystal Pharma. His ranking fell from second in the 2017 Molecular Millionaires list. The annual lists consist of CEOs and other executives and relatives with the biggest stakes in biopharma companies.