Opko Health Inc (OPK)

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SEC Charges Against Phillip Frost Might Just Be the Tip of the Iceberg

ByBill Alpert Updated Sept. 10, 2018 5:04 p.m. ET
Phillip Frost at the Tel Aviv Stock Exchange in Israel in 2013.
Phillip Frost at the Tel Aviv Stock Exchange in Israel in 2013. PHOTO: ARIEL JEROZOLIMSKI/BLOOMBERG

The U.S. Securities and Exchange Commission filed stock fraud charges late last week against billionaire drug entrepreneur Phillip Frost and a group of associates, accusing them of making $27 million in pump-and-dump stock schemes. The civil suit filed in Manhattan’s federal district court alleges that Frost and nine others manipulated micro-cap stocks over the last five years, aided and abetted by Frost’s investment trust and a Miami-based drug development company where he is board chairman and chief executive, Opko Health.
Since 2012, Barron’s has chronicled Opko’s rise to a stock market capitalization that peaked near $9 billion, despite repeated product flops and cumulative losses that surpassed $1 billion this year. The 81-year-old Frost is a prominent philanthropist in south Florida, where his name adorns a university music school, a science center, and an art museum. He is a trustee of the University of Miami and Miami’s Mt. Sinai Medical Center. Opko was supposed to be Frost’s crowning achievement after his 1986 sale of Key Pharmaceuticals to Schering-Ploughfor $800 million and his 2006 sale of IVAX to Teva Pharmaceuticalfor $7.5 billion. The latter deal rewarded Frost with some $500 million in cash, $600 million in Teva shares and, for four years, the board chairmanship of Teva, the world’s largest generic drug maker. Frost is also chairman of Ladenburg Thalmann Financial Services,a Wall Street investment bank where he became the controlling shareholder after converting loans to the Miami financier Bennett LeBow.

When Opko stock peaked above $19 in 2015, it used its shares to acquire Bio-Reference Laboratories, a New Jersey-based outfit that was the country’s third-largest clinical lab by revenue. But as Barron’s reported in 2011, Bio-Reference produced little cash flow and had gotten financing from a Mafia-associated stock broker. The lab acquisition was the high-water mark for Opko stock. The stock fell 17% Friday before trading was halted, and trading remained halted Monday afternoon with shares at $4.58.

The SEC complaint alleges that Frost participated in three stock manipulation schemes led by Barry Honig, a 47-year old investor in Boca Raton, Fla., whose penny-stock collaborations with the billionaire Frost were examined by Barron’s in 2014. Honig was “the primary strategist” of the three schemes, according to the complaint, which gained control of three tiny public companies — not named in the complaint — and then paid promoters to write favorable and misleading articles on the Seeking Alpha website. Honig then allegedly arranged manipulative trades — including some by Honig’s charitable foundation and Frost’s investment trust — to get the stocks to a level where the schemers could dump them on the public, according to the SEC complaint.

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In a statement Saturday, Opko said that neither Frost nor the company had prior notice of the SEC’s complaint, which Opko said “contains serious factual inaccuracies.” Had Frost and his company been allowed to previously address the agency’s concerns, Opko said, the lawsuit could have been prevented. The SEC complaint makes no allegations, Opko said, about “Opko’s financial practices, financial statements or business practices.”

“Opko and Dr. Frost have always prided themselves on adhering to the highest standards of financial disclosure,” Opko’s statement said, “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.”

No lawyers for any of the defendants had appeared on the case docket as of Monday morning. Emails and phone calls to Opko, Frost, and Honig went unanswered.

Although the SEC complaint didn’t name the three stocks allegedly manipulated, the pleading describes the companies’ officers and other characteristics in sufficient detail to allow their identification as Cocrystal Pharma,MGT Capital Investments and MabVax Therapeutics — penny stocks that all dropped sharply on Friday. MGT issued a statement saying it had cooperated with SEC investigators and lamenting that the agency charged its chief executive Robert Ladd among Friday’s defendants without first allowing him to formally address the agency’s concerns. A second statement announced that Ladd was taking a leave of absence to defend himself against the SEC allegations, which MGT said were without merit and did not name MGT as a defendant. Ladd has not commented publicly beyond MGT’s statement.

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Last year, Frost and Opko were sued for fraud in a Minneapolis court by Lee M. Pederson, the one-time patent counsel of Cocrystal’s predecessor company. In a 91-page complaint in Minneapolis’ federal district court, Pederson accused Frost of using Cocrystal and other stocks for pump-and-dump schemes. Pederson’s complaint said he began filing whistleblower claims about “the Frost gang” with the SEC several years ago. A federal magistrate has recommended that Federal District Judge Wilhelmina M. Wright grant a motion by Opko and Frost to dismiss Pederson’s case, saying the Minneapolis district lacks jurisdiction over the defendants. Pederson declined comment to Barron’s.

Frost, Honig and a third investor — Miami-based Michael Brauser— have appeared as investors in more than a dozen penny stocks over the last decade. Most collapsed, after impressive runs, but some still maintain modest market caps, including Polarityte, Eloxx Pharmaceuticals,and ChromaDex.Neither the SEC nor any other regulators have alleged wrongdoing by the three men in connection with these three stocks. But another defendant in Friday’s complaint, John Stetson, was terminated by PolarityTE as its chief investment officer, the company said in a statement. Stetson declined to comment Monday.

Monday, Brauser resigned as director and board chairman of Red Violet (RDVT), a company not included in Friday’s SEC complaint. In Red Violet’s announcement, Brauser said he’d defend himself vigorously against the SEC’s “baseless” charges. He did not respond to a query from Barron’s.


Last year, a stock backed by Honig and Brauser enjoyed a 10-fold rise to $46, amid a blockchain frenzy: the Ft. Lauderdale-based RIOT Blockchain. After giving back those gains this year — the stock was at $4.46 on Monday — Riot disclosed that it is cooperating fully with an SEC investigation.

Also named among the defendants in Friday’s complaint was RIOT’s chief executive John O’Rourke, who resigned over the weekend. O’Rourke didn’t immediately respond to requests for comment Monday.

A YouTube video of Honig, after a night of partying, has gone viral among stock traders since Friday’s SEC complaint.


The remarkable penny stock successes of Frost, Honig, and Brauser have also been the subject of dogged investigation by independent journalist Teri Buhl, who self-publishes her work and had to defend against two lawsuits filed by Honig over her stories, including a libel suit Honig dropped last year. “Reporting on this man is costly,” Buhl wrote Saturday on her website.

Honig was highly confident about his penny stock plunges with Frost when Barron’s talked to him in November 2014.

“Frost is probably one of the smartest men on the planet,” Honig said then. “This world needs a lot more people like him.”

Honig proposed a pair trade: short Appleand long Opko.

https://www.barrons.com/articles/sec-charges-phillip-frost-1536608366