Back in September, biotech billionaire Phillip Frost and eight other individuals were charged by the SEC for a penny stock scheme deemed fraudulent. Frost was not at the core of the scheme, which involved buying up penny stocks and effectively pumping their value only to dump them at massive profits. Overall, before they were caught, they netted around $27 million.
The line is very fine when it comes to what is legal and what is not in trading. On the surface, the activities conducted by John O’Rourke, Phillip Frost, Robert Ladd, and Barry Honig could seem like legitimate speculative activities. According to the initial complaint against the men, however, they were guilty of more than just trading with foolish penny stock investors:
Honig allegedly orchestrated the acquisition of large quantities of the issuer’s stock at steep discounts, and after securing a substantial ownership interest in the companies, Honig and his associates engaged in illegal promotional activity and manipulative trading to artificially boost each issuer’s stock price and to give the stock the appearance of active trading volume.
Frost to Pay $5.5 Million to SEC In Settlement
In total, three companies were pumped and dumped. Frost is said to have participated in two of them. As part of an agreement reached Friday, he will not be admitting to any such malfeasance. The SEC, which is working with very limited staff as a result of the partial government shutdown, reached a settlement with Frost Friday in which he is not required to admit or deny any part of the SEC’s allegations. Instead, he will pay them off to the tune of $5.5 million and spend the rest of his life barred from involvement in most types of penny stocks, CNBC reports.
Honig and O’Rourke are the primary crypto connection in the scheme. Honig bought up to 9% of a biotech company called Bioptix before it pivoted to become Riot Blockchain. As the report says, he bought his large stake at a discount from the $9 listing price of the time. When the company pivoted to a blockchain-and-crypto investment firm, the price jumped up to almost $50. Honig told the Wall Street Journal with an unstated smirk: “When stock goes up, you take a profit. Every good investor does it.”
O’Rourke was the CEO of Bioptix and then Riot Blockchain, and his as well as the other 7 cases remain pending.
Frost’s involvement was in helping to pay for the illegal promotion of the two stocks he took part in as well as investing in ways that actually pumped the price. Pump-and-dump schemes are mostly illegal. Mr. Frost and his legal team apparently decided that it would be better not to let the court decide whether he was actually guilty. The agreement with the SEC will have to be approved by such a court.