$27 Million: SEC Lawsuit Goes After Billionaire Philanthropist and Crypto Investors

Omar Faridi
  • Billionaire entrepreneur Dr. Phillip Frost and nine others including several crypto investors have been accused by the SEC of orchestrating "pump-and-dump" schemes.
  • $27 million were allegedly generated through unlawful sales of stocks by Riot blockchain investors Honing, O'Rourke, Frost, and others. 

Dr. Phillip Frost, an 81-year-old billionaire who made his fortune in the pharmaceutical industry, has been accused by the US Securities and Exchange Commission (SEC) of manipulating the prices of penny stocks. The SEC has also sued Frost and his partners John O’Rourke and Barry Honig, who are both well-known cryptocurrency investors.

As Bloomberg noted on Friday, the three began their misleading “tactics” by publishing promotional articles on Seeking Alpha. In these articles, Honig and O’Rourke claimed their crypto-related projects were backed by substantial investments from Frost.

"Misleading" Articles

In the lawsuit, the SEC describes their allegedly deceptive promotional strategy as follows: "Honig … directed O'Rourke to write a promotional article, which O'Rourke published under the pseudonym 'Wall Street Advisors' on Seeking Alpha. [O'Rourke] also knowingly and falsely claimed 'not receiving compensation'" to write the article.

The three investors and seven others suspected of being involved in their questionable crypto investment business have now been accused of orchestrating pump-and-dump schemes. The SEC has alleged they’ve generated $27 million through the unlawful sale of stocks by using “long-running” market manipulation tactics.

Because of these exploitative activities, unsuspecting investors have reportedly suffered serious losses on their stock investments. A lawsuit filed by the SEC on September 7 in the Manhattan federal court claims that Honig began purchasing large amounts of penny stocks at huge discounts between 2013 and 2018.

"Microcap Fraudsters"

After buying large quantities of these stocks at very low prices, the lawsuit has alleged that Honig and the others in the group, who’ve been called “microcap fraudsters”, began to aggressively promote their companies in an attempt to drive stock prices higher. As their prices surged, the accused “secretly” sold them at artificially inflated values, the SEC’s lawsuit claims.

The SEC’s complaint reads as follows:

"Honig was the primary strategist, calling upon other Defendants to buy or sell stock, arrange for the issuance of shares, negotiate transactions, or engage in promotional activity."

SEC Lawsuit

"In each scheme, Honig orchestrated his and his associates' acquisition of a large quantity of the issuer's stock at steep discounts, either by acquiring a shell and executing a reverse merger or by participating in financings on terms highly unfavorable to the company", according the extensive 52-page lawsuit filed by the securities regulator.

According to the federal regulator’s investigation, the group unlawfully manipulated the stock prices of Frost’s Opko Health, Inc., a medical test and medication company. Notably, Opko’s share prices dropped by 28% on Friday before its trading was suspended.

"Serious Factual Inaccuracies"

Following the sharp decline in the healthcare firm’s stock prices, its representatives have claimed that the SEC’s lawsuit not only contains “serious factual inaccuracies” but was also filed without informing the company in advance.

A statement issued by Opko Health noted:

“Opko and Dr. Frost would gladly have provided information that would have answered a number of the SEC’s apparent questions. [We] 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 Health

Honig’s lawyer has not yet responded to questions regarding the accusations or the lawsuit and has not issued any official statements. O’Rourke, who is now well-known for changing the name and business model of the medical company Bioptix Inc. to Riot blockchain, has also not replied to queries from media.

Notably, Honig has a 10% ownership stake in Riot blockchain, a company that now invests in various digital currencies. Soon after the SEC’s lawsuit was announced, Riot’s share prices dropped by 24%.

Motives Unclear

While its not yet clear exactly how the SEC’s investigation was conducted, the serious nature of the charges levelled by the regulator don’t seem to fit with Frost’s profile. The American entrepreneur has a massive fortune of nearly $5 billion from strategic investments in the pharmaceutical industry and has also earned his M.D. degree from the Albert Einstein College of Medicine in 1961.

Moreover, Frost and his wife Patricia, an elementary school principal, are well-known for their philanthropic work and generous donations in South Florida. In January of 2017, the launch of various large STEM institutes was announced by the University of Miami after reportedly receiving $100 million as a gift from Frost.