Barry Honig, John Stetson, John O’Rourke III, Mark Groussman, and Phillip Frost

On September 7, 2018, the SEC filed a Complaint and jury demand against Barry Honig, John Stetson, John O’Rourke III, Mark Groussman, and Phillip Frost, and their entities GRQ Consultants, Inc. (GRQ), Stetson Capital Investments Inc. (SCI), Grander Holdings, Inc. (Grander), HS Contrarian Investments, LLC (HSCI), Melechdavid, Inc., ATG Capital LLC (ATG), OPKO Health, Inc. (Opko), Frost Gamma Investments Trust (FGIT), and Southern Biotech for allegedly orchestrating three highly profitable “pump-and-dump” schemes from 2013 to 2018. The Complaint also names Robert Ladd, Elliot Maza, Brian Keller, and John H. Ford of Raleigh, North Carolina, New York City, and California as other defendants.

According to the Complaint, Honig was the primary strategist across all three schemes, directing the other defendants to buy or sell stock, arrange for the issuance of shares, negotiate transactions, or engage in promotional activity. The SEC alleges in the Complaint that in all three schemes, Honig executed his and his associates’ acquisition of a large quantity of the issuer’s stock at deep discounts, either by acquiring a shell and executing a reverse merger or by participating in “private investments in public equities,” or “PIPE” financings on terms highly unfavorable to the company. He then coordinated with one or several of his associates to buy or hold the shares and sell the shares for a handsome profit once prices were inflated. The Complaint further alleges that once Honig and his associates gained substantial ownership of the issuer, they acted as an undisclosed control group, directing the issuer’s management for their benefit, including orchestrating transactions designed to create market interest in the company or solidify their control.

Honig and his associates also allegedly paid Ford to write favorable and materially misleading articles about the company whose stock price they wanted to inflate. To further the impending hype, Honig, Brauser, O’Rourke, Groussman, Melechdavid, and ATG engaged in pre-release manipulative trading to generate a false impression that there was market interest in the company’s stock.

Elliot Maza, CEO of one of the issuing companies, and Brian Keller, Chief Scientific Officer and a Director, and Robert Ladd, CEO, of a separate issuing company supported the scheme by signing public filings they knew would be false to hide Honig and his associates’ beneficial ownership and existence. Ladd also made false public filings by making material misstatements about the group’s substantial ownership in the shares.

In total, the pump-and-dump scheme generated more than $27 million while public investors were left holding a virtually worthless stock. The SEC asserts in the Complaint that Honig violated Sections 5(a) and (c) and Section 17(a) of the Securities Act of 1933, Section 17(a) of the Securities Act, Sections 10(b) and Section 9(a)(1) and (2) of the Securities Exchange Act of 1934, with the other defendants facing similar violations.

On March 8, 2019, the SEC filed an amended Complaint in this ongoing civil action after receiving final consent judgments for six defendants: Phillip Frost, Opko, FGIT, Mark Groussman, Melechdavid, and Alpha Capital Anstalt.

Without admitting or denying the SEC’s allegations, these defendants consented to the entry of final judgements permanently enjoining them from future violations of several provisions of the federal securities laws. They also cumulatively paid over $7.8 million in disgorgement of ill-gotten gains, plus prejudgment interest and civil penalties.