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Ladenburg Chairman Charged with Fraud by SEC in Penny Stock Scheme

Phillip Frost

The Securities and Exchange Commission has charged Phillip Frost, non-executive chairman of Ladenburg Thalmann Financial Services, with fraud in connection to an alleged “pump-and-dump” scheme. He was charged alongside nine other defendants, as well as related businesses and entities. The alleged schemes generated millions for the defendants while leaving retail investors “holding virtually worthless stock,” according to the SEC.

Philip Frost is also the Chief Executive Officer and board chairman of OPKO Health and a noted investor in biotechnology. Ladenburg Thallman is a network of independent broker-dealer firms such as Securities America, Triad Investors, and Investacorp.

The SEC’s complaint alleges that Mr. Frost was part of “a group of prolific South Florida-based microcap fraudsters led by Barry Honig” who participated in the manipulation of the share price of three companies’ stock; Mr. Frost allegedly participated in two of the three schemes. His co-defendants include Barry Honig, John Stetson, Michael Brauser, John O’Rourke III, Mark Groussman, John Ford, Alpha Capital, Anstalt, ATG Capital, Frost Gamma Investments, Trust, GRQ Consultants, Grander Holdings, Melechdavid, OPKO Health, Southern Biotech, and Stetson Capital Investments.

“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,” the SEC’s complaint alleges. “In every scheme, Honig, and some combination of Stetson, Brauser, O’Rourke, Groussman and Frost, either explicitly or tacitly agreed to buy, hold or sell their shares in coordination with one another, knowing that a pump and dump was in the offing that would allow them all to profit handsomely.”

The group allegedly participated in “illegal promotional activity and manipulative trading” so as to artificially increase the prices of each stock and to give them “the appearance of active trading volume,” per the SEC’s complaint. Specifically, the SEC alleges that in each of these schemes, the group would “arrange and pay for the promotion of the stock” by directing either Mr. Ford or another promotor to write “favorable and materially misleading articles” concerning the company whose stock price they wished to inflate. On certain occasions, Mr. Honig or others in the group attempted to “magnify the intended boost to volume price” following the release of an article by participating in “pre-release manipulative trading,” according to the SEC. Later, they sold the stocks at those artificially increased prices in classic pump-and-dump fashion, according to the SEC.

Mr. Frost and his co-defendants “also violated beneficial ownership reporting requirements of federal securities laws” when they failed to disclose their group beneficial ownership of the shares in question, according to the SEC, as well as that they were working as a group to exercise control over the stock issuers.

The SEC states additionally that these three schemes generated “millions of dollars” for the defendants, while leaving public investors with “virtually worthless” stocks.

Mr. Frost has been charged with violations of various sections of the Securities Act and the Exchange Act. The SEC is seeking both monetary and equitable relief in the pending complaint.