Tuesday night a couple of CNBC reporters got followers of the Barry C. Honig pump and dump fraud case doing a double take after Scott Zamost, Ritika Shah and Jennifer Schlesinger reported Honig’s settlement deal for securities fraud with the Securities and Exchange Commission was off the table. The remaining defendants in the case had filed a document called a Rule 26(f) report which details the discovery scheduled they’ve tried to hash out with SEC prosecutors. Team CNBC thought one line in the filing signaled Honig’s settlement was off the table but it appears they were mistaken and jumped the gun.
According to an interview with one of the defendants in the case there has been no notice from Honig’s lawyers that he’s backing down. Additionally a lawyer involved in the case explained this filing was just a technical filing that had to get done on Tuesday because it was the last day it could be filed. According to people involved in this case Honig’s lawyers, which included Michael Sommer, have not been on any of the recent group defense calls with the SEC negotiating when discovery will start and what evidence is expected to be turned over. I have confirmed none of Honig’s lawyers were even on yesterday’s 4:30 pm call with the SEC. If Honig had pulled his offer his lawyers would need to be negotiating discovery to get ready to file their motion to dismiss and for trial prep.
A section of the Rule 26(f) report ask defendants if there is a chance for settlement so the court doesn’t waste it’s time making decisions on what discovery will be allowed. The May 7th filing said “The parties do not believe there is a possibility of prompt settlement of this case, although the Commission has noted its willingness to discuss settlement with any Defendant.” There was only one Rule 26(f) report filled by all of the defendants as a group.
SEC defense attorney Wesley Paul of Paul Law group told this reporter after reviewing the recent filings, “The 26(f) Report (Docket 118) should not be read to negate the “agreement in principle” the SEC stated that it has with Honig in the SEC’s earlier letter (Docket 114). Any reference regarding the potential for settlement in the Rule 26(f) Report is more properly viewed as a global settlement with ALL defendants, not as a settlement may pertain to individual defendants. A prompt settlement with Honig and Honig’s entities on an individual basis is possible.”
“Honig’s lawyer may have just not bothered to clarify that section of the form,” said a defense lawyer on the case in an email to his client.
Attorney Michael Sommer, a former criminal prosecutor who is Honig’s lead attorney, is currently busy working to defend one of the Platinum Partner hedgies, David Levy, who is on trial right now with Mark Nordlicht, in the Eastern District of New York for criminal securities fraud. Sommer, an attorney for Wilson Sonsini Goodrich & Rosati PC, did not respond to my request for comment on the CNBC report and the CNBC reporters said he wouldn’t respond to them about the status of the settlement.
On April 26th just days before the remaining defendants, which included Michael Brauser, John Stetson, John O’Rourke, and MGT Capital’s CEO Rob Ladd, were scheduled to make their motion to dismiss filings, the SEC asked the judge for another extension because the regulator said they had reached an agreement in principal to settle with Honig but still needed the SEC commissioners to sign off on it. Judge Ramos allowed a six week extension on the case much to the apparent frustration of other defense clients like Robert Ladd who has filed a letter to the court about the delays the SEC has been constantly requesting with discovery. This means defendants have not see any testimony or whistleblower emails the SEC gathered to build their case.
The Rule 26(f) report says discovery was suppose to start on April 19th but according to a letter filed with the court by Ladd’s attorney, Randall Lee of Cooley LLP, the SEC has apparently not abided by that deadline because they say they are busy settling with Honig and the judge’s extension means they don’t have to.
This week MGT Capital ($MGT) filed an 8-k saying Ladd has returned to his CEO role. He took a leave of absence after the SEC first filed their enforcement case in September 2018 naming him a defendant because they think he let Team Honig manipulate the stock price of his company. Ladd denies this and says he plans to fight the SEC through trial. Michael Brauser, who also objected to the SEC’s extension request, appears to be ready to take the case to trial. Stetson and O’Rourke have been a lot more silent in court filings.
The SEC hasn’t said if the current settlement with Honig will included a bar from ever investing in penny stocks or being a director or officer of penny stocks. The regulator has said in past court filings this is what they are seeking from Honig and has secured that kind of settlement with other defendants in the case. The announcement of a settlement from Honig was a surprise to participants in the microcap market because Honig is known as a ‘fighter’ who has sued lots of CEO’s he invested in and multiple jouranlist who have reported on his alleged fraud.
OF course, until the SEC commissioners approve the settlement and it’s filed with the court Honig can still back out. But the rule 26f report isn’t telling us that is happening right now. Maybe next time CNBC should review what procedural documents in a securities fraud case mean with an experienced lawyer who has worked on SEC cases.
Editors Note: Scott Zamost was the CNBC producer who worked on the video report showing Honig was working with John O’Rourke behind the scenes on Riot Blockchain and tried to show the company was misleading investors. It was the first time investors in Honig’s deal saw a business TV reporter shine the light on Honig’s tactics. CNBC started their Honig coverage after years of numerous print reporters investigative stories on Honig which highlighted his role in pump and dumps. Those reporters included me, Chris Carey www.sharesleuth.com , and Bill Alpert of Barron’s.
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