A New York federal judge ruled this week that some of the charges against a defendant in the Barry Honig ring of pump and dump bad actors brought by the Securities and Exchange Commission will be dismissed. Judge Ramos ruled on February 25 that claims 3 and 4 of the SEC’s complaint relating to charging MGT Capital CEO, Robert Ladd, with fraud for failing to disclose he allegedly knew Barry Honig, Michael Brauser, John O’Rourke, John Stetson and friends were trading as an undisclosed affiliate group be dismissed. Ladd, the CEO of the publicly traded company, that once had cyber-security guru John McAfee as a partner, is the only remaining defendant that has not settled with the regulator.
A year and half after the SEC first brought the case, Ladd still claims this an overreach by the SEC and plans to fight the case to trial. The SEC is asking for Ladd to be banned as I public company CEO. I previously reported the SEC has said it plans to file another (it’s second) amended complaint involving Ladd and the judge has given them a deadline now of March 16th to have another go at it. The secondary liability claims involving Section 17(a) of the Exchange Act remain and so do the SEC’s fraud claim that Ladd allowed a misleading press release about John McAfee’s history with Intel to be published which encouraged main street investors to buy the stock because with McAfee involved the thought was MGT Capital could be one day be worth billions.
SEC claims for violations of the securities exchange act being thrown out at the motion to dismiss stage are rare. But Judge Ramos gave the SEC a back door by dismissing the 3rd and 4th claims without prejudiced. This means the SEC can try again with a new argument on why Ladd knew or should have know that team Honig was trading as a group and told his shareholders about it. But the SEC has only got two weeks to do it. And of course an amended complaint could mean the SEC adds new defendants.
Ironically, Judge Ramos also makes a point in his decision that an email Barry Honig wrote to Ladd back in 2015 saying he was investing as an individual in the private placement, after Ladd had made a vague comment asking how “your group” shares will be divided was something he didn’t believe Honig was telling the truth about. On a side note, that group of Honig’s also included Hudson Bay and Iroquois; who the SEC has not charged as defendants but keeps naming the individuals who run the funds in recent subpoenas.
The law firm that advised Honig and MGT Capital on team Honig’s investment (which got up to around owning 16% of MGT Capital) was led by none other than Sichenzia Ross Ference Kesner LLP. Honig was advised by Harvey Kesner and Ladd-MGT by another SRKF LLP lawyer. And they just happen to magically sign a waiver so that everyone would be on same team. This is the microcap law firm that I first reported removed Harvey Kesner as a named partner just weeks before the SEC brought their case and is the same firm fighting a malpractice suit because of attorney Harvey Kesner’s alleged bad actions relating to representation of MabVax. MabVax is another company in the SEC compliant that was pumped and then dumped by Team Honig.
It will be interesting to see what role the law firm (SRFK) played in advising MGT Capital that Team Honig wasn’t a group and shouldn’t be disclosed as such. And given all the discovery the SEC can get with recent subpoenas naming Kesner and a bunch of his former SRFK partners and associates there is good chance they will see other players role in this thing. What the SEC does with that information is another story.
Judge Ramos as also hinted in court filings that he is not going rule on the final amount Barry Honig will have to pay out in his securities fraud settlement with the SEC until all of the defendants cases have finished. So with Ladd’s case going toward trial that could mean Honig can hold on to his millions for a little while longer.
Additionally, we still haven’t seen the SF DOJ bring their parallel criminal case against the Honig defendants and it’s anyone guessing game at this point on who will be charged.
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