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18 Mar

Barry Honig & Eloxx Pharma stock fraud case moves to Discovery : $ELOX

UPDATE 3.23.20 Federal judge Richard G. Andrews for the district of Delaware made a final ruling today allowing the case for securities fraud against Barry C. Honig and his puppet CEO David Rector to go forward. This means that microcap bad actor Honig will be forced to go through discovery for his alleged role in securities fraud of bio stock Eloxx Pharma. The company is also a named defendant.

The Judge ruled claims against Eloxx’s CFO Schmidt were thrown out because the pleading didn’t show enough behavior that Schmidt had ‘control’ of the fraud. But Judge Andrews gave the plaintiff, John Winfield, two weeks to file an amended complaint to try and argue why Schmidt should stay a defendant. Besides the SEC pump and dump complaint this is one of the first suits against Barry Honig that has made it to discovery. Honig has settled with the SEC for his role in a massive Pump and Dumb scheme in multiple securities and was ban from being a controlling investor or director in penny stocks. Honig’s fine and restitution has still not been decided in the SEC case and he is still under criminal investigation by the DOJ.

Winfield is being represented by Michael Maloney and William Firth III of New York-based Felicello Law P.C.

UPDATE 1.22.20: A magistrate judge in Federal court for the district of Delaware ruled yesterday that the securities fraud case against Barry Honig for his alleged roll in manipulating another preferred shareholder and cheating him out of profits in bio-pharma stock Eloxx can go forward. The Delaware judge’s decision said the SEC’s stock manipulation case against Honig, Philip Frost and OPKO Health had weight in her decision to allow 10(B)5 fraud claims to go forward and that the parties acted with Scienter because the SEC’s case established Mr. Honig’s “undisclosed relationship with OPKO Health, Inc. ($OPKO) and its Chief Executive Officer, Dr. Phillip Frost”.

The claims that survived the motion to dismiss are: (i) Securities Fraud under 10(b) and Rule 10b-5, (ii) Section 20 Control Group liability; (iii) Fraud; and (iv) breach of contract. The magistrate judge said the claims for breach of the implied covenant of good faith and fair dealing, be dismissed as duplicative of the breach of contract claim.

Eloxx was recently named in an SEC subpoena sent to the adult son of Barry Honig’s right hand guy Michael Brauser. The government’s subpoena was looking for documents relating to undisclosed paid stock promotions and groups trading as undisclosed affiliates.

The Eloxx investor in the case, John Winfield, is represented by Michael Maloney and Rosanne Felicello of New York-based Felicello Law LLP.

Original Story 3-18-19

Small-cap stock investor Barry C. Honig has been embroiled in a new set of fraud accusations for his role with a bio-pharma company called Eloxx Pharmaceuticals ($ELOX). He stands accused of working with his puppet CEO, David Rector, to force a large preferred share investor to convert his stock at a higher price then promised in a deal benefiting him and Honig’s investing partner Philip Frost of OPKO Health. The investor, John Winfield, filed suit in Delaware Federal Court on March 5th against Honig, Eloxx, Rector and the prior CFO James Schmidt.

Eloxx was formally called Sevion Therapeutics and Rector became CEO in January 2015. In 2017 Rector and Honig called Eloxx’s investor Winfield encouraging him to sign a deal that would convert his series A preferred shares to common shares at a rate better than originally agreed on when he bought the preferred shares because the company claimed it was was low on capital and required new financing. Winfield bought the shares in the summer of 2016 at a conversion rate that would give him 266,666 of common stock and by January 2017 Hoing and Rector were pushing for the conversion.

Rector offered to convert Winfield’s Preferred Stock at a more favorable price of $0.25 per share, which would result in the issuance of 800,000 common shares, not the originally agreed 266,666 shares of common stock – which was three times as many common shares.

Winfield didn’t take their first offer and negotiated a deal, called the ‘favored nation clause’ that said he would convert his shares BUT if another preferred shareholder gets a lower conversion price he should get that price also, according to the lawsuit. In February 2017 Honig called Winfield to say he had or was expecting to buy all of the remaining Class A Preferred shares and that another investor had already agreed to sell at the $.25 cents conversion.

Honig would call Winfield personally to promise the deal and push him into signing, even though Honig was not an executive of the company and declared himself an independent investor. Rector told Winfield that Honig was the lead investor in the company. While the company was agreeing verbally to the deal they delayed sending Winfield paperwork that promised the favored nation clause.

Rector and Honig have worked together in the past when Rector was a director of Majesco Entertainment from June 2015 to December 2016. Majesco became PolarityTE ($PTE) and today announced the Securities and Exchange Commission has opened a formal investigation into the company which includes the merger that changed Majesco to PolarityTE. The SEC is also investing Honig’s role with PolarityTE. Rector was also the COO of U.S. Gold Corp another Honig lead deal.

Winfield eventually signed over his shares to convert in July 2017. Meanwhile it appears Honig was working behind the scenes to get a merger deal done with a biopharma company from Israel.

It wasn’t till Winfield saw a proxy statement announcing the merger and asking shareholders to vote that he realized the other preferred shareholder Honig bought shares from was none other than Philip Frost’s OPKO Health. On top of that the Frost related shares were converted for $.10; meaning he got a lot more shares than Winfield did. Honig also never disclosed to Winfield that he and Frost were affiliated. When Rector became CEO in 2015 Frost was put on the board as a director. In September 2018 the SEC charged Honig, Frost and others for manipulating stock prices by trading as an undisclosed group of affiliates.

The company never honored their ‘favored nation deal’ with Winfield and he didn’t get the lower $.10 share price. In typical Honig deal making style there was a promotional presses push on Eloxx and in a three-month period from March to June 2018 the stock went from $7 to a high of $23.27 on June 15th.

Winfield has sued for violations of the Securities and Exchange Act section 10-B which is fraud, there also claims of Section 20 violations which is executives working as a control group to commit fraud, and breach of contract. He has hired New York-based shareholder defense firm CKR Law. The same law firm currently fighting for shareholders of XpresSpa for securities fraud in a lawsuit this publication has reported extensively on. Some of the people sued in the XpresSpa suit, like Richard Abbe of Iroquois Capital, have invested as undisclosed affiliates with Honig for years.

Rector is long gone from Eloxx and it’s unclear what Honig’s position in the stock is these days. An amended SEC complaint filed this month highlighted how Honig uses his buddies investment funds to front his position in a stock so main street investors can’t see his true position in a company. Eloxx’s stock dropped from its $23 high and is trading around $13 today. On March 14th Eloxx filed its 10-k and conveniently left out any mention of the company being sued for fraud in correlation to Barry Honig as a lead investor. They added a line under litigation that there are currently no ‘material lawsuits’. Apparently investor fraud isn’t material to Eloxx.

An internal investors relations person at Eloxx did not return a request for comment asking if the SEC has also contacted the company asking for information about Honig. As we saw in today’s PolartyTE announcement the SEC started asking for info back in Oct 2018 but we only learned about that today.

Honig did not return a request for comment. CKR Law did not return a phone call for comment on behalf of their client John Winfield.

John Winfield vs Honig and … by on Scribd

3 Comments
13 Mar

Greenwich Tennis Competitor’s dad Gordon Caplan arrested in Operation Varsity Blues

UPDATE: 10.3.19 – Gordon Caplan was sentenced to one month in jail and agreed to a suspension of his law license while the NY Bar investigates. Federal prosecutors had asked the judge for eight month of jail time.

UPDATE 4.5.19: Gordon Caplan is the first parent to admit guilt. His attorney circulated this statement today: “My immediate goal is to focus on making amends for my actions to try to win back the trust and respect of my daughter, my family, and my community,” Caplan said in a statement Friday. “The remorse and shame that I feel is more than I can convey.” Caplan also said his daughter Rachel, who is a junior in High School, had not applied to college yet. His white-shoe law firm Willki Farr said they have finally removed him as a partner. If Caplan’s plea remains a felony charge he will not be able to keep his law license.

Original Text
The Co-Chairman of a white-shoe law firm, Gordon R. Caplan, has been charged with a felony for making payments to help his daughter cheat on a college entrance exam. Caplan, a seasoned dealmaker for private equity firms was removed from his duties at Willki Farr Gallagher LLP today. It’s unclear if he is still getting paid but the law firm went right to work scrubbing his bio off their website. He was released on a personal signature $500,000 bond and given strict travel conditions.

Gordon, age 53, lives in uber-wealthy Greenwich, Conn. with his 49-year old wife Amy Elizabeth Caplan who grew up with family money in Greenwich and is a member of the Treibick family. Amy attended an exclusive private school called Greenwich Academy.

The Boston office of the FBI obtained wiretaps and recorded both Gordon and Amy speaking with the man who orchestrated the college entrance admission bribe scheme. That man is William Rick Singer who has already plead guilty and worked with the FBI to record parents involved in the scheme. Wiretaps show Amy saying she ‘wasn’t ok’ with the idea of payments made to a proctor of the ACT exams to manipulate the score of her daughters test. Yet the family moved forward with the plan and flew their daughter out to Southern California to take the exam at a testing center where people were placed to help rig it. Gordon eventually asked Singer to stop adding his wife to emails about the scheme and the DOJ says it was Gordon who made the illicit payment.

The complaint says the daughter was enrolled in an online high school. Research shows that daughter is Rachel Treibick Caplan. Rachel has been working on gaining recognition on the juniors national tennis circuit and plays in tournaments around the US.

Rachel Treibick Caplan

Gordon Caplan daughter. Operation Varsity Blues.

It’s unclear how much the daughter knew but their appears to be some culpability. The government said that the daughter went to see a doctor and was told to ‘play stupid’ so that she could get the doctor to claim a disability. The disability would allow her more time to take the exam. Caplan ended up paying Singer’s non-profit $75,000 to execute the cheating scheme; a payment that was conveniently set up to be tax deductible.

Gordon Caplan was taped asking William Singer if anyone had ever been caught in the scheme. Singer’s response was basically only if you tell someone and Gordon responded “his daughter wouldn’t talk”. Rachel took the test this winter and the complaint says her score was 10 points higher. Gordon alluded to thoughts of his daughter going to his college, Cornell, on the wiretaps but the complaint didn’t say if Rachel had used the fraudulent scores to apply to college yet. The DOJ decided not to charge any of the students tied to 33 parents arrested in the scheme even though they said some of the teens knew of the cheating scheme. Gordon’s wife Amy was also not charged.

Gordon was caught on tape saying “he didn’t care about the moral ethics” of the scheme. But did express concerns about his daughter being caught because “she’d be finished” if she was.

With an ethics statement like that Willkie Farr is likely already starting an internal investigation into Gordon Caplan’s work with the law firm’s clients. It’s the firm duty to report his actions to the state bar association with the idea that if you cheat once what else did you cheat at.

A phone call made to the Caplan’s Greenwich home went to voicemail and the voicemail was full. Caplan’s attorney did not return a request for comment.

Gordon was arrested around 6 am on Tuesday March 12 and had to spend some time in a holding cell in downtown New York. Two addresses were listed on his warrant. A $5.3 million mansion on 20 Brywood Lane in Greenwich Conn. and a classic-6 with park views at 25 Central Park West apt 7N, NYC, NY. He was processed and released late in the afternoon and wouldn’t comment to reporters waiting outside the courthouse.

Caplan has retained white collar criminal defense lawyer Patrick Smith who is a sole practitioner. In an odd move he also retained Peter S. Cane who practices civil litigation and is know as a ‘media lawyer’. Wire fraud faces up to five years in jail. Being found guilty of a felony is grounds for disbarment. Caplan is scheduled to appear next in Federal Court in Boston on April 3.

Gordon Caplan with attorneys Patrick Smith & Peter Cane (right)

Readers of this publication are familiar with the attorney Gordon picked Peter S. Cane who takes on some questionable clients. Cane just lost a case trying to bully and intimidate a journalist into revealing a confidential source for hedge fund manager Bruce Bernstein. Cane also lost the chance for his client to keep his divorce records sealed when a judge ordered the unsealing of the case. The divorce docs allegedly show Bernstein committed securities fraud. The journalist Cane sued was me.

EDITORS NOTE: This story has been updated. Amy attended Greenwich Academy not Brunswick. They are related schools in Greenwich.

Gordon Caplan Arrest Warran… by on Scribd

6 Comments
24 Jan

Iroquois’ Richard Abbe quits XpresSpa while company battles Fraud Lawsuit

An XpresSpa board member, Richard Abbe of Iroquois Capital, has quit the company board during the middle of a heated legal battle accusing board members of deception, undue influence, and fraud. The day before his resignation Abbe, who is named personally in the lawsuit, took the extra step to retain his own lawyer in the securities fraud lawsuit that I first reported on in August.

Over the holiday break, when no one was paying attention to SEC filings, XpresSpa filed an 8-K on December 26th announcing Abbe’s departure as of December 18. Then after years of board service XpresSpa suddenly decided they should vote to offer the hedge fund manage a holiday gift. The board agreed to indemnify Abbe and advance any legal fees he might need to defend his good name from allegedly being involved with shenanigans, like you know misleading regulators or stock holders. The 8-K says this nice little exit present also includes the company picking up the tab for any fines or settlements Abbe might have to pay as a result of his work on the board. But what’s not clear is if Abbe was found acting in bad faith or criminal conduct that the indemnity would still hold.

The defendants in this case are being accused of a fraudulent scheme to trick the founders of an airport spa business, XpresSpa, into a merger with a public Microcap company that resulted in a massive loss of their business investment.The public company was called Form Holdings.

During the litigation, that begin in November 2017, I reported an ex-wife came forward with some potentially damaging evidence that would put some of the defendants in the hot seat with the Securities and Exchange Commission. That’s because the Sarbanes Oxley Act upped the anti for individuals to be charged criminally for making false claims in a Proxy Statement. A proxy statement is a legal document containing the information the Securities and Exchange Commission requires companies to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual or special stockholder meeting. Issues usually covered in a proxy statement include proposals for new additions to the board of directors, information on directors’ salaries, information on bonus and options plans for directors.

More importantly, a proxy statement discloses any potential conflict of interest between the company and its directors, executives and auditors. Specifically, proxy statements must list any related-party transactions that occurred in the past between the company and its key personnel. Not disclosing conflicts of interest and related party transactions is exactly what the plaintiffs in the XpresSpa are accusing Abbe and friends of doing.

I have previously reported how Abbe is intertwined in this litigation drama with his fellow New York investing buddy Bruce Bernstein, who is president of Rockmore Capital. Bernstein and Abbe have a history of investing along side another small cap financier who has been widely reported on for his alleged leadership role in a pump and dump ring. That man is non other than Barry Honig. One such company is Vringo the predecessor to Form Holdings who is a named defended and the XpresSpa case.

In fact Abbe’s fund Iroquois Capital was named in one of the SEC subpoenas in the Honig Case. The government was looking for communications from Iroquois and one of the companies named for being a pump and dump called MGT Capital. I was first to report on the contents of the SEC subpoena, which was fishing for information to prove this group was trading as undisclosed affiliates and influencing public company CEO’s to get false press release published to drive up the price of a stock.

Surprisingly Iroquois capital, nor its fund managers, were named in the original SEC complaint against Team Honig. The SEC asked the court to file amended complaint, which is due February 6, that could add more names to the Honig enforcement action.

The XpresSpa case is currently in the Summary Judgement phase. This is where the defendants ask the judge to rule on the case without lengthy discovery and depositions being allowed. The former XpresSpa owners will be hoping the judge doesn’t allow summary judgement and the case moves forward to trial. This would force Bernstein and Abbe to have to do depositions and turn over more internal communication via discovery. Keep in mind of a lot the juicy parts of this case are redacted from public filings. A notion I find unfair to public markets and XpresSpa current and future common shareholders.

You can find the SEC subpoena here:
https://www.scribd.com/document/338889092/SEC-Subpoena-MGT-Capital-September-2016

$XSPA 8-K Abbe Board Resignation:
https://www.sec.gov/Archives/edgar/data/1410428/000114420418066266/tv509891_8k.htm

Previous reporting on XpresSpa, Abbe, and Bernstein:

Iroquois Capital’s Richard Abbe Sued For Fraudulent Takeover Scheme of XpresSPA

Rockmore Capital’s Bruce Bernstein Ex-Wife Outs him for possible SEC Violations in $XSPA Deal

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18 Jan

NY Court Case putting Journalist Source Protection At Risk

UPDATE 3.4.19: The New York Daily News is reporting 16 other news organizations have joined my fight to unseal this case and to defend the reporters privilege to protect sources. On March 1st legendary media attorney David Schultz, who leads the Yale Media Freedom and Information Access Clinic, filed an AMICUS brief on behalf of The New York Times, NY Post, Newsday, NY Daily News, The Intercept, Gannett Newspapers, The parent company of the New Yorker, the AP, Hearst, Gizmode Media, First Look Media, Reporters without Borders and more journalist non profit organizations. The NYDN reported the brief centers on the importance of the public and the media’s right to an open court system. No one should be able to sue a journalist with an attempt to get access to their protected source material and then have the court keep the fact they did this quite; which is what happen to me. The AMICUS brief shows other journalist and their news publications don’t want the NY State Court to repeat these kind of rulings against the media working to inform the public. I appreciate my peers in journalism supporting my byline and the work of any freelance investigative journalist who doesn’t have powerful internal media lawyers to back them up.

The hearing to unseal this case and dismiss any action trying to force me to reveal a source is tomorrow March 5th at 2:30pm. Court Address: 80 Center Street, room 307, NYC, NY. I encourage any NYC readers and journalist to attend and show your support for an open court system.

NY Daily News story

ORIGINAL TEXT
The subject of one of my investigative stories is attempting to use the New York State court system to force me to disclose a confidential source key to my reporting on the person’s alleged wrongdoing. On top of that,at the subject’s request, a judge has temporarily allowed the lawsuit to be sealed so that I can’t make public who is trying to do this. It’s an alarming legal move that goes to the core of press freedom, free speech, and source protection in this country. My readers should know I have every intention of fight this. With over a decade of investigative reporting under my belt I have never revealed a protected source.

To fight this injustice I have been working quietly behind the scenes to secure a top first amendment lawyer to defend this case in court this month. I am doing this not just to protect myself but for the rights of all journalist working with confidential sources so that the actions demanded in this case don’t become case law that could be used against other journalists.

Today I am pleased to announce the Press Freedom Defense Fund has award me a grant to help fund this defense and Mark Bailen and Peter Shapiro of Baker Hostetler have stepped up to take the case. The case caption is: Anonymous v. Anonymous Index No. 655887/2018 (Sup. Ct N.Y. Co.) and filed in New York State Supreme Court in Manhattan.

Stay tuned for more as we fight to unseal this case.

Thanks in advance for your donation support and continued readership!

You can find court dates for this case here: http://iapps.courts.state.ny.us/iscroll/
Read more about the Press Freedom Defense Fund here: https://www.pressfreedomdefensefund.org/

2 Comments
20 Nov

That Honig-Morgan Stanley Story

On Friday November 16, I ran a story about Barry C. Honig and his Morgan Stanley investment adviser Kyle Wool. I had interviewed a person via email who proactively came to me saying they had copies of emails between Wool and Honig that showed misconduct and possible kickbacks being paid by Honig to encourage Wool to push his clients into stocks that Honig was an early investor in order to ‘pump up’ a stock and get trading volume. I published copies of the emails in my story. Within a few hours of publishing the story I then received an email saying the emails were fakes and the person who I was talking to had lied to me about some of the details they provided. The story was immediately removed because the evidence I was provided with was tainted.

Before I ran the story Morgan Stanley public relations and Kyle Wool were informed about the emails and what they said. Morgan Stanley confirmed Hoing was a client. And Kyle Wool didn’t say a word about any of the details not being true. My source told me Wool and Kyle have had a long term relationship and do party and socialize together, which checked out to be true. And Kyle Wool does have 3 customer complaint disclosures in his FINRA record. In 2009 a customer alleged Kyle Wool, while employed at Oppenheimer & Company, made unsuitable investment recommendations, churned investments and misrepresented material facts. The complaint settled for $337,500.

The person who contacted me Knew Honig’s correct AOL email address and Wool’s Morgan Stanley email address. They also knew the two had a professional relationship, which has never been disclosed before in any reporting on Barry Honig.

The email address the source used was a Proton email : barrymorgan1@proton.ch. The email of the person who sent me the second email was barrynotmorgan@protonmail.com. This suggest that the original email and the second email was sent by the same person or group. After the story ran the email account was shut down. A new email address was created to let me know the source had lied to me. I wasn’t familiar with Proton and have since learned it is an email service that uses anonomyzers and can be difficult to subpoena.

Here is the email saying the source lied.

Since the story came down I have been contacted by readers who said they thought the premise of the story is true because they either know Wool and Honig or they heard rumors about their relationship on The Street. Rumors are not journalism and they don’t go into any of my reporting. If you know these two men and are willing to go on the record of course I would like to hear from you. I will continue to cover Barry Honig and the SEC investigation into alleged fraud in small cap stock investing.

Thank you for always being loyal readers.

5 Comments
14 Sep

Is there a new Laidlaw-Honig Pharma Offering in Play?

This story has been updated with a response from Laidlaw

It appears Honig’s lieutenants at New York brokerage Laidlaw & Company have been actively selling a new deal. One riddle with conflicts of interest and possible self dealing for Matt Eitner and Jimmy Ahern. This week I reported on an Limited Liability Company called PPLL Partners that is controlled by Eitner and Ahern. The duo call it Pump Pump Loose Loose and allegedly past brokers at the firm say it’s used as a vehicle to pay kickbacks to for getting Barry Honig-backed deals sold to Laidlaw’s retail clients. But now it looks like it will also be used to set up the next Honig-backed investment. Last week, Barry Honig was charged by the Securities and Exchange Commission for running a stock manipulation scheme in multiple securities for years.

According to brokers at Laidlaw they’ve been instructed to sell a private placement deal in PPLL Partners to the firm’s retail clients. This type of offering is known as a Regulation D offering and can only be sold to accredited investors. Allegedly the pitch is that PPLL Partners is now an investment fund that is going to buy small companies that work on drug development for diseases like cancer. One such firm PPLL Partners might buy or invest in is Voltron Therapeutics. On April 4th Matt Einter filled a notice with the SEC that PPLL Partners was trying to raise $500,000 and that $305,000 has already been sold.

In Eitner’s required disclosures for FINRA he states that he has a financial interest in Voltron Therapeutics but only spends 4 hours a month working on drug development and that “it’s not investment related”. This kind of language was likely suggested by his outside counsel so FINRA doesn’t ask for more details about the firms Written Supervisor Procedures for registered reps outside business activities and investments. Since Eitner is the CEO and holds a series 24 license he is the one that is suppose to be the broker supervisor of all capital market deals and the offerings the retail brokers sale. But since according to an internal document obtained by this reporter Eitner has also listed himself as the CEO of Voltron Therapeutics; so he needs someone else at Laidlaw to supervise the firm raising money for PPLL Partners to invest in any companies he would own. And the firm has to disclose all these conflicts of interest in the private placement memorandum they give to perspective clients to buy into the offering. At press time it is unclear if this has been done.

I have asked the national retail branch manager, Alex Shtaynberger, if he is supervising this deal today and also John Coolong, the CFO and Chief Compliance Officer. According to FINRA records both men hold series 24 licensees and could do the supervision so the firm is in compliance with FINRA laws. Neither Coolong or Shtaynberger would respond to an email for comment but Matt Eitner has finally deiced to respond this reporter. I got a carefully written email that said they want to answer my questions but couldn’t do it till Monday. I have learned Laidlaw clients are already calling the firm asking about the validity of their investment in PPLL Partners after my story earlier this week exposed Either and Ahern’s relationship with Barry Honig. I told Eitner I would not wait to print this story but if they wanted to comment at some point I will add their comments after they are fact checked.

Voltron Therapeutics was officially registered as a company in Delaware in July 2017, according to state records. I made a call to the State’s corporation formation office and they said an annual report hasn’t been filed yet for the company. But what is most interesting is how this company was formed. According to internal emails obtained by this reporter, attorney Michael Lerner at Lowenstein LLP began writing up Voltron company formation documents for Jimmy Ahern and Matt Eitner in May 2017. These documents also included stock issuance to Majella Partners, which is owned by non other than Eitner and Ahern. Eitner discloses some ownership in Majella in his FINRA records and this reporter has seen communication written to Jimmy Ahern at Majella Partners. The company formation agreement also includes equity incentive plans for ‘consultants/advisers’ and a subscription agreement for Majella Partners. That means Majella and anyone the company want to pay as a consultant would get cheap stock in Voltron. Voltron is still a private company but if it did a reverse merger that founders stock could be valuable if there was run on the stock.

After Ahern got the formation documents from his lawyers he then sent an email the same day to Barry Honig and John O’Rourke at their AOL and Gmail accounts. On May 19, 2017 he told Honig and O’Rourke, “Just getting started here but I figured I would pass these along.” The formation docs for Voltron was what Ahern was updating Honig on. Ahern signed the email Managing Partner, Head of Capital Markets, Laidlaw & Company. Now as I previously reported Ahern doesn’t have a series 24 license or an investment banking license. He doesn’t have the required licenses to even be running an investment banking deal. So why is he emailing Barry Honig like he is running this deal.

In a brief interview with Marc Ellis, Laidlaw’s former Co-President and Chief Compliance Officer, he told this reporter after reading my story on how Either and Ahern operate the firm that “I knew something like this was going to come out at some point. The conflicts appear to be endless.” (Ellis served until mid-2012 when Eitner and Ahern were being push up the ranks by the Sands brothers to take over the firm.)

This deal is a chance to see how a Honig style deal gets started. It’s hard to tell what Voltron even is? I have found no mention of it on bio pharma drug chat broads and no public filings except it’s Delaware corporate formation. That doesn’t mean it’s not a real start up trying to buy drug development licenses but based on the SEC enforcement action Honig’s investments often don’t have the real technology, asset, or potential deals the companies claim they do. What this looks like to this reporter is the beginning of the development of a cheap share exchange using other peoples money to sell an idea to unsuspecting retail investors that the players involved know will never work out.

UPDATE 9.14.18 4:15pm – A half an hour after I printed this story Laidlaw has magically come up with a response via their CFO John Coolong: “Laidlaw is not conducting a securities offering for PPLL Partners LLC. Rather, it is an outside business activity and private securities transaction by a few registered representatives. Pursuant to FINRA Rules, Laidlaw has reviewed and approved this outside business activity and private securities transaction. I, as Chief Compliance Officer, am supervising this activity.”

This story didn’t report they were selling a securities offering in PPLL Partners. I am reporting it’s a Reg D private placement but note it’s still selling an investment in a company owned by its CEO. Also we don’t know WHO at Laidlaw approved the outside business activity. That’s important to the firms compliance procedures. Also given that John Coolong is the CCO reporting into the CEO – Eitner – still feels like a big conflict of interest because he is not Eitner’s direct supervisor?

Additionally, since my first story on Laidlaw ran on September 12 the company has removed Jimmy Ahern’s photo from their Executives page on the Laidlaw website. Maybe the whole he isn’t licensed to be a supervisor of a broker dealer thing sunk in?

Editor Note: I would love to hear from any Laidlaw investors who bought into the PPLL Partners Reg D deal. You can reach me at teribuhl@gmail.com.

2 Comments
12 Sep

Laidlaw Execs helped Barry Honig Execute Stock Manipulation Scheme

Last week’s Securities and Exchange Commission suit against high-profile small-cap equity investors Barry Honig and Phillip Frost appears to be the first moves in a much broader crackdown against a network of brokers, promoters and even attorneys that worked with them on numerous transactions, according to internal documents and private communications I’ve obtained. Creatively named llcs, like Pump Pump Loose Loose Partners, were created to hide what appears to be kickbacks paid for pushing unsuspecting retail clients into Team Honig’s deals when it was time to dump the stock.

As the SEC went to lengths to note in their claim, a large chunk of Honig’s alleged profits came from heavily trading shares prior to the release of “favorable and materially misleading articles” that suggested there was growing investor interest in these stocks.

While the pre-release trading was mostly Honig, Frost and their associates, once the articles were released, a broker-dealer with a decent-sized investor network was integral to sustaining these alleged promotions. Based on a series of interviews, as well as documents I have either obtained or seen — including emails, texts and internal memorandums — London-based Laidlaw & Company is Honig’s preferred broker.

Within Laidlaw, two penny stock veterans, Matt Eitner and James Ahern (both of whom are in their 30’s and who had worked together at Aegis Capital) are Honig’s lieutenants in executing “the dump” portion of the purported stock manipulation scheme. Eitner and Ahern’s path to running Laidlaw is typical of many boiler rooms — they were put in charge after FINRA expelled the firm’s original owners, Martin and Steven Sands of Sands Brothers Asset Management. (According to a former Laidlaw executive who knows both Ahern and Eitner, Ahern runs the firm’s daily operations but he can’t hold the chief executive title because he failed his series 24 — FINRA’s supervisory test — twice. Thus Eitner, who did pass his series 24, is listed as the CEO.)

Unsurprisingly, Ahern’s record has a few potholes. Starting out at as a retail broker at Casimier Capital (where he worked under Richard Sands, another member of the Sands family) and Aegis Capital before he joined Laidlaw in 2010. The four customer complaints against Ahern, the first from 2005, all claim either their accounts where ‘churned’ or that the trading volume exceeded agreed upon limits. Ahern strongly denied any wrongdoing in each of the four customer complaints, an example of which can be found here.

By way of contrast, Eitner’s record, which mirrors Ahern’s with stops at Casimier Capital, Aegis Capital before arriving at Laidlaw in 2010, is cleaner, with only two complaints.

According to several brokers who worked directly with Eitner and Ahern, their strategy for accommodating clients like Honig was more 1994 than it was 2018. For example, if Laidlaw couldn’t sell the agreed upon amount in a secondary offering, they had a simple solution: they would “stuff” shares into the accounts of retail investors.

In another instance, according to documents I reviewed with former Laidlaw insiders, unsold shares were left in the firm’s principle account. When Sterne Agee, Laidlaw’s clearing firm called and sought answers about the stock, they were told there was a clerical error and Laidlaw was given the day to get the shares sold through the syndicate deal out of the firm’s principle account and into customer accounts. The problem was clients hadn’t really bought all those shares yet so they had to come up with a place to put the shares or Sterne Agee could sound off the alarm bells to FINRA about net capital violations.

Additionally, to give the appearance of a fully subscribed offering, Eitner and Ahern directed Laidlaw’s brokers to park stocks and violate the T-2 settlement rules, according to two people directly reporting to them, one of whom has provided FINRA sworn testimony about these actions. According to this individual, the offerings discussed in the session with investigators were
MabVax Therapeutics, Spherix, Relmada, Meddvex, Pershing Gold, PolerityTE Inc, Protea and most recently Cool Holdings. Cool Holdings ticker was recently changed to $AWSM from $IFON. $AWSM is the believed to be the current pump and dump in play by this team.

Laidlaw dealtoys in Honig’s office

All of the transactions above were led by Laidlaw and all featured Barry Honig and colleagues as an early-stage investor.

Per the SEC, here’s how it worked: Honig and his colleagues would acquire large equity positions in exchange for financing a development-stage company’s debt, at which point LaidLaw would come in to do a secondary Regulation D offering to accredited investors or structure a Private Investment in a Public Company (PIPE) deal.

Where it gets interesting is how Ahern and Eitner structured the sales process.

Taking a page from Jordan Belfort’s “The Wolf of Wall Street,” interviews, emails and texts I’ve reviewed show Eitner and Ahern aggressively driving Laidlaw’s 100 plus broker sales force to sell these deals through the use of coercion or even dismissal.

We’re Pretty Good At This group instructions

Laidlaw brokers I spoke to said they often questioned their bosses about why they had to pitch their clients investments with worthless balance sheets and few real assets. They also told me that Laidlaw clients would always lose money long term on these deals. Brokers at the firm were allowed to buy stock in these deals with no limits but when a client called to sell there was often a restriction placed on their order system. They had to call executives to get approval for a sale order which could take days. Instead of telling clients about this internal hold, a move that appears to be design to prop up the stock, these brokers would talk their clients into holding on a few more days or not inform them at all. Another way to solve the issue would be to do a cross-book order. These means shares would be transferred from one clients account to another Laidlaw client without putting the order into the system for market makers to see trading volume.

“WPGAT Deals” in Eitner’s text is describing an LLC set up and co owned by Eitner and Ahern that stands for : We are pretty good at this.

When Ahern talks about it he calls it “We Are Pretty Fucking Good At This”. WPGAT is listed as a managing director of PPLL Partners LLC, which stands for Pump Pump Loose Loose. These two entities are seen on multiple issuer offerings as getting ‘consulting fees’ from $10k a month to $30k. (Link to Protea SEC filing here) It is not uncommon to see consulting fees in small cap offerings. But securities laws say Eitner and Ahern have to direct their brokers to inform the retail clients that senior leadership at the firm is also earning money on the side. And that the money raised in the secondary offers from these retail clients to going back to pay the Eitner-Ahern llcs.

“A broker dealer’s failure to disclose a conflict of interest is a material violation of the securities laws. The BD has an obligation to investors to disclose side payments received from the issuer for on boarding investors. I would strongly recommend the BD get counsel to advise them on these violations. Today’s strict SEC enforcement environment will lead to adverse actions against a BD hiding the ball from investors,” SEC defense attorney Richard Gora of Connecticut-based Gora Law LLP told this reporter.

Ahern and Eitner would reward brokers who sold well on their Honig backed deals by getting paid out of WPGAT LLC money. They were known in the firm as the WPGAT group. WPGAT is believed to be funded through consulting fees or possible cash kickbacks. According to internal documents seen by this reporter and interviews with Laidlaw staff here are some of the brokers in that group: Richard Michlski, Kevin Wilson, Brian Robertson, Michael Murray, Luke Kottke, Daniel Kuhar, Henry McCormack, Christopher Oppito.

To give these brokers a sense that everything at Laidlaw was being done on the up and up SRFK LLP attorney and named partner Mike Ference would conduct the broker’s annual compliance meeting where he presented a slideshow and answered broker questions about compliance rules at the end. Brokers where also directed to speak with SRFK attorneys Ross Carmel and John Hitchings. Honig’s deal attorney Harvey Kesner, who I recently reported was removed from this law firm’s name, also answered questions about deal legitimacy and communicated directly about sales volume on deals with Honig, Ahern and Eitner according to emails seen by this reporter. Ross D. Carmel has since left SRFK and is a named partner at a new New York based law firm. Attorney Ference did not respond for comment.

On Tuesday MabVax, who is Victim company C in the SEC complaint against Honig, sued the law firm Honig recommends issuers use for outside counsel when he invest in their company. That firm is SRFK LLP. MabVax is blaming Kesner and other attorneys at the firm on bad legal advice for how they disclosed and structured capital raising deals for the company.

A study commissioned by Reuters with the assistance of Columbia University Law School identified nearly fifty FINRA registered broker dealers where a large percentage of its brokers had “red flags” on their public disclosures. Attorney David Liebrader who writes the Securities Fraud Lawyer Blog said, “These red flags include customer disputes, arbitration claims, regulatory actions taken by FINRA, the SEC or state regulators, civil actions, bankruptcies and terminations after allegations of wrongdoing. The study sought to identify firms who welcomed or tolerated brokers with these types of disclosures.” Laidlaw & Company was high up on the ‘bad brokers’ study.

Laidlaw’s outside counsel Richard Friedman. a former SRFK named partner who is now at Sheppard Mullin, was called to respond to this story. As of press time there was no response. Barry Honig did not respond to an email for comment about his relationship with Laidlaw. Matt Eitner did not respond to an email or return phone calls to his secretary asking for a response to the evidence I gathered for this story.

Stay tuned for part two of this saga as I dive into details on how the money moved in specific Honig backed stocks at Laidlaw. If you are a broker or client at Laidlaw you can contact me at teribuhl@gmail.com to have a confidential conversation about your experience.

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8 Sep

Unnamed Stocks in SEC fraud suit against Barry Honig Revealed

The Securities and Exchange Commission has finally filed an enforcement action against Barry Honig, Philip Frost, and Michael Brauser for trading as a group of affiliates without disclosing their true stock ownership. A group of ten men are named in the complaint as being part of the fraud with Honig listed as the ring leader. The regulator will be trying to ban the men from the industry and charge them millions in restitution and fines. I reported on September 5 the SEC could be bringing an enforcement action soon when I saw Honig’s attorney Harvey Kesner had been removed from the law firm the bore his name.

I was the first journalist who reported Honig and others were under SEC investigation for the actions detailed in their new complaint two years ago at www.growthcapitalist.com and here at this publication. Honig hired a bull dog attorney who makes his money attacking free speech named Charles Harder to sue me for reporting he was the target of an SEC investigation. I had the pro bono help of Eric David, a North Carolina attorney, to stand up to Honig’s lawsuit and we litigated until he dropped the suit against me. Honig’s goal was to get through discovery and force me to disclose the names of people I had interviewed that the regulator had spoken to about Honig and told them he was under investigation. I held my ground even when faced with the possibility of being held in contempt and never revealed my sources. I knew the story was true and it was important for the investing public to know how Honig illegally operates.

The SEC was very slow to sue Honig and the three stocks mentioned in the complaint are only the tip of the iceberg regarding pump and dump schemes Team Honig has done. Because I have interviewed multiple people who have worked with Honig or been company executives of small cap stocks that he has invested in I can report who are the unnamed companies in the SEC complaint.

Company A is Biozone. It was run my a Northern California man named Daniel Fisher. Then Honig came in with his crew and took it over. Eliot Maza and Brian Kelley were part of the Honig-Frost-Brauser ring in that company which later was renamed CoCrystal. Maza and Kelley are also charged for securities violations in the SEC’s Honig complaint.

Company B is MGT Capital. It is run by Rob Ladd and for some time John McAfee was an executive of the company. Honig made a bizarre move and sued Ladd and others in the company for basically stopping him from getting more cheap warrants and trying to take over the company so he could do probably do multiple pump and dumps with the stock. Honig won a partial motion to dismiss in his case against Ladd but also disclosed his behind the scenes strategy to give desperate small cap companies bridge loans that they can’t repay and then the debt gets turned in to discounted stock. Honig suddenly dropped the suit against Ladd in May on the same week another one of his investments filed an 8-K admitting the SEC was investigation preferred share investors for not disclosing they were trading as affiliates. That company is Company C in the complaint.

Company C is MabVax Therapeutics and it is odd that the company CEO’s were not charged with an enforcement action by the SEC when it is clear from the SEC complaint they allowed Honig to control decision making of the company and hide his involvement from investors.

The SEC said this case isn’t over in their press release yesterday and that the investigation is on going. I would bet the regulator’s goal is to flip a few of the men who work with Honig and are named in the complaint and then the DOJ could bring criminal charges against Honig and others. There could also be other companies added to the complaint like $COOL, $RIOT, $MARA. Each of these companies were subject of a recent Sharesleuth investigation and story.

Every time I print a story on Honig this publication is hit with a DDOS attack that tries to crash the site and drive up cost of hosting this news publication on the internet. My personal email has been hacked, I have had men show up at my NYC apartment building trying to speak to me about Honig, and teribuhl.com had a story removed by a hacker two years ago that involved Honig and his lawyer Harvey Kesner. Let’s just say reporting on this man is costly. That’s why reader donations are extremely important to keep the reporting up and free for the market to read. Please donate to support journalism that makes an impact. There is another story on Honig and other firms he works with and their illegal actions that are not described in the SEC complaint coming soon.

Update 9.10.2018: Bill Alpert at Barrons who has covered small cap bad actors for years has reported an excellent backstory on Philip Frost, Barry Honig and the rest of Team Honig. Bill was early in reporting on what could be stock manipulation run by Team Honig back in 2014. Bill also credited my original reporting in his story.

Here is how that story came about: In 2016 a trade publication I reported for as a freelance journalist called www.growthcapitlaist.com was the first financial news publication to report Barry Honig and others were under SEC investigation. That trade publication is behind a paywall for paid subscribers. I then rewrote that news here at teribuhl.com with more colorful language because I thought it was critical for the investing public to know the risk of investing in a stock that Honig invest in. Honig sued me but not the original publication that printed the news which was a clear sign this was nothing more than a bully lawsuit meant to intimated a freelance journalist. I have decided to continue my reporting on the Honig ring here where I can control the content but this publication will go through a legal review and have other journalist or editors review the work before I print so that it’s just not one set of eyes fact checking a story. Those reviews cost money which is why your donations are critical. Thank you to all the readers who have supported teribuhl.com this week.

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