Menu
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.

11 Comments
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.

19 Comments
31 Aug

Broker Chief Michael Morris Pleads Guilty in A.J. Discala Stock Manipulation Scheme

In a surprise turn of events the last co-conspirator in the A.J. Discala stock fraud case is changing his plea. Micheal T. Morris who owned and ran one of the New York broker dealers that helped the Discala crew execute pump and dumps schemes in multiple small cap stocks will be in Brooklyn federal court on September 6th to plead guilty. Morris was hit with a superseding indictment after the DiScala trial ended this spring with a jury finding DiScala guilty on multiple counts of securities fraud. On July 27 the EDNY DOJ added an obstruction of justice charge against Morris for lying to the Securities and Exchange Commission when they questioned him about Discala’s pump and dump trades at his brokerage firm Halcyon Cabot Partners. Lying to a federal agent carries a five year sentence. Morris is now facing a total of 10 felony counts ranging from wire fraud to securities fraud to conspiracy.

Morris and his wife Nancy are well known in their Long Island community and members of Pine Hollow Country Club. Nancy Morris signed off on putting their home at 12 Siverbirch Road Merrick, NY for collateral in November 2015 for her husband’s million dollar bail bond.

The original indictment accused Morris of not doing his job in supervising one of his bad actor brokers Craig Josphberg who was a lead player in helping Discala artificially support the price of the stocks he was manipulating and also has plead guilty to pushing main street clients into the bad stock to pump up the price. Morris has always claimed in his motions he didn’t know what Josphberg was doing. He said the same message to his pals at his Long Island Country Club. In fact Morris was also the only who got a separate trial so he wasn’t tried with AJ Discala and a lawyer charged in the scheme Kyleen Cane. It looked like for a while that the DOJ was going to settle with Morris and no jail time would be recommend after they lost their case against Attorney Cane this spring. But once this obstruction of justice charge against Morris came out the girls and guys at the Eastern District of New York were back on their war path.

One of the most telling parts of the case is outlined in the new Morris indictment that says:

On or about February 27, 2015, officers of the SEC took the sworn testimony of the defendant MICHAEL MORRIS in connection with the SEC’s continuing investigation into violations of securities laws and regulations with respect to CodeSmart. During that proceeding, MORRIS made false statements to the SEC in an effort to obstruct, influence and impede the SEC’s investigation. For example, MORRIS falsely stated that he purchased CodeSmart stock on August 21, 2013, solely because the stock looked like a good value, and denied that he had discussed said purchase with Abraxas J. Discala, when, in fact, MORRIS purchased CodeSmart stock at Discala’s request to help prevent the stock price from declining too severely upon Discala’s anticipated sale of CodeSmart shares from accounts Discala controlled.

Around the time Morris was arrested in late 2015 FINRA also brought down the hammer on Morris. They barred him and revoked his firms broker dealer license for taking a kickback in a private placement deal.

A total of ten men and women were arrested as part of the DiScala ring. Seven of them plead guilty as the case was preparing for trial. Discala, Cane, and Morris were the only ones to fight the DOJ since the arrest began in July 2014 and now we see the last hold out Morris has admitted defeat. DiScala was found guilty and Cane got off with a not guilty verdict. It’s unclear how many of the 10 counts Morris is pleading too. Additionally the DOJ hasn’t pushed for a sentencing date for Discala yet which is odd. That usually means they are trying to get him to give up more info on others or get others to give up more info on him to increase or decrease the amount of time they will request for prison.

Only one person who plead guilty a few years ago, Darren Goodrich, has been sentenced and he got a lot more prison time than I expected. On July 12 2018 United States District Judge Eric N. Vitaliano sentence Goodrich to 41 months’ imprisonment for one count of conspiracy to commit securities fraud for Goodrich’s participation in the manipulation of the price and trading volume of the stock of Cubed ($CRPT).

I was the only reporter to get an exclusive interview with Discala and see the evidence the DOJ had collected. I was also first to report at www.growthcapitalist.com it was Microcap attorney Adam Gottbetter who first tipped the FBI on to what Discala was doing after he was pissed at Discala for kicking him out of a deal and firing him as his attorney. Gottbetter was also arrested for his own scheme in mircocap stocks and spent 18 months in jail.

The last leg of this saga will be to see how much Discala and the 7 others waiting sentencing get in jail time. For A.J. Discala I’d except that will be a long time.

27 Comments
29 Aug

Kesner’s Out: Why is Barry Honig’s Securities Lawyer Retiring

UPDATE 9.5.18 – Harvey Kesner’s law firm has removed his name from the firm today. According to a member of the law firm this a clear signal that his fellow partners don’t want to be associated with him or his ties to his biggest client Barry Honig. You can see here the firm is now named Sichenzia Ross Ference LLP. This dramatic move happen the same week Barry Honig resigns from the board of the microcap company he is a 42.6% owner in called Pershing Gold ($PGLC). This means Honig is currently not on the board of any public companies. These actions could signal an SEC charge or settlement coming in the near future for both men. Remember if you are deemed a bad actor by the SEC you can’t serve on the board of a public company. Kesner and Honig have been unusually silent in recent weeks refusing to answer any questions about why the changes are happening now. And Honig recently put his water front Florida home on the market for $8.9 million. Kesner was the securities transaction lawyer for ($RIOT) Riot Blockchain and MabVax ($MBVX) which have both disclosed they are under SEC investigation. This publication was first to break news about Kesner leaving his law firm.

Original Text 8.29.18
Barry Honig’s securities lawyer, Harvey J. Kesner, is apparently hanging up his shingle. According to a person familiar with his law firm on September 5th Attorney Kesner will retire. Sichenzia Ross Ference and Kesner LLP made Kesner a named partner two years ago after long time partner Richard Friedman left the firm to join Sheppard Mullin LLP. The move comes as public scrutiny over the investing of one of his long time clients, Barry Honig, has come under-fire, which includes multiple SEC investigations into the companies Honig invest in.

Kesner has advised on the small cap stock industry for years and often shows up as counsel for issuers after Honig has invested with the company. A move that has gone unquestioned by the Securities and Exchange Commission even though a conflict of interest could come up by representing the company and an investor who often holds a debt note against the company.

In the last two years Kesner has also made an apparent move to claim Florida as his home state. Voting records for Kesner started to show up back in December 2016 with an address of a 2 bedroom waterfront condo in Fort Lauderdale, FL. Florida often becomes a home for people with judgments or government fines lobed on them because it is a ‘homestead state’. This means in the case of bankruptcy or say an SEC fine they can’t come and take your home. Kesner will be 61 years old on the planned date of retirement so he still has a few years before any investment pensions can kick in for him. It’s unclear if Honig will keep his business with Kesner’s firm upon retiring or if the law firm will keep Kesner’s name. Why is he retiring now is an unknown and no one at the law firm has responded with comment.

The law isn’t the only thing attorney Kesner makes his money from. There is the stock he he gets on some of the Honig deals. But what’s been a black hole is if a stock transfer company called Equity Stock Transfer benefits him and Honig.

I have previously reported on Harvey’s wife Renee having a 50 percent ownership in the company in 2014 along with a firm called Paradox Capital Partners giving Equity Stock Transfer a loan when it first registered with the Securities and Exchange Commission. EST started in 2011 according to SEC filings called TA-1 and TA-2 reports. In those reports you see Paradox is owned by Kesner and he list himself as its manager. A company called CMBS Document Solutions is also manged by Kesner and listed as maybe providing working capital for the stock transfer company. Additionally in an amended TA-1/A filing from June 6, 2014 it states that Paradox Capital Partners and CMBS Document Solutions could “directly or indirectly, through agreement or otherwise exercise or have the power to exercise control over the management or policies” of the company.

The registered address in Florida for Kesner’s Paradox Capital Partners just happens to be in the same Boca Raton building as Barry Honig uses in his 13g share ownership of Riot Blockchain ($RIOT).

In recent filings we see Kesner put in writing that he doesn’t have control over the firm but only lends the firm money. Equity Stock Transfer’s listed CEO is Mohit Bhansali. Chris Carry at Sharesleuth recently reported on Equity Stock Transfer in his excellent story on Barry Honig and friends ability to make millions on small cap stocks that seem to have questionable rise and falls in their stock. Sharesleuth pointed out that Equity Stock Transfer just happen to be the transfer agent in some these questionable stocks. And as I have reported multiple times Honig is being investigated for a lack of timely disclosure of when he owns a stock and what his true % of ownership is in the stock. Additionally I believe there could be issues of unregistered shares being sold or restricted shares being released when they should be held in restriction. It’s hard to get restricted stock to the DTC for free trading unless you have a friendly transfer agent not doing due diligence on if the shares are legal to trade in the first place.

The Sharesleuth story missed one important point though. While Harvey Kesner has told me through his attorney that he is NOT a control person at Equity Stock Transfer he does have a known relationship with its CEO Bhansali. You see Kesner and Bhansali worked together at Kesner’s previous law firm Haynes and Boone LLP. According to his Linkedin profile Bhansali was at the law firm from 07-09 and list his job as a ‘corporate securities specialist’. I have no idea what that job even means but he is not a lawyer. You also see Bhansali and Kesner serving on a board of a public company Honig invests in called PolarityTE known by its ticker $COOL. The Sharesleuth story did an analysis on the sudden rise and fall of $COOL stock price and Citron Research has published a report calling the company a fraud. Sharesleuth reported:

“He [Bhansali] was a director of Majesco Entertainment until March 2017, the month before it completed its merger with PolarityTE. He also was one of the investors who bought shares and warrants in Riot Blockchain through a private placements last April, when it was still known as Bioptix.”

RIOT Blockchain has admitted it is under SEC investigation after CNBC did a rare investigation into Honig’s investment in the company.

Kesner and Honig have never admitted any control over Bhansali in his role as CEO of Equity Stock Transfer and I’m sure they’d deny it if a regulator asked them but my reporter’s gut feeling thinks it’s very likely Bhansali is a puppet CEO. That issue is hopefully something the SEC or FINRA is currently looking at but then I have also never seen Kesner’s name show up in an SEC subpoena that related to Honig.

I have emailed Kesner asking if he will take an active role in Equity Stock Transfer upon retiring from his law firm and as of press time have not gotten a response. After I originally reported on Equity Stock Transfer in 2016 this publication was hacked and only my story mentioning Kesner, Honig and Equity Stock Transfer was taken down and I lost the reporting. I did hear from a lawyer Kenser hired when the story first came out that went on and on about Kesner not being a control person of this company. They also explained that Kesner’s wife Renee only held a 50% ownership in Equity Stock Transfer for 4 months in 2014 from April 1st to July 3rd.

Editors Note: Donations are needed and very appreciated as stories like these often need to be hosted on a private server with good security so the site doesn’t crash or is not hacked. Good reporting need good donations.

8 Comments
16 Feb

CNBC Investigates Barry Honig trading in Bitcoin Company $RIOT

We witnessed somewhat of a reporting miracle today! CNBC TV journalist Michelle Caruso-Cabrera and her producer Scott Zamost took on an on-the-ground investigation into the questionable activities of micrcocap investor Barry C. Honig and got out from behind the desk to do some real reporting.

In 2016, I was first to expose that Honig and a fellow investor John O’Rourke were named in an SEC investigative subpoena regarding trading in MGT Capital. My reporting at trade publication Growth Capitalist explained the SEC could be looking at how a group of investors, including Honig, trade as a group without disclosing their affiliation. The investigation appeared to also be looking at stock promotion and how it was disclosed along with the timing of public announcements as to who owns how much of the stock. Today we see CNBC try to take on reporting with a similar fact pattern through Honig’s investing in a company called Riot Blockchain ($RIOT).

Riot made the rounds of financial news when its stock flew up in December from $8 to over $40 after a simple name change to a company in the Bitcoin business. CNBC reports “Until October, its name was Bioptix, and it was known for having a veterinary products patent and developing new ways to test for disease.” SEC filings show that Honig was considered an insider in the company because he owned more than 10 percent of the stock. John O’Rourke was gifted shares when he suddenly became the company CEO after Honig pulled an activist move that magically put O’Rourke in charge of the company and axed previous board members. Honig does a bridge loan, gets cheap cashless warrants and boom sells the stock on its high while retail investors pile in. Then the stock tanks. This type of investing is a rinse and repeat move for Team Honig and mirrors what we saw in MGT Capital.

CNBC actually did some good question-asking-reporting here although they didn’t get a lot of truthful detailed answers. Caruso-Cabrera went to Honig’s Boca Raton office at 555 S. Federal Highway Suite 450 after she couldn’t get anyone at the company to do an interview. We see Caruso-Cabrera enter Honig’s office and find none other than John O’Rourke there. O’Rourke comically runs away from her and almost slams her fingers in the door but then comes back out to promise an ‘off camera’ interview. Honig and O’Rourke both deny that they “work together” but then Honig later admits O’Rourke did at one time have an office in his office. If the CEO of the company had his office in a major shareholders office that claims not to control the company that doesn’t look good. You can read CNBC’s print story and see on-camera footage here.

A lot of the CNBC coverage focuses on if O’Rourke currently works out of Honig’s office. Their reporting indirectly tries to point out both of these men could be lying. If CNBC wanted to drive home this point they also could have done some SEC filing research, like I did. where John O’Rourke office address is Honig’s office address in this filing from December 2016.

I have previously reported O’Rourke has worked out of Honig’s office after I interviewed a person who saw him working there. Which is just odd he goes and denies it to CNBC. I reached out to O’Rourke’s attorney Nick Morgan at Paul Hasting this morning to ask what CNBC didn’t clarify. When did O’Rourke stop working out of Honig’s office and what is his new office address? Attorney Morgan said he would get back to me but as of press time I have no answer. Honig was also contacted through his Attorney Charles Harder and asked when O’Rourke stopped working out of his office. At press time Attorney Harder did not respond.

While we really enjoyed the gotcha moments Caruso-Cabrera captured on camera, it was disappointing not to see CNBC mention the elephant in the room. Honig and O’Rourke are named in an SEC subpoena for their role trading and investing in MGT Capital. On January 31st the WSJ did a similar story on Riot looking at Honig and his role in the company which included their reporter Ianthe Dugan asking Honig flat out about the SEC subpoena. The WSJ reported “Mr. Honig said that he hasn’t been contacted by the SEC and doesn’t believe he is a target. “I am 120% not worried,” he said.” A government agency investigating securities violations usually doesn’t knock on the subjects door and let them know they are gathering evidence against them until they have a case built. So Honig’s public denial doesn’t carry much weight in my book.

There is also something else alarming in the CNBC story. Honig’s longtime deal attorney Harvey Kesner, who is now a named partner at Sichenzia Ross Ference Kesner LLP, was reached on the phone by CNBC and said “he didn’t know anything about Riot Blockchain and Barry Honig.” And then he hung up on them. What??? Kesner is the named deal lawyer on multiple Honig investments. He is the attorney I have called multiple times, and has responded for Honig on deal questions and his law firm is on SEC filings for Riot. On top of all that CNBC figured out Kesner also owns an investing company called Paradox Capital Partners, which I previously reported on, who also owns RIOT stock. I emailed Kesner this morning to give him a chance to clarify his comment but so far he is radio silent.

I have to wonder if Kesner is trying to finally distance him self from Honig because of questions about the timing of Honig’s self reporting of RIOT stock ownership. You see since Honig went above owning 10% of the stock (he reported he owned 11%) ,and then sold to own about 2%. if he did that selling within 6 months he is subject to the rules that prevent sell-then purchase or vice versa within six months. Honig should have filed a Form 3 which I can’t seem to find in SEC filings. And all of this could be a section 16(b) violation of the Exchange Act. Which creates the opportunity for the company (RIOT) to sue Honig for any profits he made from a short swing and the profits go back to the company. But I guess if your friend John O’Rourke is running the company he is not going to file that lawsuit! And we don’t know when Honig officially sold because of his lack of timely reporting. Something we saw him also do with MGT Capital.

Here is an example of a lawsuit for a 16(b) violation with a company called WPCS. A stock Honig and O’Rourke also invested in.

John O’Rourke told Benzinga after the first CNBC video aired that their coverage was Garbage and a Hit Piece. That means Michelle Caruso-Cabrera is on the right track. Riot saw a $5 drop in its stock price today which is about a 34% decrease since the CNBC story aired. Ambulance chasing securities lawyers have also announced that they plan file a class action lawsuit for securities violations against RIOT.

Editor’s Note: Honig previously sued me for reporting he was named in an SEC subpoena. He dropped that litigation against me in January and I am here reporting again. Lawsuits are a pain and risk me having to disclose sources but they will never deter me from staying on the story. Donations to this free publication are greatly appreciated and always needed. Tips can be sent to teribuhl@gmail.com .

6 Comments
19 Mar

Banned by SEC: Steven Muehler starts another advance fee scheme

A Southern California man named Steven J. Muehler is blatantly ignoring a ban from the equity crowding funding industry lobbed by the Securities and Exchange Commission last year. I am reporting exclusively for Growth Capitalist that Muehler is once again behind a scheme to bilk start-up CEOs out of their much needed cash with promises of helping them launch a successful mini-ipo offer and secure millions in investments. A promise now proven to be a fistful of lies.

Here is sample of my reporting at trade publication Growth Capitalist. It’s free to register to read the articles.

A California securities offering promoter who was the subject of the very first SEC enforcement action taken against a participant in the newly reformed Reg A market has been linked to a group of websites claiming to offer capital-hungry companies and their investors a soup-to-nuts money raising experience in exchange for cash fees and shares, despite lacking the necessary securities licenses to do so legally, and in seeming defiance of a recent ban imposed by the agency.

Steven J. Muehler, 41, a Marina Del Rey, Calif.-based financial consultant with a history of federal and state securities law violations that led him to be banned from the industry last June, has reconstituted his now four-year old scheme to create an “alternative securities market” for Reg A companies with a full suite of services including deal advisory, offering marketing and securities brokerage, proprietary investment by self-managed venture funds, and a listing market for secondary sales, an investigation by Growth Capitalist has found.

My editor and I took a month to investigate Muehler’s new scheme through painstaking document searches of corporate records and regulator filings to prove this fraud. Muehler’s new company is called Alta Vista Capital Markets or Alta Vista Private Client. He even started a fake alternative trading system called NanoCap Market that has claimed to be registered with the SEC but isn’t. This time around Muehler used his wife Claudia’s name on legal documents and convinced a LA man, who once was a registered investment adviser, Koorosh “Danny’ Rahimi to be the named CEO of his new company. Our reporting at Growth Capitalist shows how Muehler was controlling the company behind the scenes. To the point of even using Koorosh’s company email to speak with potential and existing clients.

After Muehler heard from some of his CEO clients that I was asking questions about the legitimacy of his business we saw him change the company website and take down claims of being registered or working on a broker dealer license. It took finding issuers he had sold his up-front fee scheme, to go on the record to prove how much Muehler was truly involved in the business. The phone interviews I had to make involved being first to tell excited CEOs that the Regulation A offering (mini-ipo) they had submitted to the SEC, which was supposed to help their business raise millions in needed capital, was done with a bad actor and there likely were not millions of dollars in AltaVista Venture Funds to invest in their offering. It was a sad reality for CEOs to hear the $10k they had given AltaVista was wasted.

AltaVista had even gone as far as filing initial Form D’s with the SEC to show potential clients there was a real fund but then didn’t list raising any money in the RegD offering. I was told by one CEO, after our reporting came out two weeks ago, that Muehler wasn’t that worried about his scheme being exposed by Growth Capitalist because the reporting is behind a paywall!

The SEC is fully aware of Muehler’s new scheme. I reported a whistleblower and an attorney, who works in the equity crowdfunding space, have altered the regulator. The regulator also acknowledged they read our 3-part investigative reporting. But with a new Trump regime of lax regulation it’s unclear how long the securities regulator will take to stop Muehler again. Given he hasn’t paid the $400k fine from the last enforcement action it appears it will take a criminal charge to curb this bad boy.

Which is why it is even more important for investigative journalist to be supported with your donations and subscriptions. If you think this reporting is informative please donate today. Because it’s doubtful we can count on our government agencies warning the market about fraud…that now falls mainly to financial journalist. Additionally, since it’s free to register now at Growth Capitalist I encourage you to do so right away. You will have a chance to read good insight into the equity crowdfunding and mini-ipo market.

13 Comments
9 Feb

Here it is: that MGT Capital SEC Subpoena

MGT Capital was subject to a subpoena sent by a lawyer at the Securities and Exchange Commission named Katherine Bromberg who is senior counsel in the New York office of the division of enforcement. The Subpoena demanded a response by September 28, 2016. MGT’s stock had been on a soar after it was announced the company was going to merge with John McAfee’s private security company. MGT CEO Rob Ladd was forced to announce the receipt of the subpoena by the exchange the company listed on, the NYSE, and the stock started a slide. The NYSE latter delisted the company without explaining in writing what their reasons were and did not allow the issuance of millions of new shares that the company approved in a board of directors vote.

The company is now on the OTC pink sheets waiting for the top-tier of the OTC markets to approve their listing. John McAfee was eventually made a director of the company but the merger of his security assets isn’t completed yet. The company website says “MGT Capital Investments, Inc. is in the process of acquiring a diverse portfolio of cyber security technologies. With cyber security industry pioneer, John McAfee, at its helm…”

In September MGT CEO, Rob Ladd, who signs all SEC filings, said in a press release the company didn’t think the SEC subpoena questions were focused on ‘the company’. Latter that month I was first to report on some of the people named in the SEC subpoena for the trade publication I report for Growth Capitalist. I reported Barry Honig, Michael Brauser and Josh Silverman’s hedge fund as being subjects of the subpoena questions. I had interviewed an executive at the company who said they thought “the focus of the SEC subpoena was about Barry Honig and the people he invested with.” I then wrote an opinion piece at teribuhl.com that Honig and friends were the subject of this subpoena.

Below is the subpoena for the reader to see and formulate their own opinions. This is the first time it is being made public. The name of the companies on page 7 are all owned by the names of the people on page 7-8. I was told by a person at the company all of these people invested with MGT Capital and you need a flow chart to show their interconnectedness. I have also researched other public filings and found these people have invested in the same equities in the past. Most of these people say they are passive investors and don’t know each other or don’t ‘invest together’. It’s my belief after a decade of proven investigative reporting and based on knowing how to read a SEC subpoena, along with interviews with people involved in the transaction and past investing transaction of Barry Honig, that the regulator is looking for evidence that these people traded as a group and therefore became beneficial owners of the stock. If you have beneficial ownership of a stock it affects when and how much you can sell your stock so investors, like the group here, often try to keep their public ownership of the stock below 10%. I think the regulator also wants to know if any of the investors, who except for Josh Silverman were not on the board of the company, had any influence in the McAfee merger or the paid stock promotion by Stock Beast. But the most interesting question is number 10.

All Documents and Communication concerning MGT’s acquisition of certain technology and assets of D-Vasive, as stated in MGT’s Form 8-K filed on May 9, 2016.

MGT had announced in its August proxy statement on page 23 that D-Vasive had had gotten a $850,000 bridge loan with convertible debt but didn’t disclose who did the bridge loan. John McAfee owns D-Vasive. I was told by a person at MGT that some of the names on the SEC subpoena had also done the bridge loan. If the merger had been approved, these people would have likely had D-Vasive stock warrants that would have became MGT stock and while the stock was flying high would have made a killing if they were able to sell. There are a lot of unanswered questions about that transaction and since D-Vasive is private they don’t have to answer them. Well unless a regulator asks. Like the timing of the warrants being issued, share registration, and who is holding the shares for the required 6 month period.

These people are sophisticated investors with expensive lawyers who help structure transactions designed to protect them form violating any securities laws like trading as a group without disclosing it. That type of SEC violation is hard to prove and I don’t know if the regulator will get the evidence to prove it but it is good to see them asking the questions. I want to hear from readers and market participants on what you think some of these SEC questions are trying to get at. Use the comment section or email me at teribuhl.com with your thoughts.

MGT says it has answered the SEC subpoena.

SEC Subpoena MGT Capital September 2016 by Teri Buhl on Scribd

UPDATE January 2018: On September 15, 2016, MGT Capital received a subpoena from the Securities and Exchange Commission. The subpoena requested documents and communications between MGT and Barry Honig. It also sought documents and communications between MGT and eight other individuals and eleven entities associated with the individuals.

I have not confirmed with the SEC that Barry Honig is in fact the subject or target of any SEC investigation. No person at the SEC has ever informed me that the SEC is investigating Mr. Honig. The SEC, when called for comment, told me that they do not comment on ongoing investigations.

3 Comments
9 Feb

California DOJ investigating Honig and The Frost Group

Original Text

The Northern California DOJ has been sniffing around asking tough question about the investing and trading activities of a billionaire Philip Frost, a former boxer turned penny stock investor Barry Honig, and a man Honig has done investing deals with Michael Brauser.

A person who took investments from this trio and ask for anonymity for fear of retribution told this reporter,”The FBI told me in our interview they were investigating Honig, Brauser, and Frost.”

A term sheet filed in a legal battle in Northern California court shows all three men invested together in a company called Biozone. The case, which alleged the Frost Group was involved in a pump and dump, made it pass a motion to dismiss and then settled. A person familiar with the settlement said the plaintiff got $2 million although it’s unclear if the Frost group actually paid the settlement in full.

Three years latter the FBI investigation into Biozone is still open. This reporter has seen a letter from the FBI that states this person is a potential victim of securities fraud. A check in the FBI’s victim notification system, seen by this reporter at press time, show the investigation is still active but doesn’t list specifically who the investigation is about. Biozone is the only company the person interviewed by the FBI held stock in.

The Biozone investor also said they had been interviewed by the Securities and Exchange Commission about their dealings with Barry Honig, his deal lawyer Harvey Kesner, and others the regulator thinks invest with Honig.

Attorney Kessner has been representing Honig in his microcap investing deals for years and often ends up as counsel for the companies Honig invest in. He recently became a named partner at a New York law firm that is very active in the microcap stock market called Sichenzia Ross Friedman Ference LLP. Kesner replaced partner Richard Friedman who suddenly announced he was leaving with his team to join another firm Sheppard Mullin in October. The firm is now called Sichenzia Ross Ference Kesner.

Kessner through his attorney told this reporter he thinks Freidman’s departure from the firm he had been with for a long time wasn’t sudden but contemplated for months but we haven’t heard directly from Friedman on why he switched law firms.

Rumors have been swirling around the microcap space for a while now that attorney Kesner’s work with Honig could place him in the hot seat with the SEC but the Biozone investor is the first person I’ve interviewed who said the SEC probed him about Kesner’s role with Honig. Kesner has not been publicly named in any SEC enforcement actions. Kesner was fired from big law Haynes and Boone, where he worked before joining SRFF. He then sued the firm for breach of contract and defamation in 2010 but it’s unclear if anything came out of that reaction to being fired. Haynes and Boone said the suit was meritless. Kesner withdrew the suit voluntarily a month after it was filed and there was a statement the parties had settled without any details.

EDITOR NOTE: This story was hacked and taken down from the publication on February 7 2017. It originally ran on November 8th 2016. Barry Honig sued me for libel for multiple stories I reported on and then suddenly dropped the suit two days before our motion to dismiss was to be filled with back up documents sourcing the reporting and a copy of a SEC subpoena that names him and others who invested in MGT Capital. Honig had originally demanded I apologize for my reporting and denies he is under SEC investigation. The reporting stands and I never apologize for informing the public on a matter of public interest. I would like to thank my attorneys Chuck Tobin and Christine Walz at Holland and Knight for their excellent legal work that helped protect sources and support accurate truthful reporting and opinion.

UPDATE 1-2019: Since publication of this article, I learned that Daniel Fisher, the plaintiff in the Biozone lawsuit reference below, submitted a letter to the SEC, through his attorney, withdrawing the SEC whistle-blower complaint that Mr. Fisher filed against Barry Honig, Michael Brauser and The Frost Group. In a separate letter from his attorney to the FBI, Mr. Fisher also withdrew any direct connection to the FBI investigation referenced below. Mr. Fisher sent the letters pursuant to a voluntary settlement agreement in the Biozone lawsuit and an Order enforcing that settlement by Judge Laurel Beeler of the Northern District of California which stated: “The court orders [Daniel Fisher] to withdraw his FBI and SEC grievances against [Honig, Brauser and The Frost Group]….which fall[s] within the scope of his commitment under the settlement.”

In a separate letter to Judge Beeler enclosing Mr. Fisher’s withdrawal letters, his attorney stated: “[Mr. Fisher] does not believe this SEC notice has any impact on the existing SEC investigation into [Biozone’s successor] Cocrystal.” In an SEC filing made earlier this year, Cocrystal Discovery disclosed that it had received a subpoena from the SEC in 2015 and that it was the subject of an ongoing SEC investigation.

4 Comments
« Previous Page
Next Page »