Ladenburg chairman charged with fraud by SEC in penny stock scheme

Dr. Phillip Frost was among 10 individuals named in a lawsuit for participating in long-running schemes that generated over $27 million from unlawful stock sales and left investors holding virtually worthless stock, the SEC claims

Sep 10, 2018 @ 11:37 am

By Bruce Kelly

Dr. Phillip Frost, the non-executive chairman and largest shareholder of Ladenburg Thalmann Financial Services Inc. has been charged with fraud by the Securities and Exchange Commission for his involvement in a pump-and-dump, penny stock scheme.

Dr. Frost and nine other individuals, along with associated businesses and related entities, were charged in a lawsuit by the SEC Friday for their participation in "long running schemes that generated over $27 million from unlawful stock sales and caused significant harm to retail investors who were left holding virtually worthless stock."

Along with his role at Ladenburg Thalmann, Dr. Frost is a well-known biotech investor in South Florida. Since March 2007, he has served as chairman of the board and CEO of OPKO Health, Inc., a multi-national biopharmaceutical and diagnostics company, according to Ladenburg Thalmann's annual proxy statement. He controls close to 36% of the company's stock.

Ladenburg Thalmann is one of the leading networks of independent broker-dealers. Its B-Ds include Securities America, Triad Advisors, Investacorp and SSN, which are home to 4,300 independent contractor brokers and financial advisers.

The company's stock price has dropped about 20% since Friday, when it hit a high of $3.47 per share. On Monday morning, shares of Ladenburg Thalmann were trading at $2.77.

"The allegations in the SEC complaint are unrelated to Ladenburg, our subsidiaries and our business activities, as well as Dr. Frost's involvement as a non-executive board member or shareholder of our company," wrote company spokesperson Joseph Kuo in an email.

"From 2013 to 2018, a group of prolific South Florida-based microcap fraudsters led by Barry Honig manipulated the share price of the stock of three companies in classic pump-and-dump schemes," the SEC alleges. "Miami biotech billionaire Phillip Frost allegedly participated in two of these three schemes." The companies were not identified by the SEC.

Mr. Honig "allegedly orchestrated the acquisition of large quantities of the issuer's stock at steep discounts, and after securing a substantial ownership interest in the companies, Honig and his associates engaged in illegal promotional activity and manipulative trading to artificially boost each issuer's stock price and to give the stock the appearance of active trading volume," according to the SEC.

Mr. Honig and his associates then dumped their shares into the inflated market, reaping millions of dollars at the expense of unsuspecting investors, the SEC alleges.

Dr. Frost, Mr. Honig, other investors and related entities were charged with violating antifraud, beneficial ownership disclosure, and registration provisions of the federal securities laws. The SEC is seeking monetary and equitable relief.

Mr. Honig could not be reached to comment.

A statement from OPKO said that the SEC's complaint contained "serious factual inaccuracies."

"The SEC failed to provide notice of its intent to sue prior to filing the complaint," according to OPKO's statement. "Had the SEC followed its own standard procedures, OPKO and Dr. Frost would gladly have provided information that would have answered a number of the SEC's apparent questions, and filing of this lawsuit against them could have been avoided."

"OPKO and Dr. Frost have always prided themselves on adhering to the highest standards of financial disclosure, and they are confident that once a proper investigation is completed and the facts of the case have been fully disclosed, the matter will be resolved favorably for them," according to OPKO's statement.


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