SEC charges 10 “microcap fraudsters” in $27 million blockchain bust

SEC blockchain fraud charges

SEC charges 10 “microcap fraudsters” in $27 million blockchain bust

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The US Securities and Exchange Commission (SEC) today announced fraud charges against 10 individuals and 10 associated entities for their participation in long-running fraudulent schemes that generated over $27 million from unlawful stock sales and caused significant harm to retail investors who were left holding virtually worthless stock.

Explosive charges of fraud and cryptocurrency stock manipulation

 

SEC sends subpoenas to 80+ cryptocurrency companies.The SEC used explosive language in their announcement of charges, calling the individuals “microcap fraudsters”, engaged in “classic pump-and-dump schemes”, using “illegal promotional activity and manipulative trading”

“As alleged, Honig and his associates engaged in brazen market manipulation that advanced their financial interests while fleecing innocent investors and undermining the integrity of our securities markets,” said Sanjay Wadhwa, Senior Associate Director in the SEC’s Division of Enforcement. “They failed to appreciate, however, the SEC’s resolve to relentlessly pursue and punish participants in microcap fraud schemes.”

Tale of investor woe

 

Riot Blockchain execs charged by SECIn February, 2018 CNBC produced a scathing news report on the activities of the fraudsters. The TV story showed how the principals of Riot Blockchain were skirting SEC guidelines on registration, investor disclosure and other guidelines designed to protect investors.

In its Friday news release, the SEC said:

“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. Miami biotech billionaire Phillip Frost allegedly participated in two of these three schemes. 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’s complaint, Honig and his associates then dumped their shares into the inflated market, reaping millions of dollars at the expense of unsuspecting investors”.   The SEC’s complaint, which was filed in federal district court in Manhattan

Ringleader Honig

 

SEC charges "fraudulent mobsters"Two of those charged are J O’Rourke, CEO of Riot Blockchain, and Barry Honig, once Riot’s largest shareholder. Riot Blockchain itself was not named in the SEC announcement at this time.

According to the SEC: “”Honig was the primary strategist, calling upon other Defendants to buy or sell stock, arrange for the issuance of shares, negotiate transactions, or engage in promotional activity,” according to the SEC complaint. “In each scheme, Honig orchestrated his and his associates’ acquisition of a large quantity of the issuer’s stock at steep discounts, either by acquiring a shell and executing a reverse merger or by participating in financings on terms highly unfavorable to the company.”

Tangled web of people and companies

 

loyalty programs require securityThe SEC announcement shows a complex web of people and companies charged in the $27 million fraud activities.

Others charged included John Stetson, Michael Brauser, Mark Groussman, Frost, Elliot Maza, Robert Ladd, Brian Keller, John H. Ford, Alpha Capital Anstalt, ATG Capital LLC, GRQ Consultants Inc., HS Contrarian Investments LLC, Grander Holdings Inc., Melechdavid Inc., OPKO Health Inc., Frost Gamma Investments Trust, Southern Biotech Inc., and Stetson Capital Investments Inc.

Phillip Frost is a Miami billionaire, investor and former chairman of Teva Pharmaceuticals and founder of OPKO Health Inc. John Stetson was CIO with Salt Lake City biotech company PolarityTE whose board and senior management fired him immediately. He also founded and managed HS Contrarian Investments LLC. ATG Capital LLC is a company managed by Riot Blockchain CEO John O’Rourke. Marc Groussman is President of consulting firm Melechdavid Inc.

The SEC’s continuing investigation is being conducted out of its New York Regional Office by Katherine Bromberg and Charu Chandrasekhar of the Enforcement Division’s Retail Strategy Task Force, Tim Nealon, Ricky Tong, Joseph Darragh, and Michael Paley of the Enforcement Division’s Microcap Fraud Task Force, and Jon Daniels of the Enforcement Division’s Cyber Unit.

You can view the detailed SEC charges and news release here.