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Ladenburg Chairman Phillip Frost charged in $27M pump-and-dump case

Phillip Frost, the billionaire chairman of Ladenburg Thalmann’s board of directors and its largest individual shareholder, is accused by the SEC of participating in a $27 million pump-and-dump scheme.

Frost, nine other individuals and 10 associated entities engaged in “illegal promotional activity and manipulative trading” to sell shares of microcap stocks “into the inflated market, reaping millions of dollars at the expense of unsuspecting investors,” the SEC said on Sept. 7.

The SEC identified Barry Honig as the leader of “a group of prolific South Florida-based microcap fraudsters” who carried out the scheme over the past five years. Frost is a frequent collaborator with Honig and another associate in deals involving biotech issuers, according to the SEC complaint.

SEC pump-and-dump case

Frost, an M.D. who is in his 80s, has served as chairman of Ladenburg’s board since July 2006, and he has also been a director of Teva Pharmaceutical Industries and Northrop Grumman, his Ladenburg bio says. Additionally, he has been CEO since 2007 of OPKO Health, a multi-national biopharmaceutical and diagnostics company.

OPKO also faces charges in the case, according to the 15-count, 53-page complaint accusing the defendants of violating antifraud, beneficial ownership disclosure and registration provisions of federal securities laws. The SEC is also seeking monetary and equitable relief in the case.

“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,” Sanjay Wadhwa, a senior associate director in the SEC’s Division of Enforcement, said in a statement. “They failed to appreciate, however, the SEC’s resolve to relentlessly pursue and punish participants in microcap fraud schemes.”

Frost, Honig and four other people "knowingly or recklessly concealed their concerted efforts from the investing public" in filings related to one of the companies, according to the charging document.

Frost and Frost Gamma Investment Trust, a Florida trust of which he is the trustee, also made a Schedule 13G filing in April 2015 "incorrectly indicating that they were passive investors" even though they acquired shares in another one of the companies "with an intention to control management," the civil complaint said.

Investigators did not identify the microcap companies in the document.

Honig’s attorney didn’t respond to requests for comment.

"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,” Ladenburg spokesman Joseph Kuo said in a statement.

OPKO challenged the accuracy of the regulator’s complaint in a statement on behalf of the company and Frost.

“The SEC failed to provide notice of its intent to sue prior to filing the complaint, which contains serious factual inaccuracies,” the company said. “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 [the] 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.”

With over 67.3 million shares of Ladenburg out of more than 201 million issued by the firm, Frost owns more than a third of the parent firm of the independent broker-dealer network. Ladenburg’s already-low stock value has tumbled more than 15% to about $2.80 per share since the charges were announced.

The SEC notes Frost is a billionaire, and investigators say he made more than $1 million from selling shares in one of the three microcap firms probed in the investigation. None of the defendants face criminal charges in connection with the case, and Ladenburg was not named in the complaint.

Miami-based Ladenburg owns five IBDs: Securities America, Triad Advisors, Investacorp, KMS Financial Services and Securities Service Network. The five firms of roughly 4,300 advisors generated more than $1.1 billion in revenue last year, according to data disclosed to Financial Planning’s annual FP50 survey.

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