graphs

SEC Charges 10 “Microcap Fraudsters” After “Pump-and-Dump” Scheme Leads to Over $27 Million in Unlawful Profits

The Securities and Exchange Commission has charged ten individuals, named as “microcap fraudsters” in the SEC press release, for numerous market manipulation schemes that lead to the group profiting over $27 million in unlawful stock sales. The classic “pump and dump” scheme went on for years and involved well-known figures in the cryptocurrency and biotech field.

The Microcap Fraudsters

Of the ten individuals charged in this complex and manipulative scheme, three names stand out from the group. At the forefront of the microcap fraud is Barry Honig, who once served as one of the largest shareholders of the cryptocurrency company, Riot Blockchain. According to the SEC, Honig was the primary leader of the market manipulation scheme, bringing together the group of those charged and strategizing their elaborate fraudulent activities.

By his side was John O’Rourke, the CEO of Riot Blockchain, who had previously undergone a thorough CNBC investigation due to a series of suspicious actions by the company. This investigation would later enhance the SEC’s own investigation and help lead to the final charges. However, Riot Blockchain was not charged as an associated entity in this scheme and was not mentioned in the SEC complaint.

The next prominent member of the scheme was billionaire Phillip Frost, who made his fortune investing in the biotech field and is well-known for founding Opko Health Inc. Out of a total of three schemes, it is alleged that Frost participated in two of these lucrative schemes.

The “Pump and Dump” Scheme

The elaborate market manipulation scheme lead by Honig followed the strategy of the classic “pump and dump” stock market scheme. Essentially, this well-known scheme is achieved when the price of a stock is purposefully inflated using false and often manipulative means. The fraudsters behind the scheme have already purchased high quantities of the stock at incredible discounts. Once they are successful in pumping up the cost of the stock the perpetrators then dump their shares at a much higher price and reap the profits of their manipulation.

This is exactly what Honig and his team did. Honig arranged a series of promotional activities to build hype over the stocks they had purchased at outrageous discounts. These activities even included O’Rourke publishing an article to promote one of the stocks involved in the schemes under a pseudonym. This article, as well as another by defendant John Ford, lured shareholders to the stocks and helped Honig boost their price. From 2013 to 2018 numerous manipulative activities like these were carried out by the group to inflate the purchased stock and sell it soon after the hype. In total, the three pump and dump schemes orchestrated by Honig and his team earned them over $27 million.

The Repercussions

During each scheme, innocent investors were tricked and today are left with falsely inflated stocks that offer little to no value. For years, Honig and his team enjoyed the benefits of their microcap fraud, while fully aware that they were compromising the integrity of the very markets that had helped bring them success in the first place. Honig, O’Rourke, Frost, and the remaining seven individuals of the scheme have been charged for their fraudulent activities, while the company’s they shared ties with have an uncertain future ahead of them and ten associated entities have been charged as well. Meanwhile, the innocent investors harmed in the scheme will be forced to recuperate from their losses and attempt to unload their manipulated stocks.

SEC Resolve

For as much as Honig and his group knew about the market and how to manipulate it, they failed to recognize the resolve of those around them who are dedicated to maintaining its integrity. Between the CNBC and SEC investigations, the schemes and manipulative practices of the defendants were soon pieced together, and their steady flow of fraudulent profits were brought to an end. Though many of the individual members of the group were previously known for their successful practices in the biotech and cryptocurrency fields, it seems for the time being they will be known instead for their greed-induced fraudulent activity.

Below is a complete list of the defendants charged in this case:

Barry Honig, John O’Rourke, Phillip Frost, John Ford, Michael Brauser, Mark Groussman, Elliot Maza, Robert Ladd, and Brian Keller. Along with these individuals, ten associated entities were also charged in this case including Opko Health Inc.

To learn more about this case, contact Jeffrey Newman Law today! Or feel free to check out our abundance of available resources in the areas of pharmaceutical fraud, Medicare fraud, financial fraud, and more!