Honig & Eloxx Pharma sued for stock fraud : $ELOX

Small-cap stock investor Barry C. Honig has been embroiled in a new set of fraud accusations for his role with a bio-pharma company called Eloxx Pharmaceuticals ($ELOX). He stands accused of working with his puppet CEO, David Rector, to force a large preferred share investor to convert his stock at a higher price then promised in a deal benefiting him and Honig’s investing partner Philip Frost of OPKO Health. The investor, John Winfield, filed suit in Delaware Federal Court on March 5th against Honig, Eloxx, Rector and the prior CFO James Schmidt.

Eloxx was formally called Sevion Therapeutics and Rector became CEO in January 2015. In 2017 Rector and Honig called Eloxx’s investor Winfield encouraging him to sign a deal that would convert his series A preferred shares to common shares at a rate better than originally agreed on when he bought the preferred shares because the company claimed it was was low on capital and required new financing. Winfield bought the shares in the summer of 2016 at a conversion rate that would give him 266,666 of common stock and by January 2017 Hoing and Rector were pushing for the conversion.

Rector offered to convert Winfield’s Preferred Stock at a more favorable price of $0.25 per share, which would result in the issuance of 800,000 common shares, not the originally agreed 266,666 shares of common stock – which was three times as many common shares.

Winfield didn’t take their first offer and negotiated a deal, called the ‘favored nation clause’ that said he would convert his shares BUT if another preferred shareholder gets a lower conversion price he should get that price also, according to the lawsuit. In February 2017 Honig called Winfield to say he had or was expecting to buy all of the remaining Class A Preferred shares and that another investor had already agreed to sell at the $.25 cents conversion.

Honig would call Winfield personally to promise the deal and push him into signing, even though Honig was not an executive of the company and declared himself an independent investor. Rector told Winfield that Honig was the lead investor in the company. While the company was agreeing verbally to the deal they delayed sending Winfield paperwork that promised the favored nation clause.

Rector and Honig have worked together in the past when Rector was a director of Majesco Entertainment from June 2015 to December 2016. Majesco became PolarityTE ($PTE) and today announced the Securities and Exchange Commission has opened a formal investigation into the company which includes the merger that changed Majesco to PolarityTE. The SEC is also investing Honig’s role with PolarityTE. Rector was also the COO of U.S. Gold Corp another Honig lead deal.

Winfield eventually signed over his shares to convert in July 2017. Meanwhile it appears Honig was working behind the scenes to get a merger deal done with a biopharma company from Israel.

It wasn’t till Winfield saw a proxy statement announcing the merger and asking shareholders to vote that he realized the other preferred shareholder Honig bought shares from was none other than Philip Frost’s OPKO Health. On top of that the Frost related shares were converted for $.10; meaning he got a lot more shares than Winfield did. Honig also never disclosed to Winfield that he and Frost were affiliated. When Rector became CEO in 2015 Frost was put on the board as a director. In September 2018 the SEC charged Honig, Frost and others for manipulating stock prices by trading as an undisclosed group of affiliates.

The company never honored their ‘favored nation deal’ with Winfield and he didn’t get the lower $.10 share price. In typical Honig deal making style there was a promotional presses push on Eloxx and in a three-month period from March to June 2018 the stock went from $7 to a high of $23.27 on June 15th.

Winfield has sued for violations of the Securities and Exchange Act section 10-B which is fraud, there also claims of Section 20 violations which is executives working as a control group to commit fraud, and breach of contract. He has hired New York-based shareholder defense firm CKR Law. The same law firm currently fighting for shareholders of XpresSpa for securities fraud in a lawsuit this publication has reported extensively on. Some of the people sued in the XpresSpa suit, like Richard Abbe of Iroquois Capital, have invested as undisclosed affiliates with Honig for years.

Rector is long gone from Eloxx and it’s unclear what Honig’s position in the stock is these days. An amended SEC complaint filed this month highlighted how Honig uses his buddies investment funds to front his position in a stock so main street investors can’t see his true position in a company. Eloxx’s stock dropped from its $23 high and is trading around $13 today. On March 14th Eloxx filed its 10-k and conveniently left out any mention of the company being sued for fraud in correlation to Barry Honig as a lead investor. They added a line under litigation that there are currently no ‘material lawsuits’. Apparently investor fraud isn’t material to Eloxx.

An internal investors relations person at Eloxx did not return a request for comment asking if the SEC has also contacted the company asking for information about Honig. As we saw in today’s PolartyTE announcement the SEC started asking for info back in Oct 2018 but we only learned about that today.

Honig did not return a request for comment. CKR Law did not return a phone call for comment on behalf of their client John Winfield.

John Winfield vs Honig and … by on Scribd

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Comments

  1. Why is this guy not with Bernie Maddoff and Bubba, along with all his affiliates .. xspa crooks need to be charged all of them !

  2. Why is Mintz Levin counsel to Majesco, the predecessor to this alleged fraudulent co? Mintz reps XSPA in the Binn suit as well. Mintz should be criminally investigated. Are the lawyers dirty too?

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