Judge Rules SEC can’t sue MGT CEO for whatever they want in Honig Pump & Dump case: $MGTI

A New York federal judge threw out the Securities and Exchange Commission’s additional claims of MGT’s CEO, Robert Ladd, using his father’s stock trading account to benefit himself unbeknownst to MGT Capital Investment shareholders. But it’s not all rosy for the Bitcoin CEO because Judge Ramos ruled on January 27th that the SEC’s claims of fraud against Ladd for allegedly knowing Barry Honig and his associates traded as an undisclosed group of affiliates to manipulate the stock price can go forward to trial. The government’s claim that Ladd knowingly issued a press release that was a false material event about his business partner John McAfee was also allowed to stay in the SEC’s enforcement case.

Ladd is the only remaining defendant in the multi-million pump and dump case that the SEC says was orchestrated by Barry C. Honig in over 40 stocks. Since the case was first brought in September 2018 all of the individuals charged that worked with Honig have made plea deals with the SEC. The SEC has tried, with three versions of the complaint, to nail Ladd on something that would force him into a settlement but Ladd’s not folding.

“Judge Ramos’ decision effectively dismissing the new allegations filed in the Amended Complaint is a great first step towards Mr. Ladd’s full vindication. The entire case against my client is ill-conceived and should be abandoned,” said Ladd’s attorney Adam Ford of New York-based Ford O’Brien LLP.

Attorney Ford is Ladd’s second lawyer in his three year battle with the SEC. Ford is known on Wall Street for beating the SEC and DOJ by getting serial stock promoter Guy Gentile off and most recently for a not guilty verdict in the criminal case for the CFO of Mark Nordlicht’s billion dollar investment fund called Platinum Partners.

Earlier this month Nancy Brown, the lead litigator in the SEC’s case, asked Judge Ramos if they could move right to summary judgement on the non-fraud claims of the case. Attorney Brown claimed it would streamline a trial and be efficient for the judge to rule on because with these kind of claims, that tie to when Ladd disclosed selling his MGT stock via a From 4, the government doesn’t have to prove Ladd’s intent to do any thing wrong. Brown’s move was bold and confident because it came while Judge Ramos still hadn’t decided on the motion to dismiss of the second amended complaint. According to people familiar with the case the discovery period is over which included the SEC taking defendants depositions. Ladd plans to fight the case so he can remain a public company CEO and won’t be settling any fraud charges, which the SEC is well aware of.

But at a hearing held today to argue if the SEC can even ask for summary judgement on those claims, Nancy Brown appeared to back down. This reporter, who attended the hearing, saw there was no argument made about summary judgment; instead Brown asked the judge for more time to decided how the SEC is going to move forward. In the judge’s motion to dismiss ruling this week he gave the SEC leeway to file another, this would be the third, amended complaint against Ladd. Attorney Brown said she has think it over for two weeks.

Here is where the SEC’s trial strategy is showing some cracks. Since the SEC didn’t finish discovery with Team Honig and went to an easy plea deal that banded some of Honig’s associates while still allowing Honig to trade in $PTE PolarityTE, they haven’t actually gotten any of his crew to admit they all traded as an undisclosed group of affiliates. The SEC settlements Team Honig made all only say the defendants don’t confirm or deny the charges. And given how all of team Honig appears to have plead the fifth in their SEC depositions it’s unclear how the SEC can prove Ladd knew they were acting as a group of affiliates and didn’t tell his shareholders about it. Now if the SEC had acted like real prosecutors and taken Barry Honig or John O’Rourke to trial and gotten guilty pleas or even forced them to admit guilt in the SEC settlement they’d be in a different boat. But that didn’t happen. So it will be interesting to watch if the SEC has some kind of surprise witness in their pursuit of Ladd. Ladd’s former business partner and tech legend, John McAfee, was recently arrested in Spain for tax evasion by the DOJ in case unrelated to this one.

According to a government witness in an other DOJ case tangentially tied to Honig the SEC has been trying to nail Honig for over a decade. The theme of charging them with trading as a group of undisclosed affiliates to manipulate stocks and allegedly commit fraud is actually something new the SEC finally figured out. Given the DOJ still hasn’t’ brought any charges against Barry Honig and his crew, which include Michael Brauser, Mark Groussman, Philip Frost, John Stetson, and John O’Rourke it doesn’t appear the government has made much of an impact on stopping these alleged securities fraud bad actors.

$MGTI currently trades on the OTC Markets for $0.11 cents.

NY Journalist wins lawsuit to unseal court docs tied to Bruce Bernstein Securities Fraud Case: $XSPA

UPDATE 4.2.19: After I won a lawsuit to unseal documents that showed Bruce Bernstein and Richard Abbe mislead investors and the Securities Exchange Commission in public filings another original investor in XpresSpa has filed a similar lawsuit against the $XSPA board and its executives. Swiss resident Roman Kainz filed his securities fraud suit on March 20, 2019 and added a defendant who is William Phoenix of Mistral Equity Partners LLC. The case has been deemed related by the Southern District of New York federal court to the Binns case but the defendants will have extra legal cost litigating another case. Richard Abbe of Iroquois Capital was served with the new suit at his home at 7 Kinsington Rd, Scarsdale NY 10583. Additionally, the unsealed court filings shows that Alan Schwartz, the former CEO of Bear Stearns, was involved with the original investors in XpresSpa along side Kainz and the Binns. It’s unclear if Alan was invested in the deal personally or through Guggenheim Partners the asset management firm where he is a managing director.

Original Text
Two hedge fund mangers that invest in small cap stocks have been working together to hide documents discovered in a securities fraud lawsuit from public shareholders and regulators. Last week one of the key pieces of evidence was unsealed after I won a court case brought by Bruce Bernstein of Rockmore Capital in an attempt to force me to reveal a confidential source used in my previous reporting on his alleged fraud.

The document involves private communication between Bernstein and his ex-wife who had accused him of hiding assets during their divorce. The dispute lasted only a month but forced Bernstein to turn over balance sheet records of the fund he manages called Rockmore Capital. In the divorce communication Bernstein swears he doesn’t actually have any of his own money in a $6 million debt security issued by his fund to an airport spa business called XpresSpa.

Bernstein’s statement to his ex-wife is a complete turnaround to what he told the founders of XpresSpa when he convinced them to take on debt issued by his hedge fund. That’s because the spa founders say Bernstein led them to believe it was him lending the money. Allegedly, a similar lie was repeated in public filings with the SEC when another public company Bernstein invested in, Form Holdings, wanted to merge with XpresSpa. Securities laws require Bernstein to disclose any affiliated or related parties when a proxy statement is filed with the SEC asking investors to vote on a merger with a public company. Since the days of Enron fraud laws were even expanded to tie criminal liability if you lie in proxy statements used to inform investors about who controls or has ownership in companies that are merging.

In the case of XpresSpa, investors were completely left in the dark about the role Bernstein’s buddy Richard Abbe, of American Capital Management, was playing behind the scenes to control the debt of the Rockmore note and force XpresSpa into what became the loss of millions in a disastrous merger.

While I was reporting on the XpresSpa fraud case in federal court I was sent an anonymous email with a filing I thought was currently redacted in court records. A lot of the federal case has sealed documents and redacted motions making it hard to figure out who did what. The court filing I got explained Bernstein’s ex-wife roll in sending what’s been called the ‘Sloan Letter’ (because that’s the last name of the lawyer his ex-wife used) to show her husband likely lied to regulators and shareholders. So I reported another story explaining that.

After the story ran, it appears Abbe and others encouraged Bernstein to sue me to reveal who sent me that document. They thought I had also been leaked private divorce communications and they accused the law firm suing them on behalf of the XpresSpa founders, CKR Law, or the Ex-Wife and her law firm, of leaking them to me. On top that Bernstein chose to file, on November 28 2018, what’s called a motion for pre-action discovery in NY state court, instead of filing a motion in the federal case, and demanded his name and what he was asking for be sealed. He also included a copy of the Sloan letter and said his fund had already lost one client because of my reporting on his alleged fraud. Ironically it was now Bernstein who had given me the hidden document detailing his own alleged fraud by included it in his lawsuit against me! But for four months NY state court said I couldn’t report that!

In an unusual move a state court judge agreed to seal the entire record without any of the defendant being sued having a say. I was served the lawsuit in early December and told I had to wait months to argue that the case should be unsealed. Meanwhile I am still reporting on what’s going with Abbe and Bernstein in the XpresSpa federal lawsuit. Sealing of the case meant NY state court had inflicted prior restraint against me and I couldn’t tell anyone the subjects of my reporting are trying to intimated me with litigation cost and effectively issue a subpoena on me to turn over a source identity. There was no way I was going let that happen.

Luckily once I notified the Reporters Committee for Freedom of the Press about the nature of the lawsuit, Sarah Matthews, got on the case and found me a Big Law media lawyer. Then David Bralow and Kay Murray, attorneys on the board of the Press Freedom Defense Fund started by First Look Media, worked to secure funds to help offset litigation cost and make sure I had one of the best first amendment lawyers representing me. First Look Media owns The Intercept. Getting that call from attorney Mark Bailen of Baker Hostetler and his associate Peter Shaperio, to represent me was a great sense of relief. But I knew we still had a battle. Then the case got the attention of Yale Law professor, David Schultz, who has decades of experience in litigating for the rights of journalist to bring in almost every New York major publication ( NY Times, NY Daily News, Hearst, AP, Gannett, NY Post etc..) to file what’s called an AMICUS brief. Another giant in media law, attorney Robert Balin, of Davis Wright Tremaine, also came on the AMICUS brief team and they made a fling to join my case in support our argument that as a freelance journalist I should be granted reporters privilege and not forced to reveal a source. They wrote a strong argument for the public’s right to an open judicial system demanding the whole case must be unsealed. Attorneys Robert Balin, David Bralow and David Schultz even showed up at my hearing giving me a bench of five top media lawyers to face the judge. I had a powerhouse behind me who clearly cared about the first amendment.

Bernstein and Abbe’s plan use the courts to intimidate and tie me up financially didn’t work. Instead I got a war room of litigation help and won!

Abbe, who is also the co-founder of Iroquois Capital, has been working with Bernstein for over a decade as an alleged group of undisclosed affiliates in multiple stocks with the intent to control company boards, management, and assets for the benefit of their hedge funds. In an interview with a trade publication a few years ago Bernstein boasted his funds average return was 9 Percent. Once in control, the hedge funds allegedly manipulate the stock price while gutting company cash and then discard the carcass of the company turning it into a useless shell corporation with a stock price in the pennies. The XpresSpa litigation details similar fraudulent takeover schemes in a company called Neurotrope and TapImmune.

For years, Abbe’s fund has also partnered with Barry Honig who is currently accused by regulators of running pump and dump schemes in over 70 public companies. I have previously reported Abbe’s Iroquois Capital was also named in the SEC subpoena sent to MGT Capital asking for communications from the group of Honig related affiliates. In the new amended complaint field March 8th by the SEC the regulator mentions there are other unnamed parties that helped manipulate the stock of MGT Capital during the time Iroquois co-founder Josh Silverman was on the board. It’s unclear why the SEC didn’t name Iroquois as a new defendant for their likely role in the MGT Capital pump and dump.

After I won the Bernstein lawsuit and his name became public I received a new tip from a person familiar with the situation that Bernstein and Rockmore had been through their own SEC investigation surrounding accusation that they shorted the same stocks they were doing PIPE investment with. The New York bucket shop lawyer Bernstein had hired to sue me, Peter Cane, started threatening me on Thursday after I asked if the past SEC investigation was true. Eventually attorney Cane admitted on behalf of Bernstein that the SEC had investigated but no charges were brought and the investigation ended in the summer of 2008. Cane called the investigation routine.

In my decade of reporting on securities fraud I have never seen a ‘routine’ SEC investigation. This kind of bully tactic by Cane was not a surprise. Once we got to court on March 5th, my attorneys saw what I had said from day one. This is case is about trying to discredit and intimidate me and less about trying to find out who leaked divorce documents. You can see in the court transcript below that attorney Cane began by trying to argue I was not working as a journalist when I first reported on Abbe and Bernstein but instead was being paid by Short Sellers to discredit the company. This is absolute not true and is never true in any of the reporting I have ever done here or any of the major media companies I have reported for. In the case of XpresSpa that short seller argument doesn’t even make sense. As of Friday I checked on how many shares could actually be borrowed to start a short trade on XpresSpa. The answer was only 20,000 shares. The interest to borrow those shares was as low as 9 percent. Joe Spiegel of Dalek Capital who runs a short selling fund told me, “there isn’t much demand to short XpresSpa. Sometimes borrow fees can get to 100%-200% or higher, like for Tilray. 9% shows no cares about shorting XpresSpa.”

Judge Franc Perry who presided over my case put Attorney Cane in his place pretty fast when he started the argument that I am not a journalist. Judge Perry said ‘Ms Buhl is conducting news gathering”. Judge Perry also said Cane had shown no evidence to support any other conclusion. Page 19 of the court transcript says in the eyes of New York Supreme court “the Court has not seen any evidence to show that your client is not a journalist, and for the purpose of the Court, in reading this, the Court understands that your client is a journalist, is a newsperson, under the law.” This was a strong on the record statement to the testament of my reporting work because these days you never know how judges are going to view freelance journalist who report online, especially ones running their own publications.

Judge Perry also grilled down on if the Sloan letter was even a confidential document. In the federal court case, Judge Stanton has said it will be sealed because it was part of a divorce proceeding, unless anyone can prove other wise. A notion CKR Law lawyers Rosanne Felicello and Michael Maloney have sought challenge in court documents for their clients the co-founders of XpresSpa. Given Bernstein also sued his ex-wife and the law firm she hired to see if he was hiding martial asset; they hired lawyers who showed up at my hearing. Both told the judge this letter was written after the divorce was finalized and as a result neither of them considered the letter confidential nor did they agree in writing to make it confidential. So once again Bernstein’s attorney Peter Cane had now brought forward a reason for a state court court to rule the docs a federal court judge thought should be seal shouldn’t!

If attorney Cane had never brought this action against me the documents Bernstein and Richard Abbe have worked so hard to keep hidden likely wouldn’t be front and center of a news story and available to the public for free.

XpresSpa isn’t a stock with a lot of trading volume these days. It trades on the low end tier of the NASDAQ under $XSPA. But if this group wants to start another pump and dump on the stock they have the control to do it. More importantly it’s Bernstein and Abbe’s history of hiding ownership of debt notes or even stock ownership that makes their actions newsworthy. There are so few journalist covering small cap stocks these days which is why I pick stories like these to report on with the intent to inform the investing public because history shows the SEC isn’t going to move fast to protect investors in real time.

EDITORS NOTE: I want to first thank my attorneys Mark Bailen and Peter Shaperio. They wrote incredible legal arguments and provided a zealous defense. I also want to thank New York Daily News journalist Stephen Rex Brown for reporting on my case twice and showing up for the two hour hearing. The Reporters Committee for Press Freedom and the Press Freedom Defense Fund really stepped up to help a freelance journalist and as a result we now have case law in New York that recognizes reporters privilege for freelancers and rules on how important it is to have a court system with open records. Additionally, readers who donated additional funds needed to cover reporting cost were critically to getting this story out.

Editor’s Note: This story has been updated.

Unsealed Court Document in XpresSpa fraud lawsuit:

Unsealed Bruce Bernstein Di… by on Scribd

New York Supreme Court case #655887/2018 Transcript Bernstein vs. Journalist Teri Buhl:

Bruce Bernstein vs. Journal… by on Scribd

Team Honig’s Mark Groussman settles with SEC

Mark E. Groussman, long time investment partner of microcap fraudster Barry Honig has given up his fight with the Securities and Exchange Commission who accused Groussman of being part of an long running pump and dump scheme. On Feb 1st the SEC notified federal district court Judge Ramos that Groussman has agreed to a five year-ban on investing in penny stocks. Once the settlement is approved by the judge, he has 2 weeks to fork over $1,381,914 million for disgorgement of his illegal stock sales and fines. Groussman’s investment company, Melechdavid Inc, has also agreed to a five year penny stock ban and not to do all the illegal stock manipulation its done in the past.

Unfortunately Groussman doesn’t have to admit guilt and his civil penalty was only $160,000. The settlement comes just days before SEC is going to file an amended complaint that could name new individuals and public companies involved in the scheme. That complaint is due February 8. Groussman settlement could also signal he has flipped as a witness for the SEC whose main target in this litigation is Barry Honig. Groussman lives in Miami Beach with his wife Erica Groussman who is a real estate agent with Sotheby’s International. Mark Groussman is also on the board of a non-profit founded by Arnold Schwarzengger called After School All Stars.

On September 7, 2018 the SEC brought their initial enforcement action against this group of bad actors in the Southern District of New York accusing the group of making $27 million, between three stocks, off illegal trading gains. According to the SEC’s complaint, 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. Ten individuals and their related investment companies where named in the complaint. Team 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, Team Honig 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 stocks in the SEC complaint are: MGT Capital, MabVex, and BioZone.

I was the first journalist to report in the fall of 2016 that team Honig was under SEC investigation for their role in trading as a group of undisclosed affiliates and stock manipulation. Honig sued me for defamation for reporting this news and I was able to get him to drop his case with prejudiced. We know now while Honig was suing me the SEC was actively investigating companies he invested in. Honig faces millions of fines and a possible life time ban from investing in penny stock if the SEC is successful in their enforcement case. I have also previously reported the Dept of Justice is investigating Honig. Any of the individuals settling with the SEC could be a witness in the DOJ case if they bring criminal charges.

A foreign investment company called Alpha Capital Anstalt, which is located in Lichtenstein, also settled with the the SEC. A man named Konrad Ackerman signed the settlement on January 17, 2019 and is listed as the fund managing director but it is unknown who is actually invested in the company. Ackerman was not named personally in the SEC lawsuit. Alpha Capital agreed to pay $908,258.51 for disgorgement of illegal gains but did not have to admit quilt. Only $50,000 of the total fine is for a civil penalty. There is also NO penny stock ban lobed against the fund but they did agree to not due all the illegal stuff they are accused of again. Alpha’s name is seen investing alongside Honig in a lot of stocks over the years. Their SEC settlement shows they got off light.

At the end of 2018, Miami Billionaire Philip Frost, who was also a defended in this case announced he had settled with the SEC. On January 10 Judge Ramos approved the settlement. Frost’s fine was only around $5.5 million. One former owner of a broker dealer who know Frost told me, “that’s less than Frost spills in the bar in a year”. Additionally, the SEC failed to ban Frost from being an officer and director of a public company. Frost runs OPKO Health and while the SEC put some new restrictions on how he can invest in penny stocks he can still buy and sell companies for OPKP Health. Given how light this SEC settlement is, there is speculation among people involved in the case that Frost singed it in return for evidence against Honig and a deferred non prosecution agreement by the DOJ. OPKO Health is still facing multiple class action civil lawsuits for investor fraud by company shareholders.

UPDATE: The SEC delayed filing their amended complaint to March 8th because another one of Honig’s top guys, John Stetson, wrote the judge asking for more time to discuss the case with the SEC. This means settlement talks for Stetson.

Mark E. Groussman SEC Judge… by on Scribd

Honig Deals lead to FINRA Investigation of Laidlaw & Co.

Federal regulators are ramping up their investigation into small-cap broker dealer Laidlaw & Company for their role in executing stock manipulation schemes that left main street retail investors with millions in losses.

The Financial Industry Regulatory Authority (FINRA), who is leading the investigation, is currently examining the role of top Laidlaw executives in stock manipulation, lack of transparency and parking stock. Some of the stock offerings under investigation were securities sold by Laidlaw brokers at the behest of known microcap investor Barry Honig.

In September, the Securities and Exchange Commission (SEC) brought an enforcement action against Honig and his associates (Team Honig) for orchestrating pump and dump schemes as a group of undisclosed affiliates.

Barry Honig, a former lightweight New York boxer, is known for his dedication to ‘responsible investing’; however, a deal with him has been conversely referred to as “a deal with the devil” according to sources from Microcap and other industry players. For years, public filings have shown Honig as a passive investor. However his investments have been seen to ride up in share price, stir up investor interest, then skyrocket down after the ‘window dressing’ comes off.

His crew of alleged bad actors – Team Honig – has been chronicled for years here at TERIBUHL.com and by Chris Carey at Sharesleuth and Bill Albert at Barron’s. It consists of biotech billionaire and philanthropist Philip Frost, his fellow co-investing partners Michael Brauser/John O’Rourke/Marc Groussman, John Ford – the promoter who wrote favorable analysis on stocks, priming them for the ‘pump’ of Honig’s ‘pump and dump’ – and Harvey Kesner, a deal lawyer from SIRF LLP linked to a number of Honig ‘s investments.

News of how Laidlaw’s CEO Matt Eitner and Managing Director of Investment Banking Jimmy Ahern worked with Honig to manipulate stock prices first came to light in an investigative story by TERIBUHL.com last month.

According to former Laidlaw brokers, Eitner and Ahern are accused of running ‘the dump’ element of Team Honig’s scheme, using the firm’s retail clients to offload toxic securities. In return, they are believed to have received deeply discounted stock warrants, personal consulting fees and possibly brown bag cash kickbacks.

Many former Laidlaw staff members have been subpoenaed and summonsed for on-the-record testimony against Eitner, Ahern, and Honig, including registered brokers Rob N. Rotunno, Craig A. Bonn, John Marinaccio and Jodi Fauci.

All three brokers – Rotunno, Bonn and Fauci – worked for Laidlaw for a decade.

Jodi Fauci could be a key witness for the regulators’ investigation because, for a time, she held the role of back office manager for Laidlaw and could have seen, how Eitner and Ahern would prevent brokers from selling their clients’ shares when stocks were on high. On occasion she had to fill in for John Marinaccio the Anti-Money Laundering Director whose role was to over see trades with the clearing firm. Marinaccio is likely one of FINRA’s best witness because of his day to day view of how orders got filled. Marinaccio and Fauci confirmed they did an on-record interview with FINRA when subpoenaed. Fauci now works for a firm on Stanton Island.

Rotunno and Bonn could be key witnesses as well. Currently named in FINRA arbitration claims filed against Laidlaw by former clients, according to former colleagues, these brokers were encouraged to start what became known as ‘cross trades’ with these former clients.

As previously reported, to help Honig keep stock prices up – so his team could dump shares at a stock’s high – Laidlaw’s Eitner and Ahern bullied brokers into pushing toxic shares onto naive retail clients before restricting the share sales when Team Honig got out of the stock.

According to two sources, Eitner and Ahern would promise brokers cheap warrants – or even side deal cash – for putting Laidlaw clients into those deals. As Rotunno and Bonn were not part of Eitner and Ahern’s inner circle – the ‘Pump Pump Loose Loose’ group – when their clients demanded out of the stock at its high, Eitner and Ahern advised they open new client accounts and sell the shares their previous clients wanted out of to those new clients, even though the stock was on a downward tear.

This ‘cross trades’ process was similar to a Ponzi scheme; stock was bought and sold around the firm’s client list to make small profits for a few, so it seemed there was much liquidity in it. Whoever was stuck in the stock when Team Honig dumped, lost out.
When questioned as to the legality of this practice, Eitner and Ahern were said to have referred interested parties to Sichenzia Ross Ference LLP – a law firm with close associations to the business deals of Barry Honig.

With Honig now in the hotspot, it appears Eitner and Ahern are making moves on their own to exit stocks that were part of a planned manipulation scheme. A few years ago the Laidlaw duo tried to make a move out of Honig’s playbook in a company called Relmada but it wasn’t a clean exit like Honig’s been able to pull off for years as the lead player in the scheme. Shares in a company called Spherix ($SPEX), have been sold by Laidlaw in October with visible market moves that read like a pump and dump. And this week Laidlaw gathered it’s brokers in staff meeting to ready a push for a new biotech IPO designed as a profitable exit for Eitner and Ahern and one of Honig’s prior associates Rob Knie.

Honig’s Lackeys try being Lead Architect of Stock Schemes
The SEC detailed in court documents how Team Honig gains leadership influence over company boards and cheap stock before the pump and dump is executed. Per the SEC: Honig and his colleagues would acquire large equity positions in exchange for financing a development-stage company’s debt and when the company couldn’t repay the steep interest rates it had to allow Honig stock conversions that gave him a larger ownership percentage without spending more money. At that point Team Honig would force appointment of their own board directors and axe true independent directors. Then Laidlaw as the broker dealer would come in to do a secondary Regulation D offering to accredited investors or structure a Private Investment in a Public Company (PIPE) deal to get shares sold to outside investors and create liquidity in the market so Honig could execute a dump at the stocks high.

Take the case of a clinical stage drug trial company called Relmada Therapeutics ($RLMD). A deal Laidlaw brought Honig into that started with his investment in a company called Camp Nine, which later became Relmada through a reverse merger in May 2014. The deal gave Honig 7.75 percent ownership of Relmada. Laidlaw convinced the company to do an IPO but with a private non-deal roadshow where Laidlaw would introduce certain investors to Relmada and recommend who Relmada would allow to invest. Those private Laidlaw clients happen to be Team Honig and his associates. Eitner and Ahern were well compensated for their investment banking work by Relmada through the IPO to the tune of $4.2 million in fees and stock rose to a high of $20 soon after it went public. Laidlaw raised $48 million of new equity for Relmada. On top of the investment banking fees the Pump Pump Loose Loose and We Are Pretty Good At This, personal LLCs controlled by Eitner and Ahern were paid thousands in fees monthly. I previously reported how money from these LLCs is used to benefit the Laidlaw brokers who agreed to sell their clients the risky investments without asking to many questions on why Laidlaw was supporting the worthless stocks.

The Relmada deal was very profitable for early investors and the Laidlaw team but didn’t end well. Relmada later sued Eitner and Ahern for Laidlaw leaking private company info to investors they brought in and for their role in trying to try and take over Relmada after the investment banking fees dried up. The litigation was very public and embarrassing, exposing Jimmy Ahern as lying about earning a college degree and stopped the Laidlaw take-over campaign but the company lost over 40% of its value a year after its IPO. Relmada, who sued for racketeering and tortuous interference, even accused Eitner and Ahern of front running the Laidlaw clients they brought into invest from 2012-2014. It’s this practice of front-running that FINRA is currently investigating and a core element to how Laidlaw is believed to have helped Honig earn millions on his alleged pump and dump deals.

The Relmada deal was the first time Eitner and Ahern were trying to be leaders of a pump scheme but they were publicly exposed and didn’t complete their plan. Of course Team Honig still made millions on the post-IPO pump of Relmada without any backlash. According to a former Laidlaw broker who sold the Relmada offerings, once Eitner and Ahern got their teeth in the company they pushed Relmada’s management to hire a former bio-tech analyst named Robb Knie to ‘promote’ the stock. Knie had been acting as a consultant to many small cap public companies after the hedge fund he worked for left him without a secure job after the financial crash. Eitner and Ahern bullied Relmada’s CEO to pay Knie a cash and stock payout of $2 million and said this was the fastest way to get an IPO done and build a relationship with Honig as an investor. By 2016 Relmada had tanked down to around $1 and still trades in that range as of today.

Eitner and Ahern first met Knie in 2011 on a deal with Aspen University ($ASPU). The CEO of Aspen was the same Honig-backed CEO of Interclick, which was one Honig’s most famous and profitable deals. Robb Knie was been named in the Wizard World lawsuit which called out misconduct in the deal. He was latter dropped from that suit.

After the Relmada IPO, Eitner and Ahern rewarded themselves with million dollar water-front beach homes both purchased in the second week of October 2014. The duo was enjoying their new found wealth and had no problem showing it with firm bought new Mercedes and full time private drivers. Their vacation homes were bought in locations the mid-30 year olds had only dreamed of living in growing up with middle class incomes. Matt and his wife Katie Eitner spent $2.3 million for 1817 N, Ocean Ave, Surf City NJ, which is on Long Beach Island. Jimmy and Jillian Ahern spent $3.175 million on 58 Snow Inn Road, Harwich, MA, which is in Cape Cod. The Aherns paid cash for the Cape Cod house.

Matt Eitner has also donated his earnings from questionable Laidlaw deals to a Ramsey, New Jersey prep school called Don Bosco. The donations secured him a seat on the board and garnered naming rights for one of their athletic fields. People who worked with Eitner say his leadership role at Don Bosco is a great sense of pride for the New Jersey native who lives near by in a $1.7 million home in Mahwah, NJ. According to a recent text sent to Don Bosco alumni, some of whom worked for Laidlaw, the Securities and Exchange Commission has been poking around asking school officials about Eitner’s donated funds with the concern they were given with money earned illegally. If Eitner is charged by regulators and ordered to pay restitution the government can try to come after those donations like they did in the Bernie Madoff case. Don Bosco president Robert Fazio has been asked to comment about the SEC possibly reaching out to the school but did not return an email for comment at press time.

After Eitner and Ahern went on their spending spree Laidlaw & Co began showing visible drops in revenue. As of December 2014 gross revenue for Laidlaw was $45,726,373. Going into 2015 its asset under management was declining and FINRA was getting more customer complaints. As of 2015 revenue was down $10 million ending the year at $34,308,397 and the slump continued in 2016 ending the year at $24,171,714, according to internal Laidlaw financials seen by this reporter. By 2016 the 175-broker firm had a mass exodus of top performing brokers who were leaving the firm with a bitter taste in their mouth from Ahern and Eitner’s high pressure and verbally abusive sales practice that resulted in loosing clients’ money on the Honig Deals. As of press time Laidlaw is believed to be only a 98-broker firm.

Ahern and Eitner. Home Away from Home at The Havana Club.

Is Laidlaw now running their own P&Ds?
Spherix is a company that was an early investment for Barry Honig that billed itself as a patent troll company. Laidlaw executed about half a dozen follow on offerings in Spherix which included selling a PIPE offering to retail investors who might not be accredited investors. The stock would spike on merger or press announcements but then tumble when the announcements panned out to add no value to the company. According to ex-Laidlaw brokers their internal order system would be restricted so that brokers couldn’t choose to sell the stock on its way down. They had to go the AML director who had to get permission from Eitner to sell and by the time that process went through the value had often been lost. Meanwhile Eitner and Ahern would be front-running Laidlaw clients selling a block of shares they own. As example one text seen by this reporter showed brokers on the PPLL team would get a message saying management had sold 40,000 shares and 5,000 would go to the broker who could then choose which of their clients got in a sell order. It was designed to give clients a small taste of a profit and reward brokers who played along with Eitner and Ahern. When Laidlaw couldn’t sell clients to keep investing in Spherix the company would just change its biz model and move into a new line of business. The company as gone from patent investing, to an internet messaging company, to most recently a biotech company and is led by a man named Anthony Hayes. Spherix also had Robb Knie, age 49, as head of investor relations. At age 22 Knie was arrested for petty larceny and filing a false statement with the Board of Elections as the president of the Young Democrats of Rockland County. He plead to the false statement charge and repaid the stolen funds.

This March Laidlaw sold a Spherix offering for 2,222,222 shares with an avg cost of $1.35 to its clients. The pitch was Spherix was going to acquire 100% of a company attempting to compete with Snapchat called Datchat and they needed to raise $3 million. Unbeknownst to the Laidlaw’s brokers Matt Eitner’s wife Katie had made a founder investment in Datchat acquiring shares at $.25. Katie Eitner doesn’t have a history of start-up investing. Additionally, Jimmy Ahern made the same investment in 2015. The shares were allowed to age so that by the time a merger came along they would be free trading. But during FINRA arbitration this year, it was revealed that Ahern and Eitner hadn’t told brokers about their possible economic gain if the two companies merged. If Datchat’s founding stock turned into free trading public stock Eitner and Ahern could have their own private windfall because they’d control when Spherix investors could get out of the stock.

Then magically in August there was a press announcement calling off the Datchat merger. Instead it was announced only a million dollar investment would be made by Spherix into Datchat in exchange for equity in Datchat. Since Datchat raised money through an offering called Regulation A they are allowed limited audited reporting of financials statements. Public filings still don’t show how the $1 million was really used at Datchat and it could have been spent paying back Eitner and Ahern’s founding investment.
Calling off the merger appears to be a blatant slap in regulators face showing Eitner and Ahern know they are being investigated but are not worried about being caught.

On October 11, Spherix announced a new merger this time with a biopharma platform company called CMB Biopharma that claims to be ‘researching’ a drug to help leukemia. The stock flew from $1.01 to $1.55 in pre-trading with 5.2 million shares traded that day. The average trading volume for Spherix is around 60,000. But the Street appears to have caught on to how $SPEX trades and a short interest drove the stock down below the price of the March offering closing at $1.05 that day. Additionally, two current Laidlaw brokers said they were not able to sell on the morning of the stock run.

Spherix has also made a $675,000 equity investment in a drug development company called Hoth Therapeutics. According to internal emails and public filings Hoth was started by Matt Eitner, Jimmy Ahern, and Robb Knie each owning one-third of the company for an initial investment of $105,000 in May 2017. Robb Knie was made CEO of the company and a young female office manager, with no experience in medical research from Spherix, was made V.P. The investment was planned so that when Spherix made their investment in Hoth the trio would get paid back as a loan with interest for $150,000 but still keep their founding equity. Then Laidlaw did a Reg D offering in October 2017 for up to $5 million for .25 a share of preferred stock with a 7% interest. SEC filings say only $1 million was raised. The preferred stock is structured to convert to common upon a public offering. Eitner bought into that deal along with a few Laidlaw retail clients. It’s unclear if the clients in the private offering were told Eitner and Ahern had personal investment in Hoth when it was pitched on the phone but it is disclosed in the offering memorandum.

Robb Knie plans Hoth deal

Now Hoth is being rushed to IPO. This week Eitner and Ahern held company wide meeting pumping up its brokers to sell Hoth at a whopping price of $5.50 to $6.50. The S-1 filing says the ticker will be $HOTH with hopes to list on NASDAQ. The rush to IPO could be because Eitner and Ahern know FINRA is investigating and they’d better cash out of their investments before they are kicked out of the industry or the broker dealer is expelled. The lead lawyer on the Hoth offering is Richard Friedman from Sheppard Mullin and he is one of the founding members of Sichenzia Ross Friedman Ference LLP – the law firm involved in all of Honig’s deals.

A legal review of the offering docs for this publication showed: “There was a possibly relevant patent issued in December 2017 that relates to Hoth’s business, but other than that, it’s hard to discern any meaningful operations. The M&A transaction that Hoth entered into with Spherix in 2017 essentially gave Spherix control of Hoth, but did not appear to provide significant core technologies that are in line with Hoth’s stated business purpose. The Hoth S-1 states that Laidlaw is a “selling group” in the offering, but does not describe this any further. This is a material omission.”

Additionally the “Conflict of Interest” paragraph in the S-1 appears to have a significant error. The disclosure on page 90 of the S-1 reads “Persons associated with Laidlaw, which is expected to be a selling group member in this offering, collectively beneficially own 16.60% of our outstanding common stock”. The problem with this is that the beneficial ownership table lists Ahern’s and Eitner’s ownership percentages prior of the offering as 29.21% in the aggregate, not 16.60%. This could mean Hoth will need to file an amended S-1 offering.

“Assuming the SEC reviews this S-1, it would be interesting to see if the SEC deems disclosures among the various related parties (i.e. Hoth, Spherix, Chelexa and their respective principals) as being adequate to protect the investing public,” attorney Wesley J. Paul of the New York based Paul Law Group told this publication.

According to two current brokers at Laidlaw it was not mentioned that Eitner and Ahern have significant equity ownership of Hoth in their sales meeting this week. The brokers have to read the S-1 to learn that.

Honig and Laidlaw lawsuit
After my first story exposing Laidlaw’s role with Honig, a former longtime client has sued the Laidlaw for two million dollars with claims of common law fraud, negligence, breach of fiduciary duty for putting clients in unsuitable investments and possible parking of stock. The suit filed on Oct 4th is unique because it’s the first one tying Honig and Laidlaw together in investing schemes. It list 17 stocks believed to be part of the scheme including Spherix, Relmada, and Aspen Group. That client is Dr. Bruno Casatelli who was the father-in-law of one of Laidlaw’s top brokers. The broker is no longer with the firm. Attorney Dax White of Vero Beach The White Law Group even put out a press release looking for more Laidlaw clients to join the suit. Attorney White wouldn’t comment on the case which will be arbitrated by FINRA. Matt Eitner did not respond for comment when asked why Laidlaw has not disclosed this lawsuit.

U.K. regulator, the Financial Conduct Authority, has also opened a whistleblower claim into Laidlaw. Laidlaw is registered with the FCA, which enables them to sell to investors in that domicile. The FCA has the ability to impose unlimited fines on a broker dealer and ban them form selling to U.K. residents—they work like the Securities and Exchange Commission and don’t bring criminal charges. The case is currently being investigated by Liam Docherty of Enforcement and Market abuse.

Honig and Laidlaw did not respond for comment to this story.

Editors Note: This reporting is reader funded. As a professional journalist I do not hold positions in any stocks or trade equities. Donations are key to help keep independent journalism that makes an impact keep going. Please donate via Paypal or Venmo to my account at teribuhl@gmail.com. Thanks in advance for your support!

Laidlaw Execs helped Barry Honig Execute Stock Manipulation Scheme

Last week’s Securities and Exchange Commission suit against high-profile small-cap equity investors Barry Honig and Phillip Frost appears to be the first moves in a much broader crackdown against a network of brokers, promoters and even attorneys that worked with them on numerous transactions, according to internal documents and private communications I’ve obtained. Creatively named llcs, like Pump Pump Loose Loose Partners, were created to hide what appears to be kickbacks paid for pushing unsuspecting retail clients into Team Honig’s deals when it was time to dump the stock.

As the SEC went to lengths to note in their claim, a large chunk of Honig’s alleged profits came from heavily trading shares prior to the release of “favorable and materially misleading articles” that suggested there was growing investor interest in these stocks.

While the pre-release trading was mostly Honig, Frost and their associates, once the articles were released, a broker-dealer with a decent-sized investor network was integral to sustaining these alleged promotions. Based on a series of interviews, as well as documents I have either obtained or seen — including emails, texts and internal memorandums — London-based Laidlaw & Company is Honig’s preferred broker.

Within Laidlaw, two penny stock veterans, Matt Eitner and James Ahern (both of whom are in their 30’s and who had worked together at Aegis Capital) are Honig’s lieutenants in executing “the dump” portion of the purported stock manipulation scheme. Eitner and Ahern’s path to running Laidlaw is typical of many boiler rooms — they were put in charge after FINRA expelled the firm’s original owners, Martin and Steven Sands of Sands Brothers Asset Management. (According to a former Laidlaw executive who knows both Ahern and Eitner, Ahern runs the firm’s daily operations but he can’t hold the chief executive title because he failed his series 24 — FINRA’s supervisory test — twice. Thus Eitner, who did pass his series 24, is listed as the CEO.)

Unsurprisingly, Ahern’s record has a few potholes. Starting out at as a retail broker at Casimier Capital (where he worked under Richard Sands, another member of the Sands family) and Aegis Capital before he joined Laidlaw in 2010. The four customer complaints against Ahern, the first from 2005, all claim either their accounts where ‘churned’ or that the trading volume exceeded agreed upon limits. Ahern strongly denied any wrongdoing in each of the four customer complaints, an example of which can be found here.

By way of contrast, Eitner’s record, which mirrors Ahern’s with stops at Casimier Capital, Aegis Capital before arriving at Laidlaw in 2010, is cleaner, with only two complaints.

According to several brokers who worked directly with Eitner and Ahern, their strategy for accommodating clients like Honig was more 1994 than it was 2018. For example, if Laidlaw couldn’t sell the agreed upon amount in a secondary offering, they had a simple solution: they would “stuff” shares into the accounts of retail investors.

In another instance, according to documents I reviewed with former Laidlaw insiders, unsold shares were left in the firm’s principle account. When Sterne Agee, Laidlaw’s clearing firm called and sought answers about the stock, they were told there was a clerical error and Laidlaw was given the day to get the shares sold through the syndicate deal out of the firm’s principle account and into customer accounts. The problem was clients hadn’t really bought all those shares yet so they had to come up with a place to put the shares or Sterne Agee could sound off the alarm bells to FINRA about net capital violations.

Additionally, to give the appearance of a fully subscribed offering, Eitner and Ahern directed Laidlaw’s brokers to park stocks and violate the T-2 settlement rules, according to two people directly reporting to them, one of whom has provided FINRA sworn testimony about these actions. According to this individual, the offerings discussed in the session with investigators were
MabVax Therapeutics, Spherix, Relmada, Meddvex, Pershing Gold, PolerityTE Inc, Protea and most recently CoolTech. CoolTech ticker was recently changed to $AWSM from $IFON. $AWSM is the believed to be the current pump and dump in play by this team.

Laidlaw dealtoys in Honig’s office

All of the transactions above were led by Laidlaw and all featured Barry Honig and colleagues as an early-stage investor.

Per the SEC, here’s how it worked: Honig and his colleagues would acquire large equity positions in exchange for financing a development-stage company’s debt, at which point LaidLaw would come in to do a secondary Regulation D offering to accredited investors or structure a Private Investment in a Public Company (PIPE) deal.

Where it gets interesting is how Ahern and Eitner structured the sales process.

Taking a page from Jordan Belfort’s “The Wolf of Wall Street,” interviews, emails and texts I’ve reviewed show Eitner and Ahern aggressively driving Laidlaw’s 100 plus broker sales force to sell these deals through the use of coercion or even dismissal.

We’re Pretty Good At This group instructions

Laidlaw brokers I spoke to said they often questioned their bosses about why they had to pitch their clients investments with worthless balance sheets and few real assets. They also told me that Laidlaw clients would always lose money long term on these deals. Brokers at the firm were allowed to buy stock in these deals with no limits but when a client called to sell there was often a restriction placed on their order system. They had to call executives to get approval for a sale order which could take days. Instead of telling clients about this internal hold, a move that appears to be design to prop up the stock, these brokers would talk their clients into holding on a few more days or not inform them at all. Another way to solve the issue would be to do a cross-book order. These means shares would be transferred from one clients account to another Laidlaw client without putting the order into the system for market makers to see trading volume.

“WPGAT Deals” in Eitner’s text is describing an LLC set up and co owned by Eitner and Ahern that stands for : We are pretty good at this.

When Ahern talks about it he calls it “We Are Pretty Fucking Good At This”. WPGAT is listed as a managing director of PPLL Partners LLC, which stands for Pump Pump Loose Loose. These two entities are seen on multiple issuer offerings as getting ‘consulting fees’ from $10k a month to $30k. (Link to Protea SEC filing here) It is not uncommon to see consulting fees in small cap offerings. But securities laws say Eitner and Ahern have to direct their brokers to inform the retail clients that senior leadership at the firm is also earning money on the side. And that the money raised in the secondary offers from these retail clients to going back to pay the Eitner-Ahern llcs.

“A broker dealer’s failure to disclose a conflict of interest is a material violation of the securities laws. The BD has an obligation to investors to disclose side payments received from the issuer for on boarding investors. I would strongly recommend the BD get counsel to advise them on these violations. Today’s strict SEC enforcement environment will lead to adverse actions against a BD hiding the ball from investors,” SEC defense attorney Richard Gora of Connecticut-based Gora Law LLP told this reporter.

Ahern and Eitner would reward brokers who sold well on their Honig backed deals by getting paid out of WPGAT LLC money. They were known in the firm as the WPGAT group. WPGAT is believed to be funded through consulting fees or possible cash kickbacks. According to internal documents seen by this reporter and interviews with Laidlaw staff here are some of the brokers in that group: Richard Michlski, Kevin Wilson, Brian Robertson, Michael Murray, Luke Kottke, Daniel Kuhar, Henry McCormack, Christopher Oppito.

To give these brokers a sense that everything at Laidlaw was being done on the up and up SRFK LLP attorney and named partner Mike Ference would conduct the broker’s annual compliance meeting where he presented a slideshow and answered broker questions about compliance rules at the end. Brokers where also directed to speak with SRFK attorneys Ross Carmel and John Hitchings. Honig’s deal attorney Harvey Kesner, who I recently reported was removed from this law firm’s name, also answered questions about deal legitimacy and communicated directly about sales volume on deals with Honig, Ahern and Eitner according to emails seen by this reporter. Ross D. Carmel has since left SRFK and is a named partner at a new New York based law firm. Attorney Ference did not respond for comment.

On Tuesday MabVax, who is Victim company C in the SEC complaint against Honig, sued the law firm Honig recommends issuers use for outside counsel when he invest in their company. That firm is SRFK LLP. MabVax is blaming Kesner and other attorneys at the firm on bad legal advice for how they disclosed and structured capital raising deals for the company.

A study commissioned by Reuters with the assistance of Columbia University Law School identified nearly fifty FINRA registered broker dealers where a large percentage of its brokers had “red flags” on their public disclosures. Attorney David Liebrader who writes the Securities Fraud Lawyer Blog said, “These red flags include customer disputes, arbitration claims, regulatory actions taken by FINRA, the SEC or state regulators, civil actions, bankruptcies and terminations after allegations of wrongdoing. The study sought to identify firms who welcomed or tolerated brokers with these types of disclosures.” Laidlaw & Company was high up on the ‘bad brokers’ study.

Laidlaw’s outside counsel Richard Friedman. a former SRFK named partner who is now at Sheppard Mullin, was called to respond to this story. As of press time there was no response. Barry Honig did not respond to an email for comment about his relationship with Laidlaw. Matt Eitner did not respond to an email or return phone calls to his secretary asking for a response to the evidence I gathered for this story.

Stay tuned for part two of this saga as I dive into details on how the money moved in specific Honig backed stocks at Laidlaw. If you are a broker or client at Laidlaw you can contact me at teribuhl@gmail.com to have a confidential conversation about your experience.

Marlins future owner Bruce Sherman settles Bear Stearns stock fraud lawsuit

The last remaining Bear Stearns lawsuit being litigated via our federal courts for alleged securities fraud has settled out of court. On September 6th, just a few weeks before the trial was set to begin, billionaire Bruce Sherman signed a settlement that nixed the chance for the American public to see these alleged Wall St bad actors be forced to testify about what they really knew about the problems that caused Bear Stearns failure.

Last year a federal judge in the Southern District of New York, Judge Sweet, ruled Sherman’s case could go to trial after he said there was enough evidence presented in discovery that shows the senior executives running Bear Stearns could have committed shareholder fraud because they knew the bank was failing for a while but encouraged investors like Sherman to buy more stock. The ruling, denying JP Morgan (Bear Stearns successor) motion to dismiss, was a pivotal moment in litigation stemming from the financial crisis. No government agency had made it this far through the legal system to put individuals who worked for the big banks on trial for fraud.

Sherman’s attorney, Philip Korologos, told this reporter, “We are happy with what we got from the settlement.” Which is legal speak for I can’t tell you how disappointed I am we that we didn’t get to grill these Bear Stearns executives on the stand. The reality is Sherman didn’t recover his full losses, a jury didn’t get the chance to award 3 times punitive damages, and maybe he got the million+ in legal fees he spent covered in the settlement.

Last year I sued to unseal the parts of the discovery Attorney Korologos, and his team at Boies, Schiller & Flexner, had unearthed which included enlightening internal emails from Bear Stearns most senior leadership and a private risk analysis evaluation of the bank from the Securities and Exchange Commission. I worked with investigative journalist Roddy Boyd to report an exclusive blockbuster story that showed the Bear Executives had lied to congress when they testified about how and why the bank failed and showed for the first time that top leadership at Bear knew a full year before the bank collapsed that they were in real trouble of failing because of a liquidity crisis caused by their decision to package and sell mortgage banked securities. Bear’s lawyers have insisted since January 2009 that the firm’s operational risks were fully disclosed in numerous public filings and that its management did nothing wrong. But Sherman’s claim cited previously unreleased emails between key Bear executives bluntly discussing its troubled balance sheet and fretting about its declining short-term funding options.

Our reporting rewrote the history we thought we knew about the bank’s failure and with out Bruce Sherman spending his own money to litigating the Bear executives for fraud the public would have never know the truth. The stark truth here is it took a private citizen and journalists to uncover the real cause of Bear Stearns failure not government prosecutors, the Obama administration, or the bank’s regulators.

Because the case settled right before trial this unfortunately means the full testimony taken during discovery depositions from Alan Schwartz, the last CEO of Bear Stearns, will never be made public because of confidentiality agreements in the settlement. Testimony I was told is an amazing historical record of what the last days of Bear Stearns was really like along with the stories of people who tried to help save the bank or destroy it. If the case had gone to trial the testimony would have been made public and I am troubled we will never get to hear it. I am sure JP Morgan’s lawyers at Paul Weiss are patting themselves on their backs for this.

In September 2009 Bruce Sherman, the founder and chief executive officer of Naples, Fla.-based Private Capital Management–it once owned 5.9 percent of Bear Stearns’ shares–sued the bank and a pair of its former senior executives, chief executive officer James Cayne and president Warren Spector. Sherman’s lawyers at Boies, Schiller & Flexner LLP allege Spector and Cayne repeatedly lied to him about the firm’s financial health, especially its valuation and risk management practices. (Sherman is a once revered value investor who sold Private Capital Management to Legg Mason in 2001 for $1.38 billion; he is suing over approximately $13 million of losses from buying Bear Stearns stock in his personal, charitable foundation and escrow accounts.) If Sherman had won his case at trial a jury could have award penalties three times his actual damages because the fraud claim survived the motion to dismiss.

Sherman is back in the headlines now because he is buying a Florida major league baseball team with Derek Jeter. The sales of the Marlins to Sherman and team hasn’t been approved yet and I have to wonder if the additional time and energy of going through with the Bear Stearns trial was something he figured he’d need to save for the baseball team. The reported price tag Sherman is going to shell out for the Marlins is $1.2 billion.

I have reported on the financial crimes committed by Bear Stearns executives since 2010 starting with an exclusive story at The Atlantic that ended up forcing JP Morgan paying a $13 billion government fine in 2013 for Bear Stearns sins and its own misconduct. Bruce Sherman’s trial witness list included Bear’s mortgage backed securities sales team consisting of Tom Marrano, Mike Nierenberg, Jeff Verschleiser. I am terribly disappointed these men won’t be forced to go through a grilling cross examination exploring why they stole billions from their own clients and then pretended Bears mortgage desk risk wasn’t as bad as it they knew it was. All of them have gone on to continue making millions at other financial institutions, were never charged criminally for financial crimes, and appear to have no remorse for their actions.

With the Sherman lawsuit settlement and the statue of limitations running out this year for the DOJ to charge Bear executives this is likely my last story on Bear Stearns. It’s been seven years of staying on the subject even when my peers covering Wall Street had moved on to other stories and main stream media publications weren’t interested in reporting on why the bank really failed. I want to thank my readers for the donations you have made that helped pay for some of the research and legal cost of this reporting. I am most thankful though simply for the fact you read the work and commented on the impact I made.

Unsealed Bear Stearns emails shows Executives lied about Bank Failure

For a few months I’ve been fighting behind the scenes to get a private civil fraud lawsuit against Bear Stearns and its senior leaders Jimmy Cayne and Warren Spector unsealed. I won that battle last month in Manhattan federal court and discovered a war chest of internal emails by over a dozen Bear Stearns executives and confidential communications to its regulator, the Securities and Exchange Commission, that showed these men have misled the public for 8 years on the how, when, and why Bear Stearns really failed. I then chose to partner with one of my favorite and highly respected investigative journalist Roddy Boyd to report a story on how the SEC knew as far back as 2005 that something wasn’t right about the way Bear Stearns was disclosing its risk in the fixed income-mortgages department, run by Tom Marano, that eventually took down the bank. Shockingly the unsealed emails showed Bear’s CFO and public face to investors, Sam Molinaro, tell his team “we need liquidity ASAP” on the same day (Aug 3rd 2007) he held a public investor call reassuring Bear Stearns investors capital levels and liquidity was just fine.

The fact pattern I uncovered, which shows the depth of internal awakening by Bear Stearns executives back in the summer of 2007 that their beloved 100-year-old bank was in serious trouble and they planed to keep it quite from The Street and investors, is beyond troubling. But when I realized the SEC could have published a letter Molinaro sent them detailing what their real subprime risk was (and not disclosed in their financial statements) months before the bank failed and admitting they could go under; feels like the SEC aided these executives in their crimes of investor fraud and complete breach of their fiduciary duties.

I urge all my readers to take the time to read our story at the non-profit investigative journalism publication www.sirf-online.org. This publication was founded by Roddy Boyd and depends on the generous donations of readers to cover and report stories that a lot of main street financial publications won’t touch but should. You can find the DONATE NOW button on the top right of the home page. I spent my time and money going through the legal system to unseal this case and make these important documents available to The Street, other reporters, and the investing public to read for free. It took Roddy Boyd and I a lot of digging and skill to write an engaging story that corrects the record and exposes this truth that occurred during one period of the financial crisis. Please join the other readers who have donated to help us cover the cost of this important work.

I would also like to thank the New York-based law firm of Rottenberg Lipman Rich and attorney Tom Chase who represented me in our legal work to get the case of Bruce Sherman v. Bear Stearns unsealed. And to William D. Cohen who gave credit to my work in the New York Times today. He’s got his own amazing account from rare interviews with Bear executives that shows the level of deception these men went through to push blame to anyone but themselves.

JP Morgan Pays Off Ambac for Full Amount of RMBS Fraud Claim

I once told millions of RT’s Keiser Report viewers JP Morgan was going to pay at least $1 billion dollars to mortgage insurer Ambac for Bear Stearns committing system wide mortgage-back securities fraud and then trying to cover it with accounting tricks. Last night that report came true when JPM settled with Ambac for $995 million over a lawsuit, filed in 2008, asking for mega millions in damages resulting from breach of contract and fraud.

Sadly it’s taken one day and five years after I first reported an explosive story at The Atlantic, with on the record former Bear Stearns employees detailing how Bear Stearns stole billions from their own clients, to get JP Morgan to pay Ambac the money Bear Stearns owed them. It reads like a move by the bank to avoid a summary judgment decision from Judge Ramos, who could have ruled Bear Stearns committed fraud by lying to Ambac about the quality of the loans in the RMBS and also lying about how Bear Stearns ran it’s own due dilly operations. The fraud claim would have tripled the damages instead of just a breach of contract claim that usually only awards actually damages.

On July 14, 2015 in front of New York state Judge Ramos, in Manhattan Supreme Court, Ambac’s attorney Erik Haas argued during a partial summary judgment motion on the issue of justifiable reliance. The bank’s big law lawyers at Sullivan Cromwell had moved for Judge Ramos to rule before the case got in front of a jury on JPM/Bear Stearns’s fraudulent misrepresentation. The central argument is: was Ambac fraudulently induced to insure billions of residential mortgage backed securities packaged and sold by Bear Stearns. Team JPM thought Ramos was going to rule in their favor and if you were listening to the beginning of the hearing Judge Ramos sure sounded like he didn’t think the fraud claim should go to a jury. But during oral argument attorney Eric Haas appears to have convinced Judge Ramos to see why Ambac thought they had the evidence to prove Bear Stearns/JP Morgan’s culpability in the fraud and felt so good about their legal argument winning that they asked Judge Ramos to rule right then from the bench.

Attorney Haas detailed some of the fraud they found during discovery to Judge Ramos at the July hearing saying,” And further still, in the transaction that came after that, they said, Oh, don’t worry. Don’t worry. We now have a seller monitoring program in place and it shows that only 3 percent of all of these loans come from terminated sellers. That was a lie. 14 percent, up to 14 percent of them came from terminated sellers and almost 50 percent of the loans in the transaction came from sellers that were downgraded and that had material credit risk. They lied.” The hearing transcript also says Bear Stearns didn’t even set up a ‘seller monitoring program’ till late 2006 and lied to Ambac before late 2006 that they had the program. A program which could have helped figured out if Bear was putting already defaulting 2nd lien loans into the transaction Ambac was insuring.

JP Morgan argued at the hearing that because Ambac didn’t do a loan by loan due diligence of their own, where they might have discovered that Bear Stearns was lying before they insured it, that Ambac shouldn’t be able to bring a fraud claim. Ambac’s response was that wasn’t practical or normal course of business in these transaction because they relied on what Bear Stearns told them about what was in the security and on the due diligence reports Bear paid a third party to do for insurers. Ambac said, Bear Stearns wasn’t a fly by night bucket shop that needed its work to be checked and rechecked but a bulge bank with years of reputation and transactional trust built into the market.

Ramos said in court that he would reserve ruling and not make a decision right from the bench. But after he thought about the hearing, for the first time in seven years, he told JPM and Ambac it’s time to settle. JP Morgan clearly dragged out negotiations and chose to announce the near billion dollar payout after their year-end 2015 earnings were released earlier this month. Unfortunately, as a result of the settlement Judge Ramos never got to officially rule on the summary judgment hearing or if the fraud claim should go to trial.

The bank’s lawyers were also working the court system to drag out this litigation so when they settled enough time had passed the statute of limitations for Bear Stearns stockholder lawsuits so they couldn’t use this case to prove Bear Stearns executives committed fraud.

The original Ambac lawsuit, filed December 2008, asked for $900 million in damages for problems in second lien loans. Then Erik Haas of Paterson Belknap, the pioneering attorney who discovered the deep level of fraud at JPM and Bear Stearns, added on another suit for first lien loan fraud. It’s the 2nd lawsuit that forced JPM to pay additional millions for a total payout to Ambac of $995 million. A number Ambac’s CEO said Tuesday will greatly impact their earnings. Unfortunately, the win for Ambac investors is five years overdue.

Yesterday JP Morgan was telling investors in public filings the $1 billion payout won’t have a significant impact to earnings in the following quarter. That’s because they have a few billion set aside in legal reserves to payout lawsuits like this. But if JPM knew it could afford to payoff Ambac then why waste their investors money on millions in legal fees fighting these fraud charges since they took over the Bear Stearns in 2008. Why after the DOJ forced the bank to pay $13 billion in 2013 for this rmbs fraud did they drag out the Ambac case and force Ambac to spend more big dollars on attorney fees thus delaying dollars the insurer desperately needed to fund its operations. (Ambac had to file for bankruptcy in 2010 which it has now come out of) And why, as Frontline’s doc film The Untouchables pointed out, have the men that allegedly spearheaded the Bear Stearns fraud, Tom Marano, Mike Nierenberg and Jeff Verschleiser never been charged with a crime?

My peers and editors call the five years of my reporting on these crimes successful ‘Impact Reporting’ because I spoke out in print and on TV consistently proving factually how the fraud was committed and not letting the market forget JP Morgan and Bear Stearns crimes. But until at least one of the Bear Stearns executives is criminally charged the investing public doesn’t have their full impact result.

This story has been update with details from the summary judgment hearing now that the court transcripts are public