SEC looking at New Names in Barry Honig Pump and Dump Scheme: $MGTI $MBVXQ

The Securities and Exchange Commission is trying to force one of the remaining defendants in the Barry Honig pump and dump scheme to turn over communication or documents that could show others role in the long running scheme. Yesterday the regulator filed a motion to compel against MGT Capital CEO Robert Ladd who refused SEC enforcement attorney Nancy Brown’s demand for documents that relate to Harvey Kesner, Honig’s long time SEC transaction lawyer, and others who invested in the company or are suspected of promoting the company.

Ladd’s attorney Randall Lee of Cooley LLP said Ladd objects to having to produced continued communication with the requested individuals after the SEC filed their initial complaint on September 7, 2018 citing those documents would likely be attorney client privilege. Attorney Harvey Kesner was not named in the original subpoena sent to MGT Capital in September 2016 that sought documents showing Barry Honig and his team were trading as a group of undisclosed affiliates. The news of the SEC investigation into Team Honig was first reported by this journalist at trade publication Growth Capitalist. Kesner has made statements in other court filings and in press reports that he does not think he is under SEC investigation. The new court filing could show otherwise.

The motion also the states the SEC has already collected documents from over 100 individuals and corporations, a move that shows how far reaching the investigation has been. Additionally, the SEC wrote in a letter to Judge Ramos on August 8th that they are currently investigating conduct that is distinct from and occurred after the SEC filed their amended complaint in March 2019. This means more charges could be coming.

Individuals the SEC is currently seeking information about as discovery in the pump and dump ring include:

Tara Guarneri-Ferrara – a partner level attorney that worked with Harvey Kesner at New York-based Sichenzia Ross Ference LLP

Avital Even-Shoshan – an attorney who worked for Harvey Kesner at New York-based Sichenzia Ross Ference LLP. Kesner listed Avital as the managing director of the transfer agent he is believed to have funded called Equity Stock Transfer. She also goes by Avital Perlman.

Jay Kaplowitz – a partner at Sichenzia Ross Ference LLP who was MGT Capital’s deal transaction lawyer. MGT switched counsel after the SEC subpoena was delivered.

Richard Abbe and Josh Silverman of Iroquois Capital – Iroquois was an initial investor in MGT Capital and is believed to have held investments in the company during the alleged stock pump. Iroquois and Josh Silverman were named in the original SEC subpoena to MGT Capital.

Yova Roth, Richard Allison, and George Antonopolous of Hudson Bay Capital – Hudson Bay invested in MGT Capital and is alleged to be part of a scheme to force MabVax to reverse merge into a company Barry Honig controlled.

Drew Ciccarelli – a stock promoter that owned Global Marketing Media who has allegedly been part of paid promotions for Team Honig for years. He owned multiple stock promotion websites (such as www.smallcapleader.com and TSX Ventures LLC) and an investor email database business that was allegedly sold to another promoter Adam Garcia of awesomestocks.com after he saw too many of his clients get charged by the SEC or DOJ, according to a person familiar with Ciccarelli. SmallCapLeader.com and TSX Ventures LLC are named in the discovery request by the SEC. @alldaytrader is Ciccarelli’s current twitter account.

There are additional names the SEC wants info on that Ladd says he likely doesn’t know which you can see in this document. Ladd’s attorney argues that the SEC is actually abusing discovery with these request because they fall outside a statue of limitations.

I was first to report defendants in the Honig Pump and Dump case along with possible others are part of a microcap criminal investigation by the Northern California Department of Justice. Honig recently settled with the SEC and agreed to a bar on penny stock investing. It’s believed he is cooperating with the SEC now as they battle the remaining defendants. Honig could also likely turn evidence over on any of the people named in the recent SEC discovery request.

Update: 6.20.10 8:30pm: After my story ran Ladd’s attorney wrote Judge Ramos a letter calling out the SEC for more questionable tactics. While this publication agrees the SEC moves are questionable as a matter of law at least the SEC is making a rare move to inform the public about others that could be involved in the securities fraud case.

Editors Note: Harvey Kesner has sued me and Bill Alpert at Barron’s for our individual reporting on Kesner’s possible role in the Honig securities fraud scheme in Southern Florida district court. I will be fighting the suit pro se; meaning I will be representing myself. I firmly believe all of my reporting on Kesner is stated with accurate facts or opinion. I believe Kesner’s move is another attempt to get access to my sourcing in the government investigation of his clients or him.

Andy Defrancesco Secret Deals-Promoter Payoffs, Verano Shares pledged : $APHA $SOLCF

Cannabis company Sol Global Investments ($SOL.cn $SOLCF) posted positive net income in their year end financials but failed to discloses key details about one of their most valuable assets which is their shares of Verano. The Toronto based company is run by controversial investor Andy Defrancesco in the role of Chairman and Chief Investment Officer and his side kick a former Florida lobbyist, Brady Cobb, who serves as CEO.

On July 8th Sol Global announced it had received a $37.5 million U.S. dollars private placement investment made as a senior secured loan with 6% interest and a two year pay back. At the time of the announcement the stock was trading at $1.55. Over the past six months the stock has been on a decline after a one day high of $3.02 on March 21st. Sol Global said in filing with the Canadian Stock Exchange that the transaction was arms length, which means Andy and insiders of the company didn’t personally loan the money to company. There was a lot of market speculation on who would give a fledgling cannabis company who was short on cash that much money. According to a person familiar with the company who had direct knowledge of the investment the money came with a catch. Defrancesco had to pledge the Verano shares as secured collateral if Sol Global can’t payback the loan in two years. The firm lending the money is suspected to be a Canada based firm and there is market chatter that MM Capital is the lender.

On October 23 2018 Sol Global made a $88 million investment in Verano, a private cannabis company, in deal that was intended for Verano to buy Sol Global’s Florida medical cannabis farm called 3 Boys Farms. According to the Florida office of Medical Marijuana, 3 Boys Farm had not even secured its full license to sell and distribute the cannabis at the time of the announcement. That deal fell apart after Defrancesco was hit with negative press coverage in December challenging his business ethics and undisclosed insider dealings. Then on March 11, 2019, Harvest Health & Recreation Inc.(CSE: HARV) announced its intention to acquire Verano in an all share transaction for a purchase price approximating USD$850,000,000 which was based on a Harvest share price of CAD$8.79 per share. Sol Global’s class B private shares in Verano have a good chance of becoming very valuable once the Harvest deal closed. The company told investors they thought the book value per share of their Verano investment was $4 CAD.

In a series of text messages I obtained between Andy and an investor in Verano/Harvest Andy was worried the men running Harvest and Verano were going to try to cut him out of the merger shares. The texts show Andy was asked to stop tweeting that he had a role in the Harvest/Verano deal. In fact the Harvest/Verano leadership wasn’t communicating with him and wouldn’t let him issue a press release clarifying for investors that 3 Boys Farm couldn’t be sold to Verano now; because Florida’s medical marijuana rules only allow a company to own one cannabis farm license and Harvest already owned one. Eventually the investor helped Andy get permission to communicate how Sol Global was effected by the deal.

Sol Global’s year end 2018 income was negative $19,343,230 million. For the year ending March 31, 2019 Sol Global reported a positive net income of $71,245,897 million U.S. dollars, which was a significant improvement.The largest bucket of revenue came from Sol’s gain on the sale of the LatAM assets to Aphria with a whopping earn out of $150,616,833 million U.S. Dollars.

Defrancesco was caught up in controversy this winter when a short seller report detailed how he made undisclosed millions off leading the sale of LatAM cannabis licenses to Aphria ($APHA) for inflated values. He is being personally sued for securities fraud in the Southern District of New York in a class action lawsuit filed by main street shareholders of Aphria. Court filings show Andy has been avoiding service of the Aphria lawsuit at his Miami home and Florida office. Defrancesco is currently working in the U.S. off a green card and hasn’t traveled outside the US recently over concerns he would not be let back in. Sol Global’s year end financials also failed to disclose it’s chairman and chief investing officer is subject to a lawsuit that alleges he used his influence of Sol Global to make the questionable deal where Aphria paid around $200 million for the LatAM cannabis assets. A few months after the short seller report came out Aphria wrote down one of the assets in the report by $50 million. The stock tumbled on the news.

The Short Seller report written by Nate Anderson of Hindenburg Research and Gabe Grego Quintessential Capital Management caused Defrancesco to start personal attacks on the fund managers. Grego’s website was even hit was a DDOS attack causing it to crash. Defrancesco decided he need a black ops Public Relationship group to go to work drumming up counter press reports. That firm is called AWM Group. In their recent year end financials Sol Global admits it spent $3.6 million CAD on PR and consulting to “counter fraudulent short seller reports”. There were no lawsuits filed accusing the short sellers of fraud by the company and Aphria did not offer a point by point rebuttal to the report as publicly promised. Additionally, Defrancesco was working behind the scenes to get a cannabis analyst and a cannabis twitter stock jockey to write favorable coverage of Aphria and negative coverage on individuals who negatively reported on Defrancesco or companies he is involved in.

Twitter stock trader, that goes by the name Johnny Lambo, met with Defrancesco on King street in Toronto. According to how Lambo tells it Defrancesco wined and dinned him and offered to give him early insight into the company if he tweeted favorable news on Andy’s investment. When Lambo was out one night with another Bay street market player, interviewed by this reporter, Lambo said “Defrancesco also has this guy at Grizzle do coverage his way.” Lambo’s statement about Grizzle was made in justification of why he’s backing Defrancesco. His twitter handle is @lambojohnny and his real name is John Mastromattei. Lambo also told the Bay street market player he was given direction to tweet disparaging or fake news about this reporter.

Grizzle is a Canada based research firm that publishes reports on Tech and Cannabis with the mantra of “The language of new money”. The head of research is a man named Scott Willis who claims he is a certified financial analyst. Willis ran reports naming Aphria’s Vic Neufeld as the most trusted CEO. He published a multi-page report on November 1st 2018 giving Aphria a $200 price target and an individualized review of the LatAM assets with harvest production estimates and construction cost per gram. Grizzle immediately called the Hindenburg report a hit piece and tried to justify the Aphria share price the day after the short seller report became public.

The Grizzle stock price estimate helped prop up Aphria stock while Sol Global was selling their Aphria shares received from the LatAm sale. Sol Global booked profits in the triple digit millions off Aphria stock sales. The management review of Aphria’s CEO Vic Neufeld as a trusted public company executive was designed to counter a previous negative report about Neufeld’s role in a company Aphria was going to buy called Nuuvera. Nuuvera was another Defrancesco insider deal. A footnote to the report states Grizzle employees own Aphria shares. But no where in the Grizzle reports does it state Scott Willis was getting paid by Defrancesco or one of his many companies he controls to write the reports. Vic Neufeld was eventually removed from Aphria.

Andy Defrancesco celebrating with Vic Neufeld December 2017

Grizzle had also agreed to center their coverage on Aphria and turned down at least one other public cannabis company, according to an email sent by Scott Willis and seen by this reporter. Willis met the CEO of the company during a marijuana investor conference. When the CEO had a one on one sit down with Willis asking him if Grizzle could also cover his company the CEO was surprised by Scott’s demand that he get 50,000 shares of the company, according to an interview with this reporter. The 50,000 shares to pay for research was also written in an email between Willis and the CEO and seen by this reporter. Shortly after the meeting Willis wrote the CEO back saying he was going to have to pass on covering his company.

Willis wrote in August 2018, “I talked with my partner about your firm after our meeting and he agrees you guys have some great things going, but we will have to circle back with you in a month or two. We are currently working on a mandate for one of the big 3 producers..” The big 3 producer is believed to Aphria according to people familiar with the arrangement. The CEO says he never heard from Willis after that email and Grizzle never covered his company.

Companies can pay for research as long as the payment is disclosed by the company. In the U.S. SEC rules say a person writing and publishing a stock research report would have to disclose they were paid to write the report as a promoter. Grizzle adds a disclaimer to their website, that can be seen around the world, that their reports are only intended for Canada residents. It’s unclear if Scott Willis is a U.S. or Canadian resident.

Request for comment about the alleged Grizzle kickback sent to Andy’s Quinn Emanuel attorney was not returned for comment.

Yesterday David Milstead at the Globe & Mail was first to report that Defrancesco has hired a white collar criminal lawyer from big law Quinn Emanuel. He is a 36-year old Harvard grad named Alex Spiro who formerly worked in the Manhattan prosecutors office. Spiro admitted in the Globe & Mail story that he is working with the SEC on behalf of Defrancesco to respond to a recent subpoena in another non-cannabis company, Cool Holdings ($AWSM), that was an alleged pump and dump run by Barry Honig with the help of Defrancesco. I previous reported on how Defrancesco and Honig worked with broker dealer Laidlaw to allegedly off load $AWSM shares to Laidlaw’s main street clients.

I asked attorney Spiro today if he will also be representing Defrancesco in the Aphria lawsuit and he responded yes so it looks like Andy has finally stopped running from service.

Since Sol Global’s positive year end results have come out the stock has not traded above $2. The company will hold an earnings call on August 8th at 4pm to answer investor questions. The dial in number is: U.S. Toll-Free Number: (888) 390 0546

Update 8-8-19: Sol Global CEO Brady Cobb announced on the earnings call that there will changes to the company board in the coming weeks. Andy Defrancesco is Chairman of the board.

Laidlaw assisted Barry Honig in Secret stock sales Pre-P&D of U.S. Gold: $USAU

This story has been updated

Barry Honig is back in the hot seat for his role in the reverse merger of U.S. Gold. Chris Carey, editor of Sharesleuth, has a new investigative story out this week that tracks the money Team Honig alleged made in the alleged pump and dumps of U.S. Gold. This morning I received new private transaction documents between Barry Honig and broker dealer Laidlaw & Company from 2016 that support the theme of the Sharesleuth story.

Last fall I broke news how Laidlaw’s main street clients were used as Honig’s personal dumping ground when he wanted to get out of a stock at the high of a pump phase under the direction of Laidlaw’s managing director Jimmy Ahern and its CEO Matt Eitner. According to multiple brokers I interviewed at Laidlaw the senior Laidlaw executives would pay kickbacks in cash or discounted stock to registered reps who pushed Honig’s deals on their clients. Based on new documentation and interviews today we now know U.S. Gold was one of those deals.

Chris Cary and Jim McNair at Sharesleuth reported:

U.S. Gold went public in May 2017 by combining with Dataram Corp., a struggling maker of computer memory products whose shares were listed on the Nasdaq exchange. The so-called reverse merger was engineered by financier Barry C. Honig, who has created or bankrolled dozens of small public companies over the past decade.

Sharesleuth’s investigation found that Honig and several associates had acquired a large stake in Dataram prior to the deal, and that one of them – John R. Stetson – also managed a limited liability company that was U.S. Gold’s principal shareholder. Their role on both sides of the transaction was not disclosed in SEC filings, nor was their sale of millions of dollars in stock in the months before and after the merger.

In the transaction I have a copy of Honig is selling 1,000 preferred shares of U.S. Gold for $700,000. The stock purchase agreement says the 1,000 preferred shares are suppose to convert to one million of common shares in the the reverse merger of Dataram and U.S. Gold ($USAU). It’s dated December 2016. Sichenzia Ross Ference Kesner LLP is listed as the law firm to receive the proceeds of Honig’s preferred shares. Harvey Kesner is Honig’s long time deal lawyer. ( Attorney Kesner is currently being sued for malpractice by one the companies in the Honig pump and dump SEC fraud case.)

The preferred shares detailed in the stock purchase agreement are Series A preferreds that Honig bought for cash in the privately held U.S. Gold, prior to the completion of the merger with Dataram.

The two companies announced the deal in June 2016, but didn’t complete the reverse merger until May 2017. Chris Carey’s story highlights that during this time Team Honig also converted and sold all of their preferred stock in Dataram Corp.

Documents show the Series A shares in the private U.S. Gold were supposed to convert to millions of common shares in the combined company; the conversion amount was eventually reduced to account for a one-for-4 reverse split immediately prior to the closing. Which means the retail clients got less shares of common stock then what they were told they would get when the offer was sold.

Here is the important part. The Dataram merger deal documents filed with the SEC never said Honig had a stake in U.S. Gold. Honig has consistently stated that he is a passive investor in SEC filings. This was also said in a court proceeding in the Southern District of New York in 2017 via Honig’s attorney Charles Harder, according to a transcript seen by this reporter. The fact that he had shares in private U.S. Gold pre-Dataram merger would argue against his claim that he was just a passive investor, rather than an activist investor who was directly involved in the deal. SEC disclosure rules are different for activist investor vs. passive investors so main street shareholders know who is benefiting before they vote for a merger.

Honig’s private stock sale of U.S. Gold, with the help of Laidlaw’s senior executives Jimmy Ahern and Matt Eitner, is an example of how Honig can secretly be involved in deals and secretly unload shares.

Ahern (Left) and Eitner. At their satellite office The Havana Club.

On top of that, according to ex-Laidlaw brokers who sold Honig’s shares, retail clients were just told they would be buying “shares” in a hot mining deal. Unless the retail clients read the stock purchase agreement they would be unaware of how the shares were converted to common stock or how the lock period worked. Additionally, one broker said Jimmy Ahern offered him free trading stock in the new company if he could quickly get Honig’s preferred shares sold (Ahern/Laidlaw had buckets of discounted or free trading stock (around 5%) in the deal by being the placement agent) and the broker wouldn’t take kickback stock. FINRA rules require to broker to disclose if they are also getting stock as a form of payment when pitching companies to clients.

So Ahern sold the free trading stock and paid the broker more in his monthly pay runs; this was usually done by adding more money to commissions or adjustments.

One broker I interviewed said when Ahern pitched the free trading stock kickback deal they asked,”Isn’t this just a rich man’s bag deal?” Jimmy Ahern paused then answered, “Well Yes.”

Ahern and Eitner also used the U.S. Gold free trading stock, gifted to them via Team Honig, to pay one back office female employee as part of her severance. The former employee, known to this reporter, signed a non disclosure agreement and wouldn’t comment on the record.

Sharesleuth reported:

U.S. Gold’s stock has declined by more than 90 percent from its peak that year (when adjusted for two splits), meaning any retail investors who bought on news of the merger and held their shares have lost nearly all of their investment.

U.S. Gold Corp is not one of the companies in the pump and dump scheme that Honig recently settled with the Securities and Exchange Commission. But the DOJ attorneys building a case against Team Honig in Northern California could add the stock to their coming indictment. Honig and his fellow defendants have signed tolling agreements with the DOJ that give the government more time after the statute of limitations expires to bring criminal charges, according to a defendant in the case interviewed by this reporter and a transcript from a court hearing earlier this year. The criminal investigation into Team Honig was first reported by this reporter in 2016. Barry Honig sued me for defamation for reporting on the SEC and criminal investigation and then withdrew the lawsuit with prejudiced the same month one of the companies in the SEC case (MabVax) disclosed they were under SEC investigation.

I have previously reported FINRA has an active investigation going that could stripped Ahern and Eitner of their licenses and roles at Laidlaw. The newest FINRA enforcement lawyer on the the Laidlaw case is Daniel Mark Hibshoosh. Additionally, earlier this year the FBI began contacting people who work or worked at Laidlaw in an effort to build a criminal case.

Barry Honig did not respond for comment for this story.

SEC Pump & Dump Case leads to Barry Honig Banned from Penny Stocks

Microcap investor and promoter Barry C. Honig has agreed to be banned from the business of investing in and financing publicly traded small cap companies. On Monday June 17, 2019 the Securities and Exchange Commission asked U.S. District court Judge Ramos to approve a settlement with Honig and his investment fund GRQ Consultants. In September 2018 the regulator brought an enforcement lawsuit in the Southern District of New York against Honig for his role as the leader of a pump and dump securities fraud ring dating back to 2013 that involved at least nine other individuals. Honig agreed to restrictions on his behavior relating to the stock market but not to the amount of a financial penalty. The disgorgement and penalty phase of the settlement will be litigated down the road. News of Honig being under SEC investigation was first reported by me in 2016 at trade publication Growth Capitalist when I learned about an SEC subpoena naming Honig and others charged in the SEC case.

The lack of a determined financial penalty at settlement is not unique, even as we have seen Honig’s other co-defendants like billionaire Philip Frost agree to pay $5.52 million when he announced his SEC settlement. Honig’s long time investing partner Mark Groussman agreed to pay $1.38 when he settled with the SEC in February. However, two other co-defendants agreed to similar terms that calculate monetary damages at a latter date.

SEC settlements are filled with confusing legal language that can be unclear to anyone who isn’t a lawyer and the regulator is usually not keen to explain them further. I asked a former SEC enforcement lawyer, who is now experienced in litigating against the SEC as a white-collar defense lawyer, to review the settlement. The lawyer told this reporter, “This is an interesting injunction because the SEC uses conduct-based injunctions or bars. It is also a bifurcated settlement. That just means that the settlement only pertains to the liability and not the monetary side (disgorgement and civil penalties). You typically bifurcate when it is a slam dunk on the liability so it saves money to only fight about the money side of things. I suspect they are asking for an outrageous amount of money.”

The SEC claimed Team Honig executed a $27 million scheme. The most the SEC has ever gotten an individual defendant to pay is $20 million in the Elon Musk case. It’s unclear how much it would take for a SEC fine to make a dent in Honig’s personal finances. He currently lives in an $8.9 million water front home in Boca Raton Florida, sends his children to an expensive private school and travels on private planes.

The SEC settlement also bars Honig from promoting penny stocks or trying to control the actions of a director or officer of a public company.

The settlement doesn’t mean Honig cannot try to continue making money from prior investments. One of those investments, PolarityTE, is precluded from the settlement, and is considered by many observers to be a current pump and dump.

Journalist Chris Carey of Sharesleuth.com pointed out to his twitter followers yesterday that the penny stock bar Honig agreed to does not effect his stock ownership of PolarityTE ($PTE) and Americas Silver Corp ($USA.TO). Carey said, Honig’s last disclosed ownership in both stocks is higher than 5% so Honig would have had to sell stock in those companies to comply with the settlement and there is no public record of him doing that.

Carey has been warning main street investors about Honig by reporting on problems with Honig’s public disclosure of actual share ownership. In March 2018 he wrote a detailed story, with journalist Jim McNair, showing Honig’s team used promoters with fake names who did not disclose they had been paid to promote stocks Honig and his associates invested in.

The Sharesleuth.com reporting has now shown up in a civil malpractice suit against Honig’s deal lawyer Harvey Kesner and was detailed in the SEC’s amended complaint against Honig filed this year. The amended complaint added paragraphs with more extensive detail about how Team Honig used the undisclosed promotional stories, by John Ford, John O’Rourke (as Wall Street Adviser) and “Writer E’” who appears to be Peter Epstein. Epstein’s activities were exclusively reported by Carey last year before the SEC filed their lawsuit.

Last month I reported SEC attorney Nancy Brown admitted at a hearing over discovery that the Northern California DOJ is running a parallel investigation to the Honig SEC case. An attorney for Honig’s co-defendant, John O’Rourke, even said one of the defendants in the SEC case is currently acting as a whistleblower for the DOJ and they expected the DOJ to bring an indictment soon. The Street is now left guessing who will be charged by the DOJ and who is making a deal. The SEC settlement has a paragraph that says Honig can’t deny the SEC’s allegations but he also doesn’t admit to them, which could shield him from instant criminal liability. That means the DOJ has to build a case with charges they think a jury can convict beyond reasonable doubt.

“Everything else is subject to the qualification in the first paragraph of the settlement “without admitting or denying the allegations” — It can’t be used as the basis for a criminal case because it is not an admission. However, the SEC can give the DOJ all of the information they have which would likely be enough for the DOJ to bring a criminal case,” according to a former SEC enforcement attorney who reviewed the settlement.

The San Francisco DOJ has been building a case against Honig and people who worked with him since at least 2014. I was first to report on two criminal plea deals obtained by the SF DOJ that named Barry Honig for his role in the pump and dump scheme of YesDTC. The company’s CEO, Joe Noel, pled guilty to the scheme but Noel’s court records have been sealed so we do not know whether he has been sentenced or is still working with the FBI.

A L.A. man named Imran Husain was also arrested in the case and named Honig in his plea agreement. I first reported on Husain for trade publication Growth Capitalist in May 2016 when his partner in the scheme was charged by the SEC. That partner was a well-known microcap deal lawyer named Gregg Jaclin. Jaclin was later arrested in 2017 by the SF DOJ adding criminal charges to the actions detailed in the SEC case. Attorney Jaclin said he would fight the case to trial but with new filings sealed, the status of the case is unclear. With recent documents in the Husain and Jaclin case sealed by the DOJ, the question is whether both men could be viable witnesses for the DOJ in a case against Honig. On June 7th the DOJ finally filled a request to set a sentencing date for Husain in October. The motion filed in federal court said Husain had been cooperating on another case, on which the DOJ was working that involved Gregg Jaclin. Since it was alleged that Jaclin sold shell companies to Honig( in order for Honig to get restricted stock unrestricted to aid in the pump part of the YesDTC scheme), flipping Jaclin could be key to the DOJ’s case against Honig and his associates.

New Emails show attorney Harvey Kesner aided Defrancesco in Questionable Cannabis stock Deal: $APHA $SOLCF

Just days after Canadian cannabis company Aphria announced it was paying an exorbitant price for undeveloped marijuana farms in Jamaica and South America from Scythian Biosciences an insider, Andy DeFrancesco, was using Barry Honig’s deal lawyer to move hidden shares within his family. I am reporting for Cannabis Law Report today that new emails written by attorney Harvey Kesner on behalf of the DeFrancescos could show how the insiders skirt beneficial ownership disclosure rules. I reported last week, DeFrancesco’s alleged hidden stock ownership is at the heart of a new securities fraud lawsuit filed against him and his band of sophisticated bad actors by Aphria main street investors.

According to two people familiar with the transaction, some of Andy’s Canadian friends who benefited with him on the deal are: Canadian millionaire Michael Serruya, Marvin Igelman, Lloyd Tomlinson and Clifford Starke. The names of investors on the deal, that ran through a private equity firm Andy controls called the Delavaco Group, is redacted in documents filed with Canadian regulators. The only public details shareholders get to see is how many millions in shares Scythian paid the LLC Andy set up for the assets. You can see Team DeFrancesco celebrating in February 2018 with Andy in Jamaica at a hotspot called Prendy’s On the Beach after they closed on the private cannabis license deal. The photo was posted by Michael Serruya on his private Instagram account.

My story at Cannabis Law Report details a Scythian stock transaction by Andy’s sister Andrea DeFrancesco (a flight attendant) and his wife Catherine DeFrancesco (a yoga studio owner) that appears to show Andy controlling the shares in an off-market stock sale between family on July 23, 2018. This is six days after a C$193 million deal is announce by Aphria and Scythian, which Andy is believed to have significantly benefit from at the expense of Aphria shareholders. When the U.S. broker dealer saw attorney Harvey Kesner was pushing to get the shares through the U.S. clearing system call the DTC the transaction’s legitimacy was challenged. Harvey Kesner was also the SEC reporting lawyer for Scythian during this time, which could create a conflict of interest for the New York law firm, Sichenzia Ross Ference Kesner LLP, that use to bear his name. Read here to get a behind the scenes glimpse of how parts of the alleged securities fraud was run.

Andy Defrancesco sued for Securities Fraud for role in Aphria: $APHA

Cannabis financier and Sol Global chairman Andrew Defrancesco is front and center of a 90-page securities fraud lawsuit filed in New York federal court this week. Defrancesco, a resident of South Florida has been publicly fighting recent press reports and a short sale research paper both questioning the legality of his investments in multiple publicly traded cannabis companies. The current lawsuit is being ligated by Adam Apton of Levi & Korsinsky LLP on behalf of shareholders who lost millions in Canadian cannabis company Aphria. Aphria trades on U.S. and Canadian stock exchanges ($APHA).

Apton was recently named lead lawyer in the lawsuit after multiple law firms fought to sue the alleged masterminds of the Aphria fraud. Defendants now include Aphria executives Cole Cacciavillani and John Cervini, in addition to Defrancesco and publicly traded Scythian BioSciences (since renamed Sol Global Investments $SOLCF $SOL.cn). Victor Neufeld Aphria’s ex-CEO, remains a defendant from the original complaint.

John, Andy, Cole $APHA accused fraudsters

The amended complaint was filed May 28th along with summons issued to the new defendants. Defrancesco might try to hide from service of this lawsuit, similar to how he did in a defamation suit filed this year by a cannabis research firm. The address used for service in both lawsuits, 2300 E. Las Olas Blvd., 5th Floor Fort Lauderdale, is Andy’s work address for multiple LLC’s he owns. As first reported by this publication, Defrancesco sold his Fort Lauderdale home at, 811 SE 26th Avenue Fort Lauderdale, in July 2018 to one of Barry Honig’s right hand guys, John Stetson. Real estate records show Stetson bought the home for an inflated value of $5.2 million in cash while the home was assessed at $3.6 million. A few months after the home sale Stetson was named as a defendant in the pump and dump enforcement action by the Securities and Exchange Commission. Since then, there is no paper trail showing where Andy lives or if he is still lives with his recently divorced wife Catherine Defrancesco.

This week I obtained new records that show Andy could be loading up on Florida real estate possibly in an attempt to keep assets out of reach of lawsuits or the government. The most recent purchase is a 7-bedroom, 11-bath, 9,500 square foot custom-built home with a dock and water front view in the Flamingo Bay area of Miami Beach, FLA. State records show 4395 Pine Tree, Miami Beach, Fl. sold for $19.9 million in July 2018 to a new LLC named ONJ Holdings. Florida is a homestead state, which means it is harder to attach a person’s main residence in case of judgments or liens.

4395 Pine Tree

Florida corporate records show that ONJ Holdings LLC was established on 7/26/2018 and the Pine Tree property was purchased 5 days later on 7/31/2018. The state records also show that none other than Andy Defrancesco buddy Michael Galloro is the manager of ONJ Holdings. Galloro is, or was, the COO of Delavaco Capital. He was also the interim CEO of Liberty Health Sciences, and the principal of ALOE Finance, a company that operates out of Delavaco’s offices and has offered CFO services to Scythian BioSciences/SOL Global. Andy Defrancesco is the founder of Delavaco, the corporate entity to which Aphria was paying high consulting fees for buying cannabis related assets, according to the lawsuit.

The consulting fees earned by Defrancesco’s company are highlighted in the new amended class action shareholder lawsuit against Aphria and Andy Defrancesco. On top of the consulting fees Defrancesco and Sol Global are accused of selling cannabis farm licences to Aphria in an overseas area called LatAM for allegedly inflated prices with the help of Aphria executives John Cervini, Cole Cacciavillani and Aphria president Vic Neufeld. The lawsuit states these actions were designed to benefit insiders at the expense of public shareholders, and the Aphria executives aided Andy to hide his role in the alleged scheme.

Andy Defrancesco Chairman of Sol Global

This is the first complaint in which Andy Defrancesco is a named defendant tied to securities fraud. There are currently two other potentially damaging lawsuits playing out in federal court. One is a defamation suit in South Florida filed by a cannabis research firm New Frontier Data, and a second lawsuit names his recently divorced wife, Catherine Defrancesco, in an amended shareholder fraud suit, filed in New Jersey, against RIOT Blockchain. Andy has admitted in press reports to Bill Alpert at Barron’s that he runs the deals in Catherine’s name.

Brady Cobb, the president of Sol Global told me in an email two weeks ago that the New Frontier defamation lawsuit was settled and signed, and the parties would be making a joint statement on the settlement. But a check of the court docket still shows the lawsuit is active and there have been no joint statements made. Repeated request to Cobb to understand why he made potentially misleading statements about this lawsuit settlement went unanswered this week. Further, Sol Global has also not updated filings with the CSE mentioning the New Frontier Lawsuit against its chairman.

Andy appears to be leasing the $20 million waterfront mansion in what could be a move to hide his current address. Andy does live there according to a person I interviewed in the Defrancesco’s circle but would not go on the record for fear of retribution. Additionally, a records check in WestLaw found that a utility bill for 4395 Pine Tree was transferred into Andrew Anthony Defrancesco name in March 2019.

The home also just happens to be down the road from his mega-millionaire friends, the Schottensteins. Property records show 4555 Pine Tree is owned by Joseph Schottenstein and is a six minute walk from where Andy is believed to be living. The Schottensteins and Defrancesco (and Barry Honig) applied for and were granted a cannabis store license in Ohio. Schottenstein was also the lead architect behind the trumped-up hostile takeover for Aphria this year after two short sellers published a report in December highlighting the self-dealing and possible fraud at Aphria and Defrancesco’s role in it. The stock price tanked after the report, which is why there is class action lawsuit against Aphria executives and Defrancesco.

In February, Green Growth Brands aided Aphria in its PR damage control campaign by offering what Aphria called a low bid for their assets so Aphria could try and show the company was more valuable, at the same time that the press and stockholders were seriously questioning the accuracy of their public statements and financials. Then on April 15th, Green Growth withdrew the bid. The same week Aphria admits that its LatAM assets had to be written down by $50 million Canadian dollars (a decrease of 35%) after the Ontario Securities Commission said the company was required to perform an asset impairment test.

This asset write-down, is what helped lawyers in the class action lawsuit add Defrancesco and Sol Global to the securities fraud lawsuit. In the U.S. discovery is not allowed until the class action survives a motion to dismiss, so it will be important to watch if the aggrieved Aphria shareholders can keep Defrancesco’s name in the suit. If so, it could be a gold mine of much needed hidden info for shareholders in other companies in which Defrancesco invested. Defrancesco has consistently been able to claim he is an independent shareholder and didn’t direct the actions of Aphria’s executives in buying the LatAM assets. The investors in the private companies he sells for alledgley inflated prices are also hidden because of recent shareholder privacy rules by the Canadian Stock Exchange (the CSE). Andy has said in press reports to the Globe & Mail and Bloomberg Canada that he is proud of the price he got for the assets. Defrancesco likes to brag in his twitter feed about beating market players and crushing them. His boasting about how much money his deals made, while structured in the names of others or hidden LLC’s he owns, could now set him up for trouble with lawsuits and regulators. Andy’s own statements are now used throughout the amended Aphria shareholder suit to allege misconduct and self-dealing.

The amended complaint reads like a rewrite of the Hindenburg Research short seller report written by Nate Anderson and Gabriel Grego of QCM. But it does include new photos from May showing the alleged worthlessness of the cannabis farms and offices. It also talks about a significant problem with the Columbia cannabis deal, ColCanna, that Vic Neufeld said would be Aphria’s best growth asset after the short seller report came out. The lawsuit says, “According to the Colombian Agriculture Institute, ColCanna was not granted authorization as a ‘selected seed producer for psychoactive cannabis and hemp’ until October 30, 2018.” You need 4 levels of a licenses in Columbia to make a go as a profit making cannabis company. Following that a company must receive ‘quota approval’ from the government to determine the quantity it is allowed to produce.
According to emails from the Colombian Justice Ministry and the Health Ministry in December 2018,seen by this reporter, the ministries confirmed ColCanna had NOT applied, nor been granted, a regular quota for 2019, nor had they applied for a supplemental production quota in 2018.

The lawsuit states that the, ColCanna quota is currently ZERO. That is because the company missed the mandatory April 30, 2019 deadline that dictated how much it could grow in the next year, according to the lawsuit. The lawsuit also shows photos of just five people working in an office listed for ColCanna.

Corporate filings for Aphria and Scythian/Sol Global show the land in Columbia was valued at $120,000 yet photos showed no cannabis was grown on it at the time the valuation was reported. Notwithstanding ColCanna’s apparent lack of operations, Aphria paid C$84 million to Scythian for a controlling stake in the entity, according to the lawsuit. Defrancesco and affiliates acquired the assets at an undisclosed price, then sold them to Scythian/Sol Global, which in turn marked up the assets when selling to Aphria.

At press time I did not hear back from the Colombian government to confirm the 2020 status of the ColCanna quota as detailed in the lawsuit.

Vic Neufeld, Defrancesco’s friend, is no longer CEO of Aphria, after suddenly resigning in January 2019. Neufeld was replaced by Irwin Simon, who was in charge when the company recognized the write-down of the assets at the heart of the lawsuit.

Andy Defrancesco did not respond to an email requesting comment about being named in the amended Aphria lawsuit. Brady Cobb, CEO of Sol Global, responded “no comment” to the lawsuit.

Update 7pm: This story has been updated with emails from the Colombian government regarding ColCanna’s quota

SEC admits Team Honig is under the criminal investigation I warned about in 2016

The Securities and Exchange Commission has now confirmed there is a parallel investigation into the Team of bad actors that work with Barry C. Honig in the microcap pump and dump ring he allegedly leads. I was first to report in the fall of 2016 that the San Francisco Dept. of Justice was investigating this group, which included Honig, Michael Brauser, and Miami billionaire Philip Frost.

Nancy Brown, the lead lawyer for the SEC in the Team Honig case, said during a hearing on May 15 that “there is a parallel criminal investigation. It’s not a dual investigation, it’s a parallel investigation,” according to a court transcript from the SEC’s case against Honig, Brauser, Frost and friends.

I was first to report the Northern California DOJ flipped their first witness against Barry Honig back in 2014 via a small cap CEO named Joel Noel who plead guilty to securities and wire fraud. Noel, who ran a company called YesDTC, said that Honig knew how to buy shell companies set up by a lawyer who would release shares that should be restricted as unrestricted so trading in their pump scheme could begin fast. Noel also said Honig told him to pay a promoter, named David Zazoff, to get false press releases out to push the stock price up. The lawyer who sold the shell, Gregg Jaclin, was also arrested by the Northern California DOJ in 2017. According to a person involved in the investigation Jaclin and Honig had worked together before and Jaclin could be a viable witness for the DOJ to build their case. Jaclin’s case has been sealed since the SEC brought their charges against Honig.

Why the San Francisco office of the DOJ has waited this long to bring their case while investors in companies like $RIOT, $MARA, $MGT, and $MBVX have gone through Honig lead pump and dumps has been a mystery till now. That’s because at the May 15th hearing about a discovery schedule John O’Rourke’s lawyer Gregory Morvillo tells Judge Ramos he knows some of the defendants in the SEC vs. Honig case have signed tolling agreements with the San Francisco DOJ. This is a stunning admission. Tolling agreements allow the DOJ an extension of time to bring a case past the standard statue of limitations. Attorney Morvillo also said he thinks the tolling agreements have expired as a reason for why the San Francisco DOJ would be bringing an indictment soon. How Morvillo knew about the tolling agreements could signal his client John O’Rourke is one of the defendants that signed one of them.

Scott Zamost and Jenny Schlesinger, two CNBC print reporters, apparently went down to the SDNY court house yesterday and read a copy of the public transcript in the SEC vs Honig case. They were first to report on what the SEC said about the existent of a parallel criminal investigation. The transcript also shows John O’Rourke’s lawyer telling the judge that he thinks someone in the SEC Honig case has become a DOJ cooperating witness now and by that person being a songbird the DOJ could bring an indictment soon. The conversation started because Michael Brauser along with Robert Ladd, CEO of MGT Capital, have been pushing the SEC to show them their evidence via writing aggressive letters to the judge. O’Rourke’s attorney spoke up in court to join that argument. Attorney Morvillo told Judge Ramos “We are behind the eight ball here” in reference to how the SEC has been holding up their evidence.

Morvillo went on to say, “If one or more of our clients gets indicted you can bet we will be back here asking for a stay in this case. In the meantime, while San Francisco drags its feet on this, we don’t think it’s appropriate for the SEC to act as a stalking horse for the U.S. Attorney office.”

I reported this month the SEC has played a stall game putting off defendants in the case from getting discovery by delaying motion filing dates and extending times for defendants like Honig to sign a settlement agreement. The SEC said in a letter to Judge Ramos last month that Honig has agreed to settle their case in principle but it’s not a signed deal yet and the SEC commissioners have to vote on it so the judge gave them a six week extension on the defendants filing their motion to dismiss. Scott Zamost and Jenny Schlesinger at CNBC are likely wrong when they reported that Honig’s settlement was called off.

The court transcript shows SEC attorney Brown was trying to get judge Ramos to scheduled the defendants for depositions with the SEC before all the discovery is due April 30 2020. Robert Ladd, CEO of MGT, Michael Brauser, John Stetson, and John O’Rourke wanted the depositions to be latter in 2020 closer to the end of discovery. The debate in court was the SEC was worried that the defendants would get all their discovery and then assert something called “the act of production doctrine”. This would mean the defendants like O’Rourke and Brauser could tell the SEC they aren’t going to turn over their emails that the SEC has asked for because it could incriminate them in the DOJ case. The SEC said they had from 600,000 to 1.2 million of documents to turn over for discovery. The SEC also admitted a lot of the docs came from a laptop that the ex-husband of a former MGT Capital employee had. It’s unclear if those docs will be admissible since the laptop was likely stolen in a bitter divorce battle, according to a person involved in the case. The whole discovery and deadline delay drama is like an episode of Billions where the government plays dirty tricks to get convictions and the Wall St bad actors have better lawyers to outsmart them.

I don’t know who the new Honig cooperating witness is that O’Rourke’s lawyers says the DOJ has under their thumb. And I highly doubt O’Rourke’s lawyer knows if the DOJ is wrapping up their case unless he has made an agreement for his client to self surrender. Chris Carey at www.sharesleuth.com was first to notice Frost’s company $OPK had mentioned in recent SEC filings that while Frost had settled with the SEC ‘other government agencies’ could also bring a case. John Ford who lives in Northern California was the first member of the group to settle with the SEC before the case was brought and court docs show he has been cooperating. Additionally, another stock promoter who was charged criminally by the DOJ in stocks that Honig did not invest in has made a plead deal with the DOJ this week. Brian Robert Sodi, known as the Mailman, worked with a lot of bad actors in a lot of stocks and the DOJ only charged over a few stock frauds. I have confirmed the DOJ could use him to testify against Honig because Honig had worked with him. Sodi’s attorney Brent Baker of Clyde Snow LLP told me today, “Brian is looking forward to the whole truth coming out now and is now ready to put this matter behind him.” Sodi plead guilty to only one of the ten counts of wire and securities fraud against him and could be asked to pay up to $2 million in restitution. His sentenced will be delayed now until the government is done using him as a C.W.

The CNBC reporters didn’t attend the SEC vs. Team Honig hearing. Or get anyone else in the case to try and talk about who the DOJ recently flipped. They also failed to report the questionable tactics the SEC has been using to try and get the defendants to do depositions before they got all the SEC’s discovery.

Schlesinger and Zamost also mislead their readers when they reported this was the first time a criminal investigation into Team Honig had been confirmed. They broke basic journalistic ethics by not reporting the San Francisco DOJ investigation was first confirmed and reported by me at this publication a few years ago. I had confirmed in 2016, via a lawyer for an investor victim in the case who was interviewed by the SF-DOJ, an interview with a Honig co-conspirator who was also interviewed by the SF FBI, and had a copy of a FBI case number for the Team Honig investigation before I went to print. I did on-the-ground shoe-string reporting to get this important news out to investors unlike the CNBC print reporters who simply read a court transcript first and then executed journalism theft by not linking and credit the first reporter to break the DOJ news. At this publication I always name, link and credit any publication and the journalist who reported news first because it’s likely they have good sourcing on a story and readers should know that.

Additionally Honig was so freaked about about me finding out about the SF-DOJ investigation that he used anti-media lawyer Charles Harder to sue me in 2017 and tried his best to get the story taken down and to get an apology from me. I fought the case for a year and won. Honig dismissed his suit in January 2018 and the reporting stayed up and was sourced in other news reports. Additionally now that we know there were tolling agreements signed I think Honig knew he was under criminal investigation when he sued me and so did his attorney Charles Harder, which is one of the most unethical things a lawyer could do. Clearly the point of the lawsuit was for Honig to try and figure out who I knew was talking to the FBI and SEC. But I held my ground and never told even as discovery was starting.

Criminal charges are the only thing that have a chance of stopping the Team Honig pump and dump ring given the SEC has shown they are accepting low dollar fines from defendants that have settled. Philip Frost paying $5mn is less than his spends in his bar bill in a year. A ban on being a director in a penny stocks could slow Honig down but I don’t see how it helps given he has a file-a-fax of rent a board member guys he can call. The SEC amended compliant, filed in March, clearly shows Honig is willing to break the law and pay others like John Stetson to make hidden investments he is really funding so even if he is banned he could get nominees to do his dirty work. Jail time and a felony convection is the only strong hold the government has if they really want to protect investors and clean up the microcap market. Let’s hope the DOJ gets off their butts and acts soon as there are current Honig pump and dumps happening that likely include PolarityTE, Marathon Patent and RIOT Blockchain.

This story has been updated with details of the tolling agreements with the DOJ and news about the problems with discovery in the SEC case.

May 15th Court Transcript can be read here

Bloomberg Journalist Subpoenaed in Platinum Partners Securities Fraud Trial

The criminal trial of Mark Nordlicht and his team of executives at hedge fund Platinum Partners is looking like it’s going to be a knock out fight between the federal prosecutors in the Eastern District of New York and Nordlicht’s celebrity attorney Jose Baez. The hedge fund defendants stand accused of operating a billion dollar Ponzi Scheme via securities fraud and conspiracy to commit securities fraud that includes inflating assets to earn more fees. Nordlicht’s threw the first punch by having his attorneys subpoena Bloomberg journalists for trial because they were allegedly tipped off to the government’s investigation before Nordlicht was arrested by the DOJ’s lead attorney who brought the case. That attorney is Winston Paes who left the EDNY in 2017, before the case got to trial, to go make more money at big law firm Debevoise Plimpton LLP. Attorney Paes was the deputy chief of the EDNY business and securities fraud group and has been accused, by Nordlicht, of leaking information known to the grand jury. According to a person familiar with the case the Bloomberg reporters being subpoenaed are microcap reporter Zeke Faux and long time Business journalist Patricia Hurtado. Christine Smythe, who is now an associated editor at trade publication The Insurance Insider, is also suppose to be subpoenaed. Smythe says she isn’t aware of any subpoena. Smythe worked with Zeke Faux when she was at Bloomberg to break news that the FBI and Postal Inspectors raided the New York office of Platinum Partners on June 22, 2016, which was nearly 6 months before the hedge funders were arrested. In a letter to the judge the DOJ has already complained about journalist being subpoenaed.

Smythe and Faux reported the raid was due to an investigation by the EDNY over problems with the hedge fund’s business. Their story described the scene in Platinum Partner’s lobby when the raid was happening so it looks like they were either tipped off to go see it or someone at the government told them what happen. The attorneys at the Eastern and Southern district of New York have a habit of tipping off their favorite reporters to raids in an attempt to get a visual perp-walk into the news before a defendant is even charged. It’s the same pattern of legal maneuvering we saw in the SDNY’s long running insider trading investigation into Stevie Cohen and friends at SAC capital. After the raid at Platinum, Zeke Fauk reported on August 11, 2016 that the EDNY investigation was focused on illiquid assets the fund held that were investments in oil fields. Faux reported the drops in the oil market and production didn’t match up with what Platinum was posting as returns on their oil investments. How Faux figured out Platinum asset valuation problems and the EDNY legal strategy to charge Nordlicht and team has been front and center of Nordlicht’s defense.

According to court filings and a person familiar with the case Nordlicht got a hold of internal DOJ emails and text messages between attorney Winston Paes and the Bloomberg reporters by forcing the DOJ to hand them over via a Freedom of Information filing. Because the emails showed attorney Paes was talking to the Bloomberg reporters and even met for drinks with Christine Smythe the night before the raid; Nordlicht has argued it was Paes and his team who leaked information from his investigation to Bloomberg. Nordlicht’s attorney Jose Beaz has been screaming that this is misconduct by the DOJ and the case should be thrown out. Attorney Beaz argues by tipping off journalist the DOJ forced Platinum’s investors to rush to redeem and forced the fund into Bankruptcy, basically crippling the defendants in the case before they were even arrested. According to a person familiar with the communications Paes would regularly reach out to female reporters Smythe and Hurtado.

Nordlicht’s lawyers said in opening arguments this week they don’t know for sure what info the government tipped off to the journalist or who did it but wants a chance to put people involved on the stand to prove their theory. The judge isn’t buying the DOJ misconduct theory though and ruled team Nordlicht couldn’t use that as a strategy before the trial started. Attorney Jose Beaz side-stepped that decision in his opening arguments on Tuesday and brought up the idea of DOJ misconduct in a move that got his theory in the juries mind and the DOJ is freaking out. Letters to the judge filed in the last few days show the DOJ is trying to get the judge to ‘punish’ Nordlicht’s lawyers. Additionally team Nordlicht has subpoenaed a lawyer at the law firm attorney Winston Paes is now working at. There is a motion to squash the subpoena and the judge has not decided on it as of press time. The Debevoise lawyer subpoenaed, Micheal Mukasey, did a due diligence review for Platinum in 2013. It was designed as a third party review to give institutional investors confidence in the returns and asset values Nordlicht was posting. Team Nordlicht would likely want to argue that Winston Paes violated some kind of DOJ conflicts policy by going to work for a law firm who previously represented Platinum but the judge has made statements it doesn’t matter because the DOJ actions don’t have anything to do with the crimes being argued. The DOJ misconduct strategy could be used if Nordlicht’s case goes to appeal.

A few months prior to the Bloomberg stories in question, Reuters investigative journalist Lawrence Delevingne was first to report how is was very curious that Platinum got bond holders in Black Elk Energy to vote to give Platinum, an equity investor, money from the sale of assets. Bond holders always get paid before equity in the capital structure. Delevingne figured out that the voters in the bond ran a fund called Beechwood and had previously worked for Platinum. When the DOJ eventually charged the Platinum executives, the questionable actions Delevingne highlighted in his reporting were front and center in the DOJ complaint.

What Delevingne didn’t report in his April 2016 story (we are going to assume because he didn’t know it), was the money Platinum got from the alleged bond rigging vote was desperately needed to keep returns up and payoff redemptions to some of Platinum’s favorite investors. At least that’s what the DOJ says happen and now they have to prove it at trial. Nordlicht and his co-conspirators have plead not guilty and said in press reports they look forward to trial so they can clear their names.

The idea that Winston Paes colored outside the lines in his work at the DOJ isn’t surprising to anyone who has covered one of his investigations. Attorney Paes showed signs of being a media whore through out his career at the DOJ. He was actively seeking to get his name in the press like the glowing profile Christine Smythe reported on his rule at the EDNY a year before Nordlicht’s arrest. Paes like to go after Wall Street indictments that would make splashes and was involved in multiple cases he never finished at the DOJ. He acted as a lead attorney at the end of the NIR Group hedge fund fraud case and then was part of the EDNY lawyers that failed to build a case to charge NIR Group’s leader Corey Ribotsky for securities fraud. (I reported for years on Ribotsky’s fraud which led to the SEC civil securities fraud charge against Ribotsky and was in the court room when the EDNY attorneys admitted they failed to build a criminal case against Ribotsky even though they had secured a conviction against Ribotsky’s right hand man Daryl Dworkin.) I reported in 2014 for the trade publication I was working for called Growth Capitalist, that the EDNY also leaked me information about their investigation strategy into Ribotsky and his fund. The government lawyers use to call me looking for witnesses they could use to build a case. If the witnesses wanted to talk I did connect them DOJ lawyers. It was how I was able to confirm a criminal investigation was going on and pass muster to report it with my editors at DealFlow media and MarketNexus Media. If the subjects of my stories had tried what Nordlicht is doing, subpoena me to reveal sources in a criminal investigation, I wouldn’t do it and would be willing to be held in contempt. But in the case of the DOJ I don’t consider them a source especially given the fact that any seasoned investigative journalist knows they are only giving you info to prejudiced a jury before they have a chance to get to court. In my NIR Group reporting I didn’t go seeking DOJ help they proactively came to me.

With the Nordlicht case it could be someone not even working for the government that was helping reporters with research, like others familiar with the fund, who were trying to warn investors to get their money out before the fund folded or they were just pissed at Nordlicht. And the stories that were not assisted by the DOJ could be the cause of the rush to redemptions and the fund’s bankruptcy. But we don’t see Nordlicht’s lawyers arguing that. I have always been uncomfortable with the way the DOJ has some magical bat line to pubs like the Wall Street Journal who get tips to show up at dawn to video a Wall Streeters arrest then report the DOJ’s side of a story while the defendant is left being forced into silence because his lawyers have warned him not to talk. But that’s not happening with Nordlicht because he is fighting back in a very public way, which is why this case is an incredible view for reporters and their readers to see how the sausage gets made at the Department of Justice. It’s a unique chance to view the dirty tactics the DOJ is allowed to execute in the name of justice regardless of if the defendants likely did what they were accused of.

John Marzulli, press guy for the EDNY, has refused comment on this story and won’t answer basic questions like how DOJ conflict rules work. Zeke Faux did not respond did not to a request for comment. We will be watching to see if the judge allows journalist to testify and Bloomberg’s legal team will likely fight the subpoena. Nordlicht’s lawyer would not comment on the case.

This story is updated

UPDATE 5.1.19: Chris Roush of Talking Biz News got a senior press woman at Bloomberg to respond to the news their journalist have been subpoenaed. She admitted it happen and said if Nordlicht doesn’t withdraw the subpoenas Bloomberg will file a motion to squash. The DOJ has about four weeks to present their case, so the Bloomberg journalist won’t be called as defense witnesses for about a month. As of now Nordlicht is not withdrawing the subpoenas so it’s in Bloomberg’s court to put an argument into the public court docket about why their Journalist shouldn’t be forced to testify and to fight for source protection. Keep in mind the sources they’d be protecting, according to Nordlicht’s court filings, are allegedly the DOJ and FBI. Bloomberg public relations was silent today when I asked them to respond for comment.