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, Scrasdale 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 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 saw 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

Iroquois’ Richard Abbe quits XpresSpa while company battles Fraud Lawsuit

An XpresSpa board member, Richard Abbe of Iroquois Capital, has quit the company board during the middle of a heated legal battle accusing board members of deception, undue influence, and fraud. The day before his resignation Abbe, who is named personally in the lawsuit, took the extra step to retain his own lawyer in the securities fraud lawsuit that I first reported on in August.

Over the holiday break, when no one was paying attention to SEC filings, XpresSpa filed an 8-K on December 26th announcing Abbe’s departure as of December 18. Then after years of board service XpresSpa suddenly decided they should vote to offer the hedge fund manage a holiday gift. The board agreed to indemnify Abbe and advance any legal fees he might need to defend his good name from allegedly being involved with shenanigans, like you know misleading regulators or stock holders. The 8-K says this nice little exit present also includes the company picking up the tab for any fines or settlements Abbe might have to pay as a result of his work on the board. But what’s not clear is if Abbe was found acting in bad faith or criminal conduct that the indemnity would still hold.

The defendants in this case are being accused of a fraudulent scheme to trick the founders of an airport spa business, XpresSpa, into a merger with a public Microcap company that resulted in a massive loss of their business investment.The public company was called Form Holdings.

During the litigation, that begin in November 2017, I reported an ex-wife came forward with some potentially damaging evidence that would put some of the defendants in the hot seat with the Securities and Exchange Commission. That’s because the Sarbanes Oxley Act upped the anti for individuals to be charged criminally for making false claims in a Proxy Statement. A proxy statement is a legal document containing the information the Securities and Exchange Commission requires companies to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual or special stockholder meeting. Issues usually covered in a proxy statement include proposals for new additions to the board of directors, information on directors’ salaries, information on bonus and options plans for directors.

More importantly, a proxy statement discloses any potential conflict of interest between the company and its directors, executives and auditors. Specifically, proxy statements must list any related-party transactions that occurred in the past between the company and its key personnel. Not disclosing conflicts of interest and related party transactions is exactly what the plaintiffs in the XpresSpa are accusing Abbe and friends of doing.

I have previously reported how Abbe is intertwined in this litigation drama with his fellow New York investing buddy Bruce Bernstein, who is president of Rockmore Capital. Bernstein and Abbe have a history of investing along side another small cap financier who has been widely reported on for his alleged leadership role in a pump and dump ring. That man is non other than Barry Honig. One such company is Vringo the predecessor to Form Holdings who is a named defended and the XpresSpa case.

In fact Abbe’s fund Iroquois Capital was named in one of the SEC subpoenas in the Honig Case. The government was looking for communications from Iroquois and one of the companies named for being a pump and dump called MGT Capital. I was first to report on the contents of the SEC subpoena, which was fishing for information to prove this group was trading as undisclosed affiliates and influencing public company CEO’s to get false press release published to drive up the price of a stock.

Surprisingly Iroquois capital, nor its fund managers, were named in the original SEC complaint against Team Honig. The SEC asked the court to file amended complaint, which is due February 6, that could add more names to the Honig enforcement action.

The XpresSpa case is currently in the Summary Judgement phase. This is where the defendants ask the judge to rule on the case without lengthy discovery and depositions being allowed. The former XpresSpa owners will be hoping the judge doesn’t allow summary judgement and the case moves forward to trial. This would force Bernstein and Abbe to have to do depositions and turn over more internal communication via discovery. Keep in mind of a lot the juicy parts of this case are redacted from public filings. A notion I find unfair to public markets and XpresSpa current and future common shareholders.

You can find the SEC subpoena here:
https://www.scribd.com/document/338889092/SEC-Subpoena-MGT-Capital-September-2016

$XSPA 8-K Abbe Board Resignation:
https://www.sec.gov/Archives/edgar/data/1410428/000114420418066266/tv509891_8k.htm

Previous reporting on XpresSpa, Abbe, and Bernstein:

Iroquois Capital’s Richard Abbe Sued For Fraudulent Takeover Scheme of XpresSPA

Rockmore Capital’s Bruce Bernstein Ex-Wife Outs him for possible SEC Violations in $XSPA Deal

Iroquois Capital’s Richard Abbe Sued For Fraudulent Takeover Scheme of XpresSPA

A co-founder of Iroquois Capital, Richard K. Abbe, is being accused of a fraudulent scheme to trick the founders of an airport spa business, XpresSpa, into a merger with a public Microcap company that resulted in a massive loss of their business investment. On August 6, a federal judge in New York allowed a securities fraud case to go forward against Abbe and other company executives. The lawsuit, which was filed in November 2017, has claims of undo influence, deception, and kickbacks used to effect a merger takeover by Form Holdings. Two claims of Securities violations consisting of 10(b)5 and Section 20 survived the defendants motion to dismiss.

Moreton and Marisol Binn, the XpresSpa founders, alleged two members of their board, Andrew Heyer of Mistral Equity Partners & Bruce Bernstein of Rockmore Capital Group, hid their financial ties and personal relationships to Form Holdings board member Richard Abbe and Salvatore Giardina along with its CEO Andrew Perlman before the 2016 merger. The complaint alleges by covering up their cozy relationship it allowed the XpresSpa directors to mislead the Binns on how much they would earn if the merger completed. And in turn the vote to approve the merger was a coordinated and premeditated effort by Bernstein, Abbe, Perlman and Giardina to deceive the Binns and other minority shareholders to take an all-stock, no cash, sale price to enrich themselves at the Plaintiffs’ expense.

The fraud claims surviving the motion to dismiss is a rare event in securities ligation for Microcap companies. That’s because most companies, including XpresSpa, sign joinder agreements that release all the parties from this type of litigation. Additionally, the investment funds like Iroquois or Barry Honig’s team of investing affiliates have typically bled dry the small company CEO’s stock barrel of cash by the time they have figured out they’d been deceived and can’t afford to file a lawsuit. But the Binn’s aren’t the kind of men to lay down to alleged market manipulators. With their ability to afford seasoned securities litigators like Rosanne Felicello and Michael Maloney of CKR Law LLP, it appears a compelling legal argument was made to blow through the general release of ligation and convince Judge Stanton to move the case forward. The defendants lawyers at Mintz Levin even tried intimidating tactics to scare the Binns into dropping the case by filing motions for sanctions against their attorneys for bringing the lawsuit in the first place. Attorney Francis Earley, of Mintz Levin, sent multiple letters to Attorney Felicello basically warning it doesn’t matter what you think happen the joinder agreement release doesn’t allow you to sue the defendants. But this month Judge Stanton said the defendants lawyers were wrong and the Binns could sue. The Judge wouldn’t even grant an oral argument to hear their motion to dismiss or sanction claims. Instead the judge ruled on the detailed information about the alleged fraud that was laid out in the briefs. Net Net I bet Richard Abbe, who I have previously reported on for his funds role in some questionable financing with MGT Capital, is starting to get a little worried about what is going to coming out in discovery.

The trouble started for the Binns when XpresSpa took a high interest senior secured loan from Rockmore Capital which is owned by the company’s director Bruce Bernstein. Besides securing anything in the company that had value against the loan there were also stringent covenants put in place that allowed Rockmore to force a default on the loan. Such as when a full audit didn’t arrive on the date Rockmore asked for it a default event occured that allowed Rockmore to add $500k of interest to the loan and scared off previous lenders, like BofA, from offering a credit facility at lower market rates. Putting the loan into default also put Bernstein in a control position over the company enabling him to significantly influence merger decisions.

Before the merger in August 2016 XpresSpa was having cash flow problems that lead to their inability to keep adding nail spas in airports and keep up with competitors. And a $6.5 million debt due in 2018 was a big thorn in their side. So when the idea of merging with a public company, that had been in the Patent troll business, and claimed to be worth $35.1 million came along it didn’t look so bad to the Binns. Especially given XpresSpa board member Bernstein made promises that once the merger was complete Form Holdings would get rid of their Rockmore debt and spend dollars on XpresSpa shops expansion into new airports, according to the lawsuit. The Binns were also led to believe the new publicly traded stock they would get was actually worth some money and would only go up in value because Form Holdings had real venture deals with companies that had valuable patents and cash flow.

But none of that happen. The complaint details how Richard Abbe, through a $12.5 convertible debt deal with Form Holdings via his investment fund Iroquois, was able to load up on equity in Form Holdings via a debt to stock conversion. Form Holdings use to be called Vringo Inc. On May 9 2016, before the merger, Abbe secured a seat on the board of Form Holdings. SEC filings for both companies claim Abbe and Bernstein were independent directors of their perspective companies. Yet both men had chock holds on XpresSpa and Form Holdings because they were also their substantial creditors.

After the merger completed the Binns say Form Holdings started to sell off, for very little money, the ventures tied to patents that they claimed had millions in value. One reason for this could be the patents value were really just speculation sold as a fabulous future cash flows but the Form Holdings directors knew what looks good on paper doesn’t turn into real cash.

The lawsuit also alleges “Members of the Controlling Group, acting through various investment vehicles such as
Rockmore and Iroquois, have coordinated similar changes in control or other coordinated
activities with respect to GeoResources, Inc., USA Technologies, Inc., and TapImmune, Inc. ”
[The control group consist of: Abbe, Perlman, Bernstein and Giardina.]

Now here is were things can get dicey for Abbe and Bernstein. In a brief responding to the defendants motion to dismiss we see the plaintiff allege that Abbe, directly or through another investment vehicle or another person he controls, put some of the money up for Rockmore to lend $6 million to XpresSpa. Remember Abbe doesn’t show up on this deal in public filings until there are merger talks. And the Binns will say they never heard of Richard Abbe until they were introduced to the idea of merging with Form Holdings. What has me extra curious is what kind of documents have been put under seal in this case. Is there some kind of proof the Plaintiff has discovered to prove Abbe’s involvement in RockMore?

I emailed Bruce Bernstein directly to see if he wanted to respond to this allegation but as of press time I had no response.

But that’s not all Team Abbe allegedly did in this deal.

Form Holdings CEO Perlman, already a member of the board of Form Holdings, arranges to have Bernstein also appointed to the Board of Form. Perlman and Bernstein then arrange to have Abbe appointed to the board of Form. At the same time, Bernstein used his position as a board member of XpresSpa to cause that company to enter into the onerous Rockmore Note. Bernstein, Perlman, and Abbe then offered Heyer a sweetheart deal if he would assist them to facilitate a merger of XpresSpa into Form .The lawsuit claims XpresSPA director Andrew Heyer would be given a ton of stock, valued at $2.31 per share at the time of transaction, if he voted for the merger and the Binns were never told he was going to get this stock if he approved the deal. As far as Bernstein goes, he also got the highest amount of compensation the new company bylaws would allow, was put on the audit committee, the compensation committee and made a member of the new company board. It’s this quid pro quo alleged in the complaint, which I would call a kickback, that allowed the Section 20 violations to be litigated. Claims that you’d hope the SEC would take notice of. Net-Net the Securities and Exchange Commission has laid out in previous enforcement cases that “You can’t bribe executives with stock to motive their vote and not tell other shareholders about it”.

Honestly this whole scenario reads like the Control Group’s corporate attorneys needed to go back and read the Securities and Exchange Act definition of an independent director and disclosure rules because it looks like their clients can’t really be relayed upon to tell the whole truth. And clearly the fact pattern was enough for Judge Stanton to say if this is true then that’s material information that was omitted and it’s worth going threw discovery to build a case for trial.

Recently signs of worry about what will come out in discovery appear to be showing up via the exodus of high level executives. On July 23rd attorney Felicello wrote Judge Stanton expressing serious concern that limited discovery was going to have to be allowed. This is before the decision on the motion to dismiss came down. Anastasia Nyrkovskaya, the CFO of Form Holdings who could also be a key witness to the facts underlying the lawsuit announces she is leaving the company. And so did the senior V.P. of legal and business affairs for XpresSpa Jason Charkow. The defendants lawyer wrote back the company has preserved all their communication and attorney Felicello was over reacting. But the fact of the matter is if these two bail to another country getting them to show up for a deposition subpoena might prove difficult.

Additionally the company just filed with the SEC announcing they have a $20 million goodwill write down. This is basically saying they don’t think the brand XpresSPA has held value and they might be bailing on the whole airport spa biz. Something they promised they’d grow at the time of the merger, according to the lawsuit.

The defendants have till the end of the month to answer the lawsuit. And then the interesting part begins as discovery happens and these alleged bad actors have to go through sworn depositions.

The Plaintiffs attorneys would not comment on the case. The defendants lawyer didn’t respond for comment. Some of the claims for unjust enrichment, negligent misrepresentation, and breach of fiduciary duty were thrown out of the case. But the strongest claims of Section 10(b)5 and Section 20 violations remained. The company Form Holdings is also a defendant in the case. Remember if you prove fraud (Section 10b5) you get to ask a jury for triple damages.

Form Holdings changed its ticker symbol this year so you can now find them under ticker $XSPA.

Editors Note: This type of reporting is costly from researching volumes of legal documents and corporate records. Donations are important and very helpful to keep this publication going.This publication does not take donations from the subjects of a story.

Here it is: that MGT Capital SEC Subpoena

MGT Capital was subject to a subpoena sent by a lawyer at the Securities and Exchange Commission named Katherine Bromberg who is senior counsel in the New York office of the division of enforcement. The Subpoena demanded a response by September 28, 2016. MGT’s stock had been on a soar after it was announced the company was going to merge with John McAfee’s private security company. MGT CEO Rob Ladd was forced to announce the receipt of the subpoena by the exchange the company listed on, the NYSE, and the stock started a slide. The NYSE latter delisted the company without explaining in writing what their reasons were and did not allow the issuance of millions of new shares that the company approved in a board of directors vote.

The company is now on the OTC pink sheets waiting for the top-tier of the OTC markets to approve their listing. John McAfee was eventually made a director of the company but the merger of his security assets isn’t completed yet. The company website says “MGT Capital Investments, Inc. is in the process of acquiring a diverse portfolio of cyber security technologies. With cyber security industry pioneer, John McAfee, at its helm…”

In September MGT CEO, Rob Ladd, who signs all SEC filings, said in a press release the company didn’t think the SEC subpoena questions were focused on ‘the company’. Latter that month I was first to report on some of the people named in the SEC subpoena for the trade publication I report for Growth Capitalist. I reported Barry Honig, Michael Brauser and Josh Silverman’s hedge fund as being subjects of the subpoena questions. I had interviewed an executive at the company who said they thought “the focus of the SEC subpoena was about Barry Honig and the people he invested with.” I then wrote an opinion piece at teribuhl.com that Honig and friends were the subject of this subpoena.

Below is the subpoena for the reader to see and formulate their own opinions. This is the first time it is being made public. The name of the companies on page 7 are all owned by the names of the people on page 7-8. I was told by a person at the company all of these people invested with MGT Capital and you need a flow chart to show their interconnectedness. I have also researched other public filings and found these people have invested in the same equities in the past. Most of these people say they are passive investors and don’t know each other or don’t ‘invest together’. It’s my belief after a decade of proven investigative reporting and based on knowing how to read a SEC subpoena, along with interviews with people involved in the transaction and past investing transaction of Barry Honig, that the regulator is looking for evidence that these people traded as a group and therefore became beneficial owners of the stock. If you have beneficial ownership of a stock it affects when and how much you can sell your stock so investors, like the group here, often try to keep their public ownership of the stock below 10%. I think the regulator also wants to know if any of the investors, who except for Josh Silverman were not on the board of the company, had any influence in the McAfee merger or the paid stock promotion by Stock Beast. But the most interesting question is number 10.

All Documents and Communication concerning MGT’s acquisition of certain technology and assets of D-Vasive, as stated in MGT’s Form 8-K filed on May 9, 2016.

MGT had announced in its August proxy statement on page 23 that D-Vasive had had gotten a $850,000 bridge loan with convertible debt but didn’t disclose who did the bridge loan. John McAfee owns D-Vasive. I was told by a person at MGT that some of the names on the SEC subpoena had also done the bridge loan. If the merger had been approved, these people would have likely had D-Vasive stock warrants that would have became MGT stock and while the stock was flying high would have made a killing if they were able to sell. There are a lot of unanswered questions about that transaction and since D-Vasive is private they don’t have to answer them. Well unless a regulator asks. Like the timing of the warrants being issued, share registration, and who is holding the shares for the required 6 month period.

These people are sophisticated investors with expensive lawyers who help structure transactions designed to protect them form violating any securities laws like trading as a group without disclosing it. That type of SEC violation is hard to prove and I don’t know if the regulator will get the evidence to prove it but it is good to see them asking the questions. I want to hear from readers and market participants on what you think some of these SEC questions are trying to get at. Use the comment section or email me at teribuhl.com with your thoughts.

MGT says it has answered the SEC subpoena.

SEC Subpoena MGT Capital September 2016 by Teri Buhl on Scribd

UPDATE January 2018: On September 15, 2016, MGT Capital received a subpoena from the Securities and Exchange Commission. The subpoena requested documents and communications between MGT and Barry Honig. It also sought documents and communications between MGT and eight other individuals and eleven entities associated with the individuals.

I have not confirmed with the SEC that Barry Honig is in fact the subject or target of any SEC investigation. No person at the SEC has ever informed me that the SEC is investigating Mr. Honig. The SEC, when called for comment, told me that they do not comment on ongoing investigations.

Hacked By XwoLfTn

Hacked By XwoLfTn – Tunisian Hacker

UPDATE 2.7.17 6pm – Well it looks like someone hacked my publishing platform and took down a story in the last 24 hours. Luckily I have a paper copy of the story and will be re-reporting the original story within the week.

Hacking a business site and trying to steal my assets (the reporting) is a federal crime. I have reported it to the FBI office in NYC and have a security company looking into the IP addresses that entered the site.

I’m asking readers for $300 in donations to help pay for a private server to host this site and extra firewall protection. The reporting that was hacked was about Barry Honig and his deal lawyer’s financial interest in a stock transfer company. I need your help to keep the reporting visible for everyone to read. You can donate via the Paypal button on the top right of the homepage. Thanks in advance for your support.

MGT Capital Receives SEC Subpoena Seeking Information about Barry Honig and Eight Other Individuals

Microcap investor Barry C. Honig is a subject of an SEC subpoena related to his role in trading and investing in shares of MGT Capital ($MGT). MGT Capital is trying to complete a reverse merger with famed tech entrepreneur John McAfee. I am reporting exclusive news today for Growth Capitalist on what’s inside the Securities and Exchange Commission subpoena MGT Capital announced was lobbed against them late last week.

News of the SEC formal demand for answers from the company delighted short sellers to the tune of a 40% drop in MGT’s stock. The company, currently run by CEO Robert Ladd, says it does not believe the SEC is targeting any of the company executives. But shareholders have expressed doubt this week given the lack of details the company was allowed to disclose about the regulatory investigation. On top that the NYSE, where MGT trades, announced it wouldn’t accept the new shares that are set to be issued in the reverse merger with John McAfee’s cyber security companies. The national stock exchange was kind of a jerk about it because they didn’t offer up a reason for the share issuance halt. Unfortunately, it’s a big clusterf–k of unknowns for the company and shareholders right now.

But one thing that my reporting makes very clear is the SEC wants to make sure Barry Honig isn’t’ doing anything shady (or out right illegal) with this company. According to insiders who saw the SEC subpoena, a large portion of the regulator’s questions are about Honig, his company GRQ Consultants, and people who invest with him. I can also confirm Honig has been calling SEC enforcement defense lawyers this week looking for representation. I first reported on Honig’s alleged illegal actions in my “Attorney Gregg Jaclin blew up his life and got busted for creating a shell factory scheme” story this Spring. The central theme of alleged bad behavior is Barry uses other people to run a company he is secretly controlling and indirectly pays stock pumpers to tout the company without disclosure.

You can see here in a DOJ plea deal made by one of Honig’s alleged puppet CEOs how Honig allegedly runs things behind the scene. This plea deal was first reported and unearthed by me in a story for Growth Capitalist in May.

The SEC has never been able to pin anything on Honig. We do see a FINRA action settled against him as a young trader in 2000 when he was working for a questionable PIPE financing firm called Ramius Capital (or Ramius Securities). On June 14, 2000 FINRA said Honig had acted as an affiliate trading with others and hid it by running the trade through two people instead of one.

Barry Charles Honig (CRD #2362713, Registered Representative, New York, New York) submitted a Letter of Acceptance, Waiver, and Consent in which he was fined $25,000 and suspended from association with any NASD member in any capacity for 10 business days. Without admitting or denying the allegations, Honig consented to the described sanctions and to the entry of findings that he sought to inappropriately coordinate a trade report to ACT with another market participant as two separate trades instead of one.

Honig has a SEC deal lawyer, Harvey Kesner at www.srff.com , who apparently has been able to keep the SEC at bay in tons of questionable pump and dump deals Honig invested in. I know from interviewing MGT’s executives and reviewing Honig’s financing transactions that he wasn’t a control person at MGT. CEO Rob Ladd, who used to run a hedge fund, put blockers in Barry’s finance deal that don’t allow him to own a certain percent of the company. What we don’t know is whether Barry teamed up with his favorite investing partner Michael Brauser and acted as an affiliate in trading MGT stock, which blew up to a 700% gain when news of a John McAfee merger was announced in May. Affiliate trading without disclosure is a big SEC no-no, which I explain my story today at www.growthcapitlist.com. Honig through his attorney did not return a request for comment.

For now it’s a wait and see as MGT scrambles to get the SEC to clarify to stock exchanges that the reverse merger deal is clean. And market participants sit on the side line to see if the SEC can get the goods to finally charge Barry Honig.

Clarification 9.23.16: Barry Honig is pulling out the big legal guns apparently worried about anyone reporting on what’s inside that SEC subpoena. As of 5:30pm I was contacted by a California attorney, Charles Harder (who repped Hulk Hogan), for Honig demanding to have the story taken down and to write an apology. I refused and stand by the sourcing in this story. I have spoken with people who have seen the subpoena again and clarified a sentence in the story that relates to a large portion of the SEC’s questions are centered on Barry Honig, his company and people he invest with. The original sentence said “90% of the SEC questions are about Barry Honig.” Additionally, Honig had two days to respond to questions about the subpoena before the story ran and refused to return a call and email for comment.

Update 10.7.16: One of the sentences in this story that Barry Honig has denied through his attorney Charles Harder is that he invest with Michael Brauser. Harder wrote in item #9 in his demand letter they sent me to get the story taken down:
“Implication that Mr. Honig “teamed up with his favorite investing partner Michael Brauser”. False; the two have not teamed up.

I’d like to take the chance to remind readers of this 2012-2013 litigation against Barry Honig, Michael Brauser, and the Brauser Honig Frost Group for their role in Biozone Pharmaceuticals, Inc. It was filed by the company’s former founder Daniel Fisher. This is from Fisher’s amended complaint filed in Northern California District Court on 11.22.12 . Case number 3:12-cv-03716-WHA

“In January 2011, Plaintiff Fisher met with a group of investors, the Defendant representing
itself as Brauser Honig Frost Group (“BHFG”). Over the course of the following six months, this
group of investors misled Plaintiff Fisher through an investment scheme designed to divest
Plaintiff of all of the economic rights and goodwill he had built through his company over the
course of the previous 22 years.”

After Fisher beat their motion to dismiss and the case moved into discovery we see the case was settled with the defendants paying Daniel Fisher half a million dollars.

And that’s just one reason why I stand behind my reporting, opinion, and sourcing in this or any story of mine on Barry Honig!

UPDATE 11.4.16 : I have filed a letter to the federal judge in Honig’s lawsuit against me that you can read here. Honig used a process server who lied in an affidavit that he served me. I have video to prove he is lying. Additional, I informed the judge Honig asked MGT Capital CEO Rob Ladd to call me and set up a private ‘off books’ meeting. A move that is pretty much a no-no legal tactic given he sued me. His lawyers are supposed to be the ones to contact me. I obviously said no to the meeting and told Rob Ladd if Mr. Honig wants to speak to me and comment on any of my reporting he can call me through his attorneys – he has enough of them. This secret meeting tactic is something I have learned he has used in other litigation…it feels like the purpose is to try and figure out if I am going to give up names of my story sourcing.

I still need a pro bono lawyer to go up against Hulk Hogan’s attorney Charles Harder. Honig apparently tried to hire Harder (an expensive lawyer who has been in the news for his anti-journalism legal work) to scare me into stoping reporting and it didn’t work. If you are interested in this easy to win suit please email me at teribuhl@gmail.com. I’ve been told NY laws make it favorable to sue back for attorney fees in NY court and this is an easy case to win given my sourcing and the fact a lot of what I wrote here is opinion. Donations are also helpfully now in case I have to defend my self pro se.

UPDATE 1-10-17: I’ve secured a top first amendment lawyer to represent me pro-bono. Chuck Tobin of Holland & Knight filed last week in Manhattan Federal Court to be lead counsel. We have till February 10th to file a response to Honig’s claim. I would like to thank Holland & Knight for stepping up and defending the rights of a freelance journalist.

UPDATE 2-21-17:Barry Honig voluntarily withdrew his lawsuit against me on February 8th. This was two days before my attorneys were due to file our motion to dismiss and we were given no warning or notice of why the suit was being dropped. I thought the litigation was over but now it looks like Honig and his attorney Charles Harder were just making a move to judge shop because today I got a repeat retraction letter asking again to take down my reporting and apologize. It’s my expectation that team Honig will just refile their suit in another court or another state which means the bullying of this journalist for reporting on a matter of public concern continues.

UPDATE January 2018: On September 15, 2016, MGT Capital received a subpoena from the Securities and Exchange Commission. The subpoena requested documents and communications between MGT and Barry Honig. It also sought documents and communication between MGT and eight other individuals and eleven entities associated with the individuals.

I have not confirmed with the SEC that Barry Honig is in fact the subject or target of any SEC investigation. No person at the SEC has ever informed me that the SEC is investigating Mr. Honig. The SEC, when called for comment, told me that they do not comment on ongoing investigations.

Microcap Attorney Jaclin fights SEC fraud case by Blaming Everyone Else

A veteran microcap deal lawyer is trying to blame the young lawyers who worked for him for his alleged role in a Shell Factory scheme that spanned nearly a decade. I am reporting for Growth Capitalist today on the continued saga of the once well-respected attorney, Gregg Evan Jaclin, who plans to the fight the SEC enforcement action brought down on him in May. Jaclin has since been removed from his New Jersey-based law firm Szaferman, Lakind, Blumstein & Blader and some of the lead associates under his wing are now employed at a competitive New Jersey firm called Lucosky Brookman LLP.

According to the SEC, Jaclin worked with a L.A. based man, Imran Husain, to take fake start-up companies public so that they could later be sold for a ransom fee to real microcap companies that wanted to avoid the high cost of going public by doing what’s called a reverse merger. When in reality what was being filed with the SEC were shell companies (not real businesses) and Jaclin is now in trouble because he issued what the SEC considers ‘false opinion’ letters vouching that these deals were legit. This was done over and over from 2006 to at least 2013.

Jaclin’s motion to dismiss the SEC case is the first time we are hearing from the now disgraced lawyer who ironically admits in court documents that the companies in the SEC complaint were in fact shell companies. This is important because Jaclin signed documents that told the SEC when he first began filing the companies legal documents to be approved to go public that they were legitimate businesses with real CEOs and a diverse investor base. Having a diverse investor base is one of the parameters that allows stock in reverse merger deals to be unrestricted to trade right away. With the shell companies Jaclin allegedly co-created only a few people actually owned the stock and the public didn’t know this. This is bad because it allows the stock to be easily manipulated for pump and dumps which is exactly what happen with one of the shells in a company called YESdtc/PR Complete. The CEO of YESdtc plead guilty to criminal charges related to stock manipulation in 2014.

To top off the odd legal logic in his response Jaclin also says he didn’t really supervise his associates who drafted the SEC filing so of course the SEC can’t charge him. I call utter hogwash on the notion that the head of a law firm’s capital markets practice didn’t supervise the lawyers under him. And lets not forget that I was first to report on a secret plea deal his co-conspirator, Husain, made with the Dept. of Justice back in 2014 that says Jaclin was wide-eyed involved in the scheme. So much so that he helped Husain find a former SEC enforcement lawyer, Mark Hunter, to represent one of the puppet CEOs when the SEC started to investigate who was actually running these companies. And according to Husain coached him on how to lie to the SEC and destroy emails.

Husain has since plead guilty to one count of criminal conspiracy for basically interfering with an SEC investigation. Attorney Mark Hunter of NYC-based Hunter Taubman Fisher & Li has now agreed to be co-counsel in defending Jaclin in the SEC case.

During my reporting on this story I heard some industry players say Jaclin had been given office space in his former protegé’s law firm Lucosky Brookman LLP and that there could be fee-sharing going on. Joe Lucosky and Seth Brookman, the firm’s founders, said that’s absolutely not true. I was able to find Jaclin’s new office phone number through a person that was answering phones in Joe Lucosky’s New Jersey office though. A GPS search shows the new office number, 609-245-0732, is somewhere near the Princeton NJ area. I also learned after the SEC case was announced Jaclin, who hasn’t lost his law license, is still taking meetings with players in the microcap space and apparently trying to still practice emerging growth companies. It’s not clear what clients stuck with him but we did confirm a recent equity crowdfunding deal that was all set to go public on the OTC Markets, BeautyKind, had to not only fire Jaclin as their SEC lawyer but also pulled the whole deal while it was closing. I reported for Growth Capitalist BeautyKind has since said in SEC filings they hope to redo the deal and list on the NASDAQ this time.

We’ll be watching to see if Jaclin backs down and settles with the SEC or if the DOJ brings criminal charges against him like they did his co-conspirator.

*The names of the former Jaclin associates hired by Lucosky Brookman LLP are Steven Lipstein and Jason Ye.