Honig’s broker dealer Laidlaw target of FBI investigation

A bio-pharma company based in Massachusetts is the newest stock to be tied to a ring of small cap fraudsters lead by Barry Honig. Yesterday I reported Eloxx Pharmaceuticals ($ELOX) is being sued for fraud in relation to a securities transaction from 2017 that directly involves accused pump and dumpster Barry Honig and Philip Frost. I have now learned there is also a broker dealer that is under investigation by the government that helped team Honig sell shares of Eloxx to unsophisticated main street investors to create volume in the stock. According to multiple people who worked at the firm and public filings that broker is none other than Laidlaw & Co. At the time Laidlaw sold the first offering in Eloxx it was called Sevion Therapeutics.

Laidlaw is run by Matt Eitner and James (Jimmy) Ahern. The duo were subject to two investigative stories by this publication about there long-standing involvement in helping Barry Honig execute the dump portion of his scheme in multiple securities. Beginning in 2015 when Honig’s puppet CEO David Rector took over, Laidlaw pushed its staff to sell a $7 million private placement to its retail client base. Laidlaw is now being sued by a former long time client for up to $2 million for selling the client Eloxx and other stocks. The client is a retired doctor from New Jersey named Bruno Casatelli. According to a copy of the FINRA complaint, which is private because it’s in arbitration, also names Barry Honig as a nefarious insider working with Ladilaw’s Eitner and Ahern to benefit his investments over the firm retail clients. Stocks Casatelli names in the lawsuit as being sold with unsuitable recommendations and fraud are: Aethlon Medical, Inc., Actinium, Boston Therapeutics, 5G Investment, LLC., Alliqqua, Inc., Aspen Group, Inc., Brazahav Resources, Inc., Fusion Telecoms International, Inc., Protea Biosciences Group, Inc., Aeolus Pharmaceuticals, Inc., Biosig Technologies, Inc., Contravair Pharmaceuticals, Inc., Medovex Corp., Relmada Therapeuticals, Sevion Therapeutics, Spectrascience Inc, and Spherix Inc. Casatelli is being represented by Daxton White of The White Law Group out of South Florida.

Casatelli’s lawsuit list a litany of no-nos a FINRA registered broker dealer like Laidlaw knows it shouldn’t be doing but what now has the attention of the FBI and the DOJ in the Southern District of New York is the alleged conspiracy between Honig and Laidlaw executives to cheat their clients of out profits for the benefit of Honig and his other alleged bad actor small cap investors. According to a person with direct knowledge of the situation who was asked by the government to remain unnamed, at the beginning of this year the SDNY was calling in ex-Laidlaw staff to testify against the firm and were asked to wear a wire. I have previously reported there is an active FINRA enforcement investigation into Laidlaw but this is the first time I got notice the FBI in New York was recently involved.

Honig is currently battling a fraud suit led by the Securities and Exchange Commission but no criminal charges have been brought yet against the man who allegedly cheated main street investors out of millions for over a decade. The SEC amended complaint filed this month said Honig and his buddies, which include billionaire Philip Frost, Michael Brauser, John Stetson, and Marc Groussman, manipulated between 70 to 80 stocks over the course of their scheme. But only three companies are detailed in the regulators complaint. Recently, Frost’s OPKO Health made a SEC filing warning that while Philip Frost, the company head, has settled with the SEC without admitting guilt “other government agencies could still bring charges against Frost or his company”. Another agency likely means the DOJ. Which is why it would make sense for the DOJ to be building a strong case against Laidlaw’s Eitner and Ahern because if they get enough to charge them the Laidlaw duo would likely make very good cooperating witness against Honig.

Besides the client civil suits against Laidlaw, the firm nor its executives, have been charged by a government agency yet. Although they do have multiple FINRA fines imposed against the brokerage.

UPDATE 3.20.19 – Last night someone wrote into this publication saying they were a NBC journalist and were doing a story on me and stated they had proof I was accepting payment via venmo from people involved in the story. They used a nbcuni.com email address to post a comment demanding I answer that question here in the comments on this story. I have contacted NBC who had confirmed the name they used is not an NBC reporter, producer or even a name in their directory. The email was john.castletani@nbcuni.com.

This was a person pretending to be a fellow journalist trying to intimidate me.

I do not and never have taken donations from subjects of my stories. In fact in the last two stories I have reported this week I have received no donations although I need them. I was told by two former Laidlaw employees that Jimmy Ahern and Matt Eitner have hired a black ops public relations firm to try and retaliate against me for my reporting on their alleged fraud. Additionally there have been two attempts today to hack into my backend publishing platform. Luckily the software security for this news publication stopped it.

Honig & Eloxx Pharma sued for stock fraud : $ELOX

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

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

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

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

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

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

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

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

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

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

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

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

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

John Winfield vs Honig and … by on Scribd

Greenwich Tennis Competitor’s dad Gordon Caplan arrested in Operation Varsity Blues

UPDATE 4.5.19: Gordon Caplan is the first parent to admit guilt. His attorney circulated this statement today: “My immediate goal is to focus on making amends for my actions to try to win back the trust and respect of my daughter, my family, and my community,” Caplan said in a statement Friday. “The remorse and shame that I feel is more than I can convey.” Caplan also said his daughter Rachel, who is a junior in High School, had not applied to college yet. His white-shoe law firm Willki Farr said they have finally removed him as a partner. If Caplan’s plea remains a felony charge he will not be able to keep his law license.

Original Text
The Co-Chairman of a white-shoe law firm, Gordon R. Caplan, has been charged with a felony for making payments to help his daughter cheat on a college entrance exam. Caplan, a seasoned dealmaker for private equity firms was removed from his duties at Willki Farr Gallagher LLP today. It’s unclear if he is still getting paid but the law firm went right to work scrubbing his bio off their website. He was released on a personal signature $500,000 bond and given strict travel conditions.

Gordon, age 53, lives in uber-wealthy Greenwich, Conn. with his 49-year old wife Amy Elizabeth Caplan who grew up with family money in Greenwich and is a member of the Treibick family. Amy attended an exclusive private school called Greenwich Academy.

The Boston office of the FBI obtained wiretaps and recorded both Gordon and Amy speaking with the man who orchestrated the college entrance admission bribe scheme. That man is William Rick Singer who has already plead guilty and worked with the FBI to record parents involved in the scheme. Wiretaps show Amy saying she ‘wasn’t ok’ with the idea of payments made to a proctor of the ACT exams to manipulate the score of her daughters test. Yet the family moved forward with the plan and flew their daughter out to Southern California to take the exam at a testing center where people were placed to help rig it. Gordon eventually asked Singer to stop adding his wife to emails about the scheme and the DOJ says it was Gordon who made the illicit payment.

The complaint says the daughter was enrolled in an online high school. Research shows that daughter is Rachel Treibick Caplan. Rachel has been working on gaining recognition on the juniors national tennis circuit and plays in tournaments around the US.

Rachel Treibick Caplan

Gordon Caplan daughter. Operation Varsity Blues.

It’s unclear how much the daughter knew but their appears to be some culpability. The government said that the daughter went to see a doctor and was told to ‘play stupid’ so that she could get the doctor to claim a disability. The disability would allow her more time to take the exam. Caplan ended up paying Singer’s non-profit $75,000 to execute the cheating scheme; a payment that was conveniently set up to be tax deductible.

Gordon Caplan was taped asking William Singer if anyone had ever been caught in the scheme. Singer’s response was basically only if you tell someone and Gordon responded “his daughter wouldn’t talk”. Rachel took the test this winter and the complaint says her score was 10 points higher. Gordon alluded to thoughts of his daughter going to his college, Cornell, on the wiretaps but the complaint didn’t say if Rachel had used the fraudulent scores to apply to college yet. The DOJ decided not to charge any of the students tied to 33 parents arrested in the scheme even though they said some of the teens knew of the cheating scheme. Gordon’s wife Amy was also not charged.

Gordon was caught on tape saying “he didn’t care about the moral ethics” of the scheme. But did express concerns about his daughter being caught because “she’d be finished” if she was.

With an ethics statement like that Willkie Farr is likely already starting an internal investigation into Gordon Caplan’s work with the law firm’s clients. It’s the firm duty to report his actions to the state bar association with the idea that if you cheat once what else did you cheat at.

A phone call made to the Caplan’s Greenwich home went to voicemail and the voicemail was full. Caplan’s attorney did not return a request for comment.

Gordon was arrested around 6 am on Tuesday March 12 and had to spend some time in a holding cell in downtown New York. Two addresses were listed on his warrant. A $5.3 million mansion on 20 Brywood Lane in Greenwich Conn. and a classic-6 with park views at 25 Central Park West apt 7N, NYC, NY. He was processed and released late in the afternoon and wouldn’t comment to reporters waiting outside the courthouse.

Caplan has retained white collar criminal defense lawyer Patrick Smith who is a sole practitioner. In an odd move he also retained Peter S. Cane who practices civil litigation and is know as a ‘media lawyer’. Wire fraud faces up to five years in jail. Being found guilty of a felony is grounds for disbarment. Caplan is scheduled to appear next in Federal Court in Boston on April 3.

Gordon Caplan with attorneys Patrick Smith & Peter Cane (right)

Readers of this publication are familiar with the attorney Gordon picked Peter S. Cane who takes on some questionable clients. Cane just lost a case trying to bully and intimidate a journalist into revealing a confidential source for hedge fund manager Bruce Bernstein. Cane also lost the chance for his client to keep his divorce records sealed when a judge ordered the unsealing of the case. The divorce docs allegedly show Bernstein committed securities fraud. The journalist Cane sued was me.

EDITORS NOTE: This story has been updated. Amy attended Greenwich Academy not Brunswick. They are related schools in Greenwich.

Gordon Caplan Arrest Warran… by on Scribd

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

UPDATE: 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.

Original Text

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