Healthcare billionaire and former Teva chairman Philip Frost has agreed to settle stock “pump-and-dump” charges with the Securities and Exchange Commission by paying $5.5 million.
Frost, without admitting or denying the SEC allegations, agreed to pay about $5.5 million in penalty and repayment of alleged illegal gains. His Miami-based biopharmaceutical and diagnostic company, Opko Health, will pay a $100,000 fine.
“We have reached agreement with the SEC that will end a potentially expensive, contentious and time-consuming litigation and I am happy that we can focus on an exciting and productive 2019 for Opko Health,” said Frost, a legendary biopharma entrepreneur who served as Teva’s chairman from March 2010 to late 2014.
Frost was one of 10 people and Opko one of 10 related companies charged by the SEC on Sept. 7, 2018, over alleged “pump-and-dump” schemes. The people and companies were said to have manipulated three companies’ stock prices from 2013 to 2018 and reaped $27 million in proceeds, according to the SEC (PDF).
The group allegedly bought large quantities of so-called “penny stocks” at steep discounts, used dubious promotion campaigns such as blog posts to inflate their prices without truthfully disclosing financial ties, and then sold their shares at high prices.
Frost was involved in two schemes, the SEC said. Based on SEC document references, the two companies can be identified as Biozone Pharmaceuticals, which makes OTC and consumer health products and was acquired by Cocrystal Pharma in a 2014 reverse merger, and cancer biotech MabVax Therapeutics.
In Biozone’s case, for example, a consortium Frost was part of once controlled nearly three-quarters of the company, a fact that wasn't disclosed in its annual report to the SEC, said the agency. Before the pump and dump, they allegedly paid John Ford to promote Biozone in a Seeking Alpha article (since removed from the website) stressing Frost’s involvement and “rosy prospects” for the company’s R&D. After Ford’s bullish “analysis” run in September 2013, Biozone’s stock price increased from about $0.48 in August to a high of $0.97 on Oct. 17 of that year. All told, the group sold their shares for about $9.26 million.
The story was largely the same for MabVax. Led by South Florida investor Barry Honig, whom the SEC called the scheme’s “primary strategist,” Frost and others took a majority stake in the biotech, boosted its outlook through a promotional article on Seeking Alpha in 2015 and sold shares for total proceeds of over $5.5 million.
In response to the SEC’s allegations, Frost in September said he was “stunned” by the lawsuit and denied the allegations. “The allegations against me are belied by common sense, my history of supporting promising scientific technology, and the facts,” he said at the time.
Frost, identified by the SEC as “a successful biotech investor,” was a longtime chairman and CEO of Ivax before selling it to Teva for $7.4 billion in 2005. He's held the reins at Opko as CEO and chairman since March 2007 and will remain in those jobs. But with the settlement, he will be restricted from trading penny stocks.