Biotech billionaire Phillip Frost charged by SEC, sending Opko shares sliding
UPDATE: Sept. 8, 2018: Following publication of this article, Opko Health on Friday posted a statement on its website responding to the charges against it and its CEO, Phillip Frost.
"The SEC failed to provide notice of its intent to sue prior to filing the complaint, which contains serious factual inaccuracies," the company said, noting that it believes the charges will be resolved favorably after further investigation.
- Opko Health CEO Phillip Frost, along with nine others, were charged Friday by the Securities and Exchange Commission for violating multiple sections of securities laws.
- The SEC alleges that over the past five years the Miami billionaire was involved with "a group of prolific South Florida-based microcap fraudsters led by Barry Honig" who "manipulated the share price of the stock of three companies in classic pump-and-dump schemes." Frost participated in two of the three schemes, the SEC said.
- Opko's stock slumped on news of the charges, dropping 18% from Thursday's close. The hit shaved more than $500 million off the company's value down to about $2.5 billion. Shortly after, Nasdaq trading was halted.
The octogenarian Frost has spent nearly the last five decades in the science and biotech world, with a hand in several well-known companies.
Opko describes itself as a healthcare company that includes the nation's third-largest clinical laboratory with BioReference Laboratories, as well as a portfolio of marketed and experimental therapeutics.
Frost founded Opko and in 2007 became CEO and Chairman, positions he continues to hold. Prior to running Opko, he headed up Key Pharmaceuticals until that company was bought out in the late 1980s, when he switched roles to lead Ivax Corporation. Following Ivax's acquisition by Teva in 2006, Frost joined the board of the generic giant with stints as both chair and vice chair.
A spokesperson for the company declined to comment in response to a request from BioPharma Dive. Opko later posted a statement on its website responding to the charges.
"The SEC failed to provide notice of its intent to sue prior to filing the complaint, which contains serious factual inaccuracies," the company said, noting that it believes the charges will be resolved favorably.
The 53-page SEC complaint outlines how Frost and nine others allegedly played a role in the illegal trading schemes, along with 10 associated companies, including Opko. The complaint was filed in federal district court in Manhattan and stems from an ongoing SEC investigation.
The suit claims three highly profitable pump-and-dump schemes between 2013 and 2018 with three small public companies enriched the defendants but left "retail investors holding virtually worthless shares."
The group had John Ford, a co-defendant, "write favorable or materially misleading articles about the company whose stock price they wanted to inflate" after investing. The three schemes raked in nearly $30 million in total proceeds.
"As alleged, Honig and his associates engaged in brazen market manipulation that advanced their financial interests while fleecing innocent investors and undermining the integrity of our securities markets," said Sanjay Wadhwa, Senior Associate Director in the SEC’s Division of Enforcement.
The complaint did not name the companies in which the defendants illegally traded in. One appears to be MGT Capital Investments, Inc., a bitcoin mining penny stock, based off the complaint's description of a Harrison, New York-based company that de-listed on Oct. 19, 2016.
Another of the three schemes looks to be MabVax Therapeutics, a San Diego, California-based company. The indictment details how Honig directed one of the co-defendants to write a post on Seeking Alpha under the pseudonym "Wall Street Advisors," that highlighted Opko's and Frost's stake in MabVax. The post is still available online under the same title cited by the SEC, with MabVax replacing the pseudonym "Company C."
Frost is also the namesake of the Phillip and Patricia Frost Museum of Science in Miami, which he paid $35 million in 2011 to name,according to the museum's website. The museum opened May 8, 2017. He's also currently on the Board of Trustees of the University of Miami.
On the company's yearly SEC filing, Opko called out Phillip Frost as particularly crucial to its business.
"Our success is dependent to a significant degree upon the efforts of our Chairman and Chief Executive Officer, Phillip Frost, M.D., who is essential to our business," the document stated.
While it's not uncommon for a healthcare company to highlight a CEO departure as a risk factor, Opko placed a notably strong emphasis on the negative impact if Frost leaves, including on the company's finances. Frost has provided financing to Opko, according to the document.
- SEC Complaint
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