Marathon Patent Group Inc.’s latest financial reports provide new details on suspect securities transactions by financier Barry C. Honig and his associates, and raise more questions about the company’s activities and disclosures.
Marathon Patent’s (Nasdaq: MARA) 10-K filing with the Securities and Exchange Commission in March listed all of the dates on which members of Honig’s group converted notes, warrants and preferred stock into common shares.
Sharesleuth’s analysis found that members of that group wound up with almost 11.9 million shares, which they likely sold for $26 million or more. Those transactions took place between September 2017 and August 2018.
Most of that stock appears to have gone to a limited partnership managed by John R. O’Rourke III, a longtime Honig lieutenant and the former chairman and chief executive of Riot Blockchain Inc. (Nasdaq: RIOT).
O’Rourke and Honig were among 10 individuals charged by the SEC last September in connection with alleged pump-and-dump schemes at three other small public companies. The SEC asserted in its complaint that Honig was the “primary strategist” of those schemes, which generated more than $27 million in proceeds from 2013 to 2016.
The ownership tables in Marathon Patent’s proxy statements and annual filings never listed the limited partnership managed by O’Rourke — Revere Investments LP — among its top shareholders. And the company’s filings mentioned that entity by name just once after 2017, even though Revere (and perhaps some unidentified affiliates) later got at least 9.2 million common shares through the conversion of notes and preferred stock.
Those shares represent more than a third of the total now outstanding.
Similarly, Revere never filed anything with the SEC acknowledging ownership of 5 percent or more of Marathon Patent’s stock. That suggests that Revere (and possibly some affiliates) sold the shares almost immediately upon receiving them via the conversions — as part of a strategy to avoid triggering disclosure requirements.
Marathon Patent declined to answer our questions about its dealings with O’Rourke and other members of Honig’s group, and about whether management raised any objections to the manner in which the notes and preferred stock were converted.
Those articles also analyzed unusual share transactions at two more companies, Riot Blockchain and PolarityTE Inc. (Nasdaq: COOL). Both have disclosed that they are the subjects of SEC investigations.
Marathon Patent’s shares followed a similar trajectory to those of the companies at the heart of the September pump-and-dump case — Mabvax Therapeutics Holdings Inc. (OTC: MBVXQ); MGT Capital Investments Inc. (OTC: MGTI) and BioZone Pharmaceuticals Inc., now Cocrystal Pharma Inc. (Nasdaq: COCP).
All had temporary surges in their share price and trading volumes, which the SEC says were aided by promotional campaigns and manipulative trading.
Marathon Patent’s stock shot from just under $2 on Nov. 1, 2017 to just over $10 on Nov. 27, 2017, largely because its deal to acquire a brand new bitcoin-mining company called Global Bit Ventures Inc. caught the attention of investors seeking cryptocurrency plays.
The two companies repeatedly delayed the closing of their merger, and finally called it off last summer, citing a general weakness in the bitcoin market. By that time, Marathon Patent’s stock price was down to $1 a share.
Marathon Patent’s 10-K filing shows that it generated only $2 million in total revenue in 2017 and 2018, and had more than $43 million in losses.
The company said in a quarterly financial report last week that it had $230,694 in revenue — all from currency mining — for the three months that ended March 31, and a further $1 million in losses.
Our analysis of share transactions suggests that, since mid-2017, members of Honig’s group collected:
- Nearly $17 million by converting notes into common stock and selling the shares into the market.
- Around $8.5 million by converting preferred stock into common stock and selling the shares into the market.
- Between $700,000 and $1.6 million by exchanging warrants for common stock and selling the shares into the market.
The group’s original investment in those securities was somewhere between $5 million and $6 million.
Our calculations of the proceeds assume that the recipients sold the most of the stock upon receiving it. For the price per share, we used the average of the high, low and closing prices on the conversion dates, or the next available trading day.
Marathon Patent’s quarterly financial report shows that the limited partnership managed by O’Rourke still had almost $1 million in unconverted notes as of March 31. The underlying stock had a market value of $910,000 at last Friday’s closing price. Continue reading