Hot Covid-19 test company has ties to offshore boiler rooms

Shares of Co-Diagnostics Inc. (Nasdaq: CODX) have risen tenfold since January, when the company announced it had completed preliminary design work on a new Covid-19 test.

Co-Diagnostics, which has only a modest lab and headquarters building in Salt Lake City, said last month it was capable of producing as many as 50,000 tests a day, at a cost of just $10 per patient.

Although it has not publicized its participation, the company is part of a consortium that won $53 million in controversial no-bid testing contracts from the states of Iowa and Nebraska, as well as a $5 million deal from the state of Utah.

But a Sharesleuth investigation found that Co-Diagnostics has extensive ties to a group that once peddled shares of dubious public companies through boiler room-style brokerages overseas.

In fact, it appears that a newer boiler room sold interests in Co-Diagnostics before it went public. We discovered that MB Financial Advisory AG, which cold-called people in Europe with stock pitches, billed the testing company as an “investment capital client.”

Our investigation also found that three of Co-Diagnostics’ early funders have been the subject of Securities and Exchange Commission actions — one for his alleged role in a pump-and-dump scheme and another for violating touting rules.

In addition, some epidemiologists and public health experts in Utah are now raising questions about the accuracy of Co-Diagnostics’ test kits, or the manner in which the testing is conducted, according to a story in the Salt Lake Tribune.

At Wednesday’s closing price of $12.37 a share, Co-Diagnostics had a market capitalization of almost $340 million, not bad for a company that had less than $300,000 in sales over the past three years, and upwards of $20 million in losses.

 

BOILER ROOM TIES

Co-Diagnostics’ chief financial officer, Reed L. Benson, previously was vice president and general counsel at Broadcast International Inc. (formerly Nasdaq: BCST). It offered video-communications software and services.

Broadcast International was one of the companies whose shares were marketed to foreign investors by the boiler rooms, some of which were linked to a former Utah stockbroker named Bryant L. Cragun, and one of his close associates, Lynn W. Briggs.

SEC filings show that Broadcast International gave Briggs a consulting contract just before it went public through a reverse merger in 2004. Foreign investors who got burned buying shares from the boiler rooms said Briggs pitched them in person, in Europe and Australia.

Broadcast International terminated Benson in 2008 after learning that Spanish regulators had charged him in a case against one of the boiler rooms that had been selling Broadcast International’s shares.

The regulators said Benson was a director of that firm, Carlton Birtal Financial Advisory SL, when it was selling securities without a proper license. They levied a fine of roughly $360,000 against Benson, Carlton Birtal and a second director.

Benson also played a pivotal role in the creation of another Salt Lake City company called Xvariant Inc. (formerly OTC: XVNT). It marketed video technology that let prospective home buyers take virtual tours of properties.

Its shares were pushed by Carlton Birtal and another boiler room, First Swiss Financial Management AG, which was the subject of regulatory warnings. SEC filings showed that a consulting company formed by Cragun and Briggs got some of Xvariant’s initial shares. The stock peaked at $5 in mid-2002 but was down to 30 cents by the end of 2003.

We found that MB Financial Advisory, which claimed to be based in Switzerland, pitched investments in five businesses connected to Benson between 2013 and 2018.

Xvariant is no longer in business. Neither is Broadcast International.

 

A COLD STOCK CATCHES FIRE

Until a few months ago, Co-Diagnostics was looking like a bust, too. Its stock was off nearly 80 percent from its July 2017 initial public offering price of $6 a share, and it had been warned twice by the Nasdaq exchange that it was in danger of losing its listing.

Then came the coronavirus pandemic. Co-Diagnostics’ stock went from under $1 in early January to $3 at the start of February – after the announcement of the Covid-19 test — and hit a high of a $21.75 at the end of February.

The company has taken advantage of the increased investor interest by raising more than $19 million, through three share placements. The surge in its share price has produced small fortunes – on paper at least – for company insiders and some funders.

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Do cbdMD Inc.’s celebrity endorsers know who they’re doing business with?

Two-time Masters champion Bubba Watson, who refers to himself on Twitter as a Christian, husband, daddy and golfer – in that order — has lent his name and reputation to a public company run jointly by a pornographer and a promoter with ties to multiple business failures and frauds. So have volleyball player Kerri Walsh Jennings, a three-time Olympic gold medalist, and retired NFL player Steve Smith Sr., a five-time pro bowl pick.

They are among more than 40 current or former athletes who signed endorsement deals with cbdMD Inc. (AMEX: YCBD), a Charlotte, N.C.-based company that markets cannabinoid oils, lotions, bath bombs, tinctures and even pet treats.

R. Scott Coffman, who became cbdMD’s co-chief executive in July, also operates the Adult Entertainment Broadcast Network. It offers streaming porn on a pay-per-minute basis and produces its own adult videos. His connection to AEBN was not disclosed in the biographies that cbdMD included in key Securities and Exchange Commission filings, such as the proxy statement for its annual meeting or the prospectus for a recent stock offering.

Coffman also was one of the creators of the blu e-cigarette brand, which helped usher in the vaping trend that has led to a surge in nicotine use by American teens.

Coffman is cbdMD’s biggest shareholder. SEC filings show that he owns or controls at least 11.6 million shares, or 42 percent of the total outstanding. He stands to receive as many as 14 million additional shares if the company hits certain revenue targets..

The other co-CEO, Martin A. Sumichrast, was the subject of a Sharesleuth investigation in 2008. It detailed his links to fraud schemes dating back to the early 1990s and the “Wolf of Wall Street,” Jordan Belfort, whose corrupt brokerage manipulated the public offerings of more than 30 companies, including one in which Sumichrast and his father were officers.

Since we published those findings, the share prices of five Sumichrast-connected companies featured in that report have fallen to zero, or something very close to it. Three were Chinese companies that gained listings on U.S. exchanges through reverse mergers. They no longer file financial reports and have all but vanished.

A fourth, Heart Tronics Inc. (OTC: HRTT) was charged with fraud by the SEC in 2011. An attorney who secretly controlled the company and created false press releases to boost the stock price while he dumped shares also was charged criminally. He is now in prison.

The fifth company, House of Taylor Jewelry (formerly AMEX: HOTJ) filed for bankruptcy just a few years after going public. In short, none of the public companies that Sumichrast has helped to launch or finance over the past 25 years has been a long-term success. And although those ventures helped to enrich Sumichrast and other early backers who got stock on the cheap, they have been losers for buy-and-hold retail investors.

More recently, Sumichrast was co-founder of Siskey Capital LLC (now Stone Street Partners LLC). Its namesake, Richard Siskey, committed suicide in December 2016 while under investigation for orchestrating a Ponzi scheme that took in tens of millions of dollars from investors. Sumichrast said in court filings that he was unaware of Siskey’s activities.

Sumichrast has never been charged with wrongdoing by the Securities and Exchange Commission or other regulatory or law-enforcement agency. But the Nasdaq did delist the shares of a brokerage firm he headed after an internal investigation concluded that he sold ownership interests to at least two financial felons who served time in prison.

Nasdaq officials never publicly revealed the reason for the delisting of that company, Global Capital Partners Inc. (formerly Nasdaq: GCAP) .

 

A NEW GOLD RUSH

cbdMD is trying to cash in on the growing popularity of hemp-based CBD products, which got a boost in December from federal legislation that removed hemp from the government’s list of controlled substances.

CBD’s proponents have claimed, often without evidence, that cannabidiol helps relieve anxiety and depression, reduces nerve and muscle pain and even inhibits the progression of cancer and Alzheimer’s disease.

Although sales of hemp-based CBD products in the United States were well under $1 billion in 2018, some market research firms have projected that total revenue could reach or exceed $20 billion by the middle of the decade. That figure, however fanciful, would exceed the domestic market for chocolate, for energy drinks and perhaps even for medical and recreational cannabis, now legal in more than half of the country.

cbdMD is trying to differentiate itself from rivals through endorsements from athletes and other influencers, including Internet-famous cats. It also is trying to set itself apart through representations about the quality and purity of its products. It says that all of its CBD comes from organically grown hemp and is free of synthetic pesticides. It also says that batches of all of its products are tested by a third-party laboratory.

cbdMD reported net sales of $8 million for the three months that ended June 30. That was up more than 40 percent from the previous quarter.

But the company also posted an operating loss of $8 million, and a net loss of $29 million. The bigger number reflected liabilities for additional shares it might have to issue to Coffman, Sumichrast and perhaps others. Those shares would have a current market value of $60 million. Based on the financial guidance that executives provided in a conference call last month, many of them could be earned by the end of next year.

At the rate cbdMD is burning cash, it will have to raise more capital or reverse its losses to survive that long. According to its latest quarterly financial report, the company had $11.6 million in cash as of June 30.

That meant it used up all of the $4.6 million it had on March 31, plus some of the $12.5 million it netted from a stock offering in May.

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Former Trump cabinet member has $90,000 consulting deal with questionable mining company

Former Interior Secretary Ryan K. Zinke, who resigned last year amid multiple ethics investigations, is a consultant for a mining company created and financed by people now facing fraud charges.

Zinke also is on the board of directors at the company, U.S. Gold Corp. (Nasdaq: USAU). It controls undeveloped mineral properties in Nevada and Wyoming. A Securities and Exchange Commission filing shows that Zinke is to receive $90,000 annually in cash and stock, plus up to $30,000 for expenses. His consulting agreement calls for him to assist the company with investor relations, government relations and other tasks.

U.S. Gold went public in May 2017 by combining with Dataram Corp., a struggling maker of computer memory products whose shares were listed on the Nasdaq exchange. The so-called reverse merger was engineered by financier Barry C. Honig, who has created or bankrolled dozens of small public companies over the past decade.

Sharesleuth’s investigation found that Honig and several associates had acquired a large stake in Dataram prior to the deal, and that one of them – John R. Stetson – also managed a limited liability company that was U.S. Gold’s principal shareholder. Their role on both sides of the transaction was not disclosed in SEC filings, nor was their sale of millions of dollars in stock in the months before and after the merger.

We also found that U.S. Gold’s top executives previously were officers or directors of numerous other companies backed by Honig’s group – none of which produced long-term gains for ordinary shareholders.

The SEC brought fraud charges last September against Honig, Stetson and 18 other individuals and entities in connection with alleged “pump and dump” schemes at three other public companies. The complaint said the group concealed its control of those companies, failed to disclose significant share transactions, manipulated stock prices and secretly paid writers to produce misleading promotional articles.

The SEC said the schemes generated $27.1 million between September 2013 and May 2016. The Dataram-U.S. Gold merger was announced in June 2016. It touched off a surge in trading that allowed Honig and a handful of associates to unload most of their stock, likely collecting more than $5 million.

U.S. Gold’s stock has declined by more than 90 percent from its peak that year (when adjusted for two splits), meaning any retail investors who bought on news of the merger and held their shares have lost nearly all of their investment.

A lawyer for one of the defendants in the SEC case said in a court proceeding that the Justice Department is conducting a parallel criminal investigation into the Honig group’s activities.

Honig agreed to a settlement with the SEC last month that bars him from acquiring more than 4.99 percent of any penny stock company’s shares, from marketing or promoting any penny stock company, or from exerting control over any penny stock company. The amount he must pay in disgorgement, penalties and interest will be determined later, but easily could exceed $10 million, based on his share of the stock sales.

Two of Honig’s co-defendants — who also were big Dataram shareholders at the time of the U.S. Gold deal – settled earlier this year, agreeing to pay a combined $2 million.

 

THE ZINKE EFFECT?

U.S. Gold’s stock gained 50 percent in the first six weeks after Zinke’s appointment, topping out at $1.53 on May 21. Spot and futures prices for gold were little changed in that period.

U.S. Gold has played up Zinke’s ties to President Donald Trump. Soon after he joined the company, he and Chief Executive Edward M. Karr participated in a livestreamed investor presentation titled “Making American Mining Great Again.”

The presentation was hosted by a stock-promotion site, MiningStockEducation.com. U.S. Gold’s prospects also were touted in recent months by three other promotion sites, all of which share common ownership.

Each reported in disclosure statements that they had received $15,000 as compensation for their campaigns. Continue reading

Marathon Patent Group: Chronology of share transactions shows group facing SEC charges cleared more than $20 million from financing scheme

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.

Sharesleuth previously reported on the Honig group’s hidden activities at Marathon Patent in a two-part series last year (see the stories here and here).

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 10-K filing and 10-Q filing did not include any mention of an SEC inquiry or subpoena.

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

Judges weighing appeal by billionaire John Paul DeJoria and recidivist Howard Appel

A federal appeals panel is mulling whether billionaire John Paul DeJoria, recidivist securities fraudster Howard M. Appel and two other defendants should have to pay $21.4 million in damages arising from the looting and bankruptcy of a Texas company.

Three judges from the U.S. Court of Appeals for the 5th Circuit heard oral arguments in the case last month.

A jury found in July 2017 that Matthew J. Cohen, the former chief executive of Latitude Solutions Inc. (formerly OTC: LATI), and DeJoria, a director and large shareholder, breached their fiduciary duty to the wastewater-treatment company.

The jurors also found that DeJoria, Appel and Ernest A. Bartlett III, one of Appel’s longtime associates, aided and abetted Cohen’s breach of fiduciary duty.

The suit was brought in U.S. District Court in Fort Worth, Texas by the bankruptcy trustee overseeing Latitude Solutions’ estate. The five-day trial and the resulting eight-figure verdict got little, if any, mainstream media attention, despite DeJoria’s celebrity status as the co-founder of the John Paul Mitchell hair-care company and the Patron Tequila empire.

DeJoria, Appel and Bartlett were the subjects of an earlier Sharesleuth investigation involving questionable activities at another small public company, Virtual Piggy Inc., now Rego Payment Architectures Inc. (OTC: RPMT).

The Justice Department brought fraud charges against Appel last year, alleging that he manipulated the shares of Virtual Piggy and another penny-stock company, Red Mountain Resources Inc. (formerly OTC: RDMP).

Appel pleaded guilty to a single count of conspiracy to commit securities fraud and was sentenced in December to five years in prison. He is incarcerated in Maryland.

The Securities and Exchange Commission brought a parallel civil case, alleging manipulation at those two companies and a third, Rio Bravo Oil Corp. (OTC: RIOB).

Appel consented to the entry of a judgment in September 2018 that permanently enjoined him from future violations of federal securities laws, including making false statements and manipulating share prices.

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Cool Mara Riot, Part Two: Securities-fraud case against South Florida group reverberates through additional companies

When financier Barry C. Honig was waging a proxy fight for control of the company that became Riot Blockchain Inc. (Nasdaq: RIOT), he demanded that it return excess capital to shareholders through a special dividend.

But once Honig and his allies took over, they did exactly the opposite. The Colorado-based company, then known as Bioptix Inc., raised an additional $7 million last spring through two private placements. Honig, his business partners and other associates bought nearly all of the stock, warrants and convertible notes sold in those deals, which were priced at a 30 percent discount to the market.

By the second week of October, they had turned those securities into 4.7 million common shares. That stock, combined with earlier purchases, gave them nearly two-thirds of the company, on a fully diluted basis.

Only then did Riot Blockchain pay the special dividend, distributing $1 per share or share equivalent, or a little less than $10 million. And in the six weeks that followed, the company’s stock price nearly tripled, as deals with two bitcoin-related businesses in which Honig and his associates had undisclosed stakes attracted investors who were seeking cryptocurrency plays. When Riot Blockchain’s stock hit $24 on the day after Thanksgiving, the shares issued through the April placement were worth more than $100 million.

A Securities and Exchange Commission filing from April shows that Honig sold nearly all of his Riot Blockchain shares in October and November, collecting more than $17 million. He failed to promptly report those sales, as required under SEC rules for non-passive investors who own 5 percent or more of a company’s stock.

Our investigation found that three Honig associates – his brother, Jonathan Honig, and longtime partners Mark E. Groussman and John R. Stetson – likely sold more than $20 million of Riot Blockchain stock from October to January. Its shares peaked at $46.20 in December, then came crashing back to earth. They now trade for less than $4. The company is dangerously low on cash and the SEC is conducting a formal investigation.

Riot Blockchain stock sales chart

As Sharesleuth reported in July, it appears that the group’s activities at Riot Blockchain, PolarityTE Inc. (Nasdaq: PTE, formerly Nasdaq: COOL) and Marathon Patent Group Inc. (Nasdaq; MARA) were part of a broader web of questionable dealings.

On Sept. 7, the SEC brought fraud charges against Barry Honig, Groussman, Stetson and 17 others individuals and entities, including John R. O’Rourke III, another longtime associate who was chairman and chief executive of Riot Blockchain.

The SEC alleged that the defendants participated in so-called “pump and dump” schemes at three other companies:

– BioZone Pharmaceuticals Inc., now Cocrystal Pharma Inc. (Nasdaq: COCP)

MGT Capital Investments Inc. (OTC: MGTI)

Mabvax Therapeutics Holdings Inc. (OTC: MBVX)

According to the SEC’s complaint, those schemes generated more than $27 million.

Stetson was, until Sept. 7, executive vice president and chief investment officer of PolarityTE, a Utah-based biotech company whose predecessor was headed by Honig.  Our investigation found that the Honig group’s actions at PolarityTE and before that, Majesco Entertainment Inc., mirrored their moves at Riot Blockchain, right down to private placement-and-special dividend maneuver.

The SEC also brought charges against Dr. Phillip Frost, the billionaire chairman and chief executive of Opko Health Inc. (Nasdaq: OPK), and against Opko itself. It alleged that Frost and Opko were part of an undisclosed “control group” at BioZone and Mabvax, and that they either participated in the group’s wrongful activities or aided and abetted them.

Our analysis of SEC filings showed that Honig and Frost sold more than $20 million of their PolarityTE stock between February 2017 and February 2018, with most of those sales coming in the second half of last year.

Once again, Honig failed to promptly report his sales, as required under SEC rules.

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Cool Mara Riot: The big money, bitcoin-biotech daisy chain

(First of two parts)

Three companies whose stock made big moves last year are linked by undisclosed relationships that raise numerous red flags about the deals that helped attract investors, boost share prices and enrich certain players.

A Sharesleuth investigation found that financier Barry C. Honig and a handful of associates sold at least $70 million of stock in those companies — PolarityTE Inc. (Nasdaq: COOL), Marathon Patent Group Inc. (Nasdaq: MARA), and Riot Blockchain Inc. (Nasdaq: RIOT) –- as their share prices rose by triple digits, then tumbled from those highs.

The companies, by comparison, had less than $1 million in combined revenue in fiscal 2017, and $180 million in losses. Our investigation found that surges in their share prices were aided by a daisy chain of deals involving Honig and a recurring cast of business partners and investors. They included John R. Stetson, PolarityTE’s executive vice president and chief investment officer; John R. O’Rourke III, Riot Blockchain’s chairman and chief executive, and Mark E. Groussman, who once headed Marathon Patent’s predecessor and was a large shareholder in all three companies.

Our investigation found that Honig personally sold at least $30 million of stock in PolarityTE and Riot Blockchain from late August to mid-December without reporting those sales, as required under Securities and Exchange Commission rules for non-passive investors who own 5 percent or more of a company’s shares.

We found that Honig and his associates stood to receive more than $40 million in new shares through the acquisition of two bitcoin companies in which they had undisclosed stakes. The largest of those deals was cancelled late last month.

Our analysis of SEC filings and other documents found that:

– Honig and his associates were among the biggest investors in Riot Blockchain, Marathon Patent AND two new bitcoin companies they agreed to acquire for stock initially valued at $197 million. Those deals were struck on consecutive days in early November. Honig’s network was to get more than half of the shares to be issued for the bitcoin companies, which had little, if any, revenue and modest assets. Their presence on both sides of the deals was not disclosed at the time, and has not been fully explained since.

–  A limited partnership headed by O’Rourke provided $5.3 million in financing to Marathon Patent in August and September, in return for convertible notes and warrants. It wound up with the equivalent of 11.8 million shares, which soared in value after Marathon Patent said it was getting into the cryptocurrency game by merging with one of the bitcoin companies, Global Bit Ventures Inc. The closing of that deal was delayed repeatedly, and Marathon Patent announced on June 28 that it had decided to walk away. Our analysis suggests that Revere already had sold at least 3.6 million of its shares, some during last November’s surge. We estimate that the proceeds were around $13.9 million (see calculations here). The rest of the stock would be worth $6.7 million at the current market price, although it’s possible that some of those shares have been sold as well. SEC filings show that more than 8 million of the 11.8 million shares — or nearly 40 percent of Marathon Patent’s total outstanding — have been issued to Revere or other unknown parties. Revere has not filed a Form 13D or Form 13G reporting ownership of those securities, nor has anyone else.

– Honig and a limited liability company managed by Stetson provided cash to Global Bit Ventures in September, in return for convertible notes. That was less than six weeks before Marathon Patent finalized the merger agreement. A later SEC filing showed that the notes somehow found their way to a second limited liability company, managed by O’Rourke. That entity also had preferred stock in Global Bit Ventures, and stood to receive 20.5 million of the 70 million shares that were to be issued to the bitcoin company’s investors. Its stake would have been worth $17.5 million at the current market price.

– Honig, Groussman and another longtime associate, Michael H. Brauser, were shareholders in Kairos Global Technology Inc., the bitcoin miner that Riot Blockchain bought on Nov. 1 for roughly $12 million. Kairos’ owners exchanged their 1.75 million shares of common stock for 1.75 million shares of Riot Blockchain’s convertible preferred stock valued at $6.80 a share. Honig, Groussman, Brauser and two other large Riot Blockchain shareholders owned more than 50 percent of Kairos. Riot Blockchain did not disclose that cross-ownership at the time of the deal. We found that Honig, Groussman and the other investors had purchased their Kairos stock just a day or two before the acquisition. A financial statement in a January SEC filing showed that Kairos sold 750,000 shares for 10 cents a share on Oct. 30 and 1 million shares for $3.10 on Oct. 31.

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Pretenders and Ghosts: Stealth promotion network exploits financial sites to tout stocks

Meet George Ronan.  Again and again and again.

The George Ronan who talked up a succession of small public companies at SeekingAlpha.com described himself as a university lecturer in the United Kingdom with an interest in technology stocks.

George Ronan I

The George Ronan whose articles appear on MarketExclusive.com – as well as Gurufocus.com — is billed as an author, journalist and public speaker who focuses mainly on health care stocks.

George Ronan II

A third George Ronan, with no bio but a decidedly different headshot, was briefly among the contributors to Benzinga.com.

George Ronan IIIAll three are fictitious. A Sharesleuth investigation found that they are part of a small army of writers, both real and imaginary, who have systematically posted hundreds of bullish analysis pieces about the same small companies across numerous investment sites.

Just as certain individuals and organizations circulated false or misleading political stories in an effort to sway the 2016 presidential election, internet-savvy promoters are using fake writers, planted articles and even illusory “news” sites to surreptitiously tout stocks. The purported analysis pieces by the multiple George Ronans are a prime example. Sharesleuth turned up more than 140 articles with that byline, on seven different sites.

Most of the original Ronan’s 11 articles at Seeking Alpha called attention to companies that were created or bankrolled by Barry C. Honig, a South Florida financier who figures into at least two Securities and Exchange Commission investigations. So did six of the seven Ronan articles on four other sites, including Investing.com and Trefis.com.

RONAN AS ROADMAP

Using the Ronan stories as markers, we found more than 60 other writers who have systematically promoted companies connected to Honig and his associates, including longtime business partner Michael H. Brauser and billionaire entrepreneur Dr. Phillip Frost, chairman and chief executive of Opko Health Inc. (Nasdaq: OPK).

Sharesleuth determined that the majority of those writers also were fake — part of an elaborate, long-running effort to spark interest in obscure public companies by creating bullish stories that were posted and reposted across the internet.

The stealth promotion network includes a handful of real people who have touted the same stocks with such regularity that it is impossible to view their posts as a coincidence. All told, we turned up nearly 600 bullish articles about Honig-related companies that fit the pattern of stealth promotional pieces.

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Beyond public view, a recidivist fraudster nears a reckoning day

The fraud and conspiracy case against recidivist fraudster Regis L. Possino and 10 others charged in connection with a multimillion-dollar “pump-and-dump” scheme appears to be nearing an end — in almost total secrecy.

Most of the documents filed in Possino’s case over the past two years were sealed by the judge, at the request of federal prosecutors or Possino’s attorney. But the docket shows that on Monday, prosecutors filed sentencing exhibits and a proposed restitution order.

That suggests that Possino — featured in several Sharesleuth stories — has agreed to a plea deal or is close to one. Filings in a separate action showed that he already forfeited his house in Pacific Palisades, Calif., which was to be sold for a minimum of $2.5 million.

The U.S. Attorney’s office in Los Angeles alleged in 2013 that Possino and his associates collected at least $18 million through “pump-and-dump” schemes involving three public companies.

The indictment said they manipulated the share prices of the companies, issued false press releases to generate investor interest, then dumped their own stock on an unsuspecting public. The companies used as vehicles were Sports Endurance Inc. (OTC: SENZ), FrogAds Inc. (formerly OTC: FROG), and Empire Post Media Inc. (OTC: EMPM).

A spokesman for the U.S. Attorney’s office in Los Angeles told Sharesleuth last year that he did not expect any of the cases against the defendants to come to trial.

A grand jury originally indicted 15 people, four of whom had appeared in previous Sharesleuth investigations. It alleged that they participated in two overlapping stock-manipulation rings that netted more than $30 million.

The defendants included Possino, who has convictions for drug dealing and fraud; Sherman Mazur, a onetime real estate mogul with a prior fraud conviction; and Edon Moyal, the former chief executive of a publicly traded energy-drink company called Who’s Your Daddy Inc. (formerly OTC:WYDY).  While at that company, he was charged with aiding drug traffickers and later was sentenced to 18 months in prison.

The FBI said in its press release about the indictments in the pump-and-dump case that its investigation included a series of wiretaps that resulted in the interception of more than 60,000 phone calls and 24,000 text messages.

However, after questions arose about representations the FBI made to a judge to win approval for the wiretaps, the Justice Department withdrew the wiretaps as evidence and dropped the charges against Possino, Mazur and all other defendants in one of the cases.

That left 11 defendants in the case that survived. It is unclear why so many documents in that case have been sealed, or what information the prosecution and defense and trying to protect.

None of the unindicted co-conspirators mentioned in the original indictments have been charged in the nearly four years since the case was made public, nor has anyone else.

Court documents show that seven defendants besides Possino have agreed to plea deals and been sentenced. Prosecutors dismissed charges against two other defendants, saying the loss of the wiretaps would make it hard to win convictions.

The 11th and final defendant, Ivano Angelastri, remains a fugitive.

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SEC expands fraud case to include Lenco Mobile, subject of a prior Sharesleuth investigation

The Securities and Exchange Commission has quietly expanded its fraud case against financier Izak Zirk De Maison, adding seven more people as codefendants and identifying five more stocks he used in his schemes.

According to the SEC’s amended complaint, one of the companies that De Maison used as a fraud vehicle was Lenco Mobile Inc. (formerly Pink Sheets: LNCM), which was the subject of a Sharesleuth investigation in early 2010.

Lenco Mobile gained a stock market listing through a reverse merger with a shell company controlled by De Maison, known at the time as Zirk Engelbrecht. Our investigation focused on the issuance of millions of Lenco Mobile shares to questionable individuals, including recidivist securities offender Michael W. Crow.

The SEC said in its amended complaint that De Maison and his alter egos sold at least $6.2 million of Lenco Mobile shares directly to investors in private transactions. The SEC said he also paid commissions to stockbrokers to induce them to sell additional shares to clients.

The SEC said De Maison and other defendants inflated the share prices of Lenco Mobile and the other companies before dumping their shares on unsuspecting investors.

The Justice Department brought a parallel criminal case last year against De Maison and Stephen J. Wilshinsky, an ex-stock broker. Like the SEC, it later expanded its allegations to include violations related to Lenco Mobile and other stocks.

De Maison pleaded guilty in April to seven counts, including securities fraud and wire fraud. His sentencing is set for December. Wilshinsky also has pleaded guilty.

A document in the criminal case alleged that the fraud schemes De Maison orchestrated at Lenco Mobile, Casablancas Mining Ltd. (Pink Sheets: CUAU) and the other companies caused investors to buy more than $54 million in shares and suffer $27 million in losses.

The SEC did not publicize its amended complaint, which was filed in June. It added a number of stock brokers, former stock brokers and stock promoters as defendants.

The latest defendants in the case are:

–Gregory Goldstein, former owner of a California-based brokerage called Marquis Financial Sevices Inc.

–Talman Harris, a former stock broker who worked for a several firms during the period covered by the complaint

–William Scholander, another former stock broker who worked alongside Harris at those same firms.

–Jack Tagliaferro, also a former stocker broker.

–Victor Alfaya, who worked for a New York-based stock promotion service called Small Cap Resource Corp.

–Kona Jones Barbera, who also worked for Small Cap Resource and later set up a second firm called Quantum Financial Investments

– Justin Esposito, an employee of Small Cap Resource and Quantum Financial.

Another of the defendants in the original SEC case, a previously barred broker and recidivist securities offender named Justin Cope, was charged criminally in September in connection with the scheme.

The SEC said all of the brokers and promoters were involved in either the sale or manipulation of shares in the companies used in the fraud schemes.

Tagliaferro agreed last week to settle the charges against him. Although he neither admitted nor denied guilt, the judgment requires him to disgorge the profits he collected from his activities, and pay a civil penalty.

Harris and Scholander were barred from the brokerage industry last year in connection with a separate case. The Financial Industry Regulatory Authority found that Harris and Scholander had recommended shares of a Chinese reverse-merger company, Deer Consumer Products Inc. (Pink Sheets: DEER) without disclosing that they had received $350,000 from the company, purportedly for consulting services.

The SEC brought fraud charges in September against Benjamin Wey, one of the architects of the Deer Consumer Products deal. It alleged that he concealed his ownership stake in that company, manipulated the stock price and then dumped his shares.

MULTIPLE SCHEMES, SIMILAR METHODS

The SEC said in its amended complaint that De Maison was involved in fraudulent “pump-and-dump” schemes involving six stocks from 2008 to 2014. In addition to Lenco Mobile and Casablancas Mining, those companies were Kensington Leasing Ltd.  (formerly Pink Sheets: KNSL);  Wikifamilies Inc. (formerly Pink Sheets: WFAM);  Gepco Ltd. (formerly Pink Sheets: GEPC) and Lustros Inc. (Pink Sheets: LSTS).

Wikifamilies and Gepco were successors to Kensington Leasing. In other words, De Maison and his associates used a single company for three separate schemes.

The SEC said that De Maison caused each of the companies listed in the complaint to issue tens of millions of shares of stock to himself and his nominees, including his wife, former beauty queen Angelique De Maison.

It said he disposed of those shares through two types of illegal distributions. According to the SEC, De Maison used unregistered individuals – including people who had been barred from the brokerage industry for previous transgressions – to sell shares to investors in purported private placements.

It said De Maison also induced registered representatives at brokerage firms to buy shares in the companies for their clients’ accounts for the purpose of matching those trades with his public share sales.

The SEC said that De Maison and some of the other defendants manipulated the shares prices and trading volumes of the companies to create the appearance of genuine investor interest.

According to court filings, Cope received more than $6 million for his efforts in helping De Maison move stock.

The SEC said Goldstein and his nominees got $2.3 million for the Lenco scheme alone.  It said that Wilshinsky got more than $1.2 million, while Harris and Scholander got more than  $1 million.

SHARESLEUTH’S LENCO MOBILE INVESTIGATION

Neither the SEC’s original complaint nor its amended complaint makes any mention of Lenco Mobile’s involvement with Michael Crow, who previously was ordered to pay more than $7 million in penalties in connection with an earlier case.

Our investigation found that Lenco Mobile bought at least two companies linked to Crow, paying for the acquisitions with millions of shares of stock.

Crow had filed for personal bankruptcy in early 2010, listing debts of more than $11 million. The trustee in the case later brought fraudulent conveyance proceedings against Crow and a number of entities he created, alleging among other things that he used some of them to sell Lenco Mobile shares without disclosing the income.

The SEC brought another case against Crow last year, alleging that he and a co-defendant made false and misleading statements while raising $3.9 million for a dubious gold-mining venture in South America.

Our Lenco Mobile story also noted De Maison’s ties to Thomas Ronk, a former broker who runs Buyins.net, a web site that purports to identify stocks poised for big increases because of developments that are likely to trigger so-called “short squeezes.’’

Our investigation found that Ronk was connected to a privately held company that Lenco Mobile acquired for millions of shares of stock.

A transcript of a court hearing in De Maison’s criminal case shows that Ronk paid some of De Maison’s initial legal fees. It also shows that Ronk offered to help cover the expenses for De Maison’s proposed stay at a halfway house in Ohio, as an alternative to jailing him while he awaited trial.

A prosecutor representing the Justice Department at the hearing said the government had objected to the arrangement, adding that Ronk “was involved in the conspiracy.’’

The prosecutor noted that Ronk had been a senior executive at Casablancas Mining, one of the companies used in De Maison’s schemes. The prosecutor added that Ronk had received money and other things of value from De Maison, “either directly or indirectly, for purposes of doing things like touting the stock….”

Ronk has not been charged in either the civil or criminal case.