Two fraud cases tied to pump-and-dump schemes that generated nearly $200 million in proceeds have cast additional light on hundreds of tout articles that stock promoters surreptitiously placed on investment sites.
Sharesleuth published an investigation in early 2018 that focused on the systematic use of stealth promotion articles by financier Barry C. Honig and his associates, and by an investor relations firm called IRTH Communications LLC.
That research turned up nearly 600 bullish articles about Honig-backed companies, most credited to a common set of writers, some real and some fake. The tout articles, which were designed to look like independent analysis, were posted on SeekingAlpha.com, TheStreet.com, The Huffington Post and other sites that accepted content from outside contributors.
The SEC brought fraud charges later that year against Honig and nine other people, including his longtime business partner, Michael H. Brauser, and billionaire entrepreneur Dr. Phillip Frost, chairman and chief executive of Opko Health Inc. (Nasdaq:OPK). The case involved alleged pump-and-dump schemes at three companies, involving more than $27 million in share sales.
The SEC’s complaint cited the use of stealth promotional articles in all three of the alleged schemes.
In January, the SEC announced an apparently unrelated fraud case against six people in Canada, the United States, the United Kingdom, and Switzerland. It asserted that the defendants helped facilitate the illegal sale of more than $35 million of stock in dozens of microcap companies.
The SEC said two of the defendants once were business partners of Roger Knox, a British citizen who pleaded guilty around that same time to criminal fraud and conspiracy charges. The Justice Department said Knox, who ran a Swiss asset-management firm, engaged with others in a “massive global securities fraud scheme” involving more than 50 companies and $164 million in proceeds.
Here’s where things get interesting: We discovered that eight of the 25 stocks the SEC listed as pump-and-dump vehicles in those cases were the subject of stealth promotion articles by the same writers whose bylines appeared on pieces about companies linked to Honig and IRTH.
In other words, it seems that the defendants in all three SEC fraud cases relied on a common source in the creation and distribution of their tout pieces.
The SEC’s court filings in the global pump-and-dump cases do not make that connection, nor do they indicate whether any of the defendants might have been directly involved in the production or timing of the articles.
A MYSTERIOUS “STOCK PROMOTION ARRANGER”
The SEC’s complaint in the January case said that the defendants sent nearly $3.4 million to a “stock promotion arranger” it did not identity. It said that person hired others to tout a company called Blake Insomnia Therapeutics Inc., now BioHemp International Inc. (OTC: BKIT).
We found that certain writers whose bylines appeared on many of the stealth promotion articles about Honig-backed companies posted nine articles about Blake Insomnia, just before or during the touting period in the complaint.
Those articles appeared on the same sites used to tout the stocks linked to Honig and his associates, and to IRTH. Our investigation found that two of those sites had ties to people who later were charged and convicted in other fraud cases.
The SEC complaint in the January pump-and-dump case said one of the defendants told the promotion arranger to say the touting was funded by a Singapore entity called Rich Team Consultants Pte Ltd. That was to conceal the identities of the people who actually provided the cash and were planning to sell shares into the market when the price and trading volume rose.
The SEC said the defendants also used the promotion arranger to tout three additional companies. Our analysis of paid promotions that were reported to have been financed by Rich Team Consultants suggests that those companies were:
— Oroplata Resources Inc. (formerly OTC: ORRP, now OTC: ABML)
— Horizon Minerals Corp. (OTC: HZNM)
— Preston Corp. also known as Preston Royalty Trust (formerly OTC: PSNP).
Our research in 2017 and 2018 turned up nearly 20 bullish articles on those three companies. All were credited to writers who produced many of stealth promotion pieces about stocks tied to Honig and his associates.
MORE TOUTS
A new check of the articles that we flagged and preserved back then shows that the same bylines appeared on 13 pieces touting three more stocks that the SEC listed as vehicles in the two global pump-and-dump cases. They were:
— Bingo Nation Inc. (formerly OTC: BLTO)
— Vilacto Bio Inc. (OTC: VIBI)
— UMF Group Inc. (OTC: UMFG)
The case that the SEC brought in January did not provide any details about the person referred to as the stock promotion arranger. But the SEC clearly knows who that person is, and should be able to determine – if it hasn’t already – how the stealth promotion stories were commissioned, produced and placed, and how many writers were involved in their creation.
And although the SEC has taken action against the people it says helped facilitate the global pump-and-dump schemes, it has yet to bring charges against most of the hidden shareholders who profited from those schemes.
FAMILIAR PATTERNS AND PLACES
Sharesleuth turned up 43 stealth promotion articles about stocks that were used as vehicles in the global pump-and-dump schemes. Seven of those pieces were on SmallCapNetwork.com, a site created by a barred stockbroker and recidivist securities offender named Lawrence D. Isen, along with two partners. All seven carried the bylines of writers we previously determined to be fake.
Our previous investigation turned up roughly 40 stealth promotion pieces at SmallCap Network touting companies backed by Honig and his associates.
Federal authorities charged Isen in 2017 in connection with a scheme that involved the manipulation of four stocks, and the sale of shares in those companies through boiler rooms that targeted the elderly.
A jury convicted him on fraud and conspiracy charges in March. Isen has yet to be sentenced, but is facing up to 20 years in prison.
Three more stealth promotion articles about stocks used in the global pump-and-dump cases originally were posted on SmallCapExclusive.com. Some of them later appeared on SavvyTraderResource.com and CapitalEquityReview.com, which essentially were mirrors of Small Cap Exclusive.
Our investigation in 2018 linked those sites to a South Carolina group that included Drew M. Ciccarelli, a promoter with extensive ties to Honig and his associates.
All three sites touted companies backed by Honig’s group, or represented by IRTH.
The SEC brought charges against Ciccarelli on Sept. 30 in connection with a pump-and-dump scheme involving shares of a chat app developer called Rarus Technologies Inc. (formerly OTC: RARS). That same day, the Justice Department unsealed a criminal information and plea agreement from May 2019, covering one count of conspiracy to commit securities fraud and money laundering by Ciccarelli. Court filings said he had been cooperating with authorities.
THE WRITERS
We found that a writer named Samuel Rae, who was the most prolific author of bullish articles about Honig-backed companies, also produced the greatest number of pieces about stocks touted by the global pump-and-dump rings.
Rae is a British citizen who lists his current home as Spain. His LinkedIn.com profile says he is chief executive and owner of NewsBTC.com, a site that focuses on cryptocurrency-related topics.
Our original investigation turned up 180 stealth promotion-style articles by Rae on various financial sites, including SeekingAlpha.com, Investing.com, Equities.com and Talkmarkets.com. Nearly half of them focused on, or mentioned, companies tied to Honig and his associates.
Rae’s byline was on 14 of the 43 stealth promotion articles we found about stocks that the SEC identified as being used in the global pump-and-dump cases.
Here is one article on Blake Insomnia that appeared on TalkMarkets.com on Jan. 13, 2017, four days after the SEC complaint says the paid touting of that stock began.
Here is another that mentions multiple companies but steers readers to Preston, a gold royalty company whose stock later was suspended by the SEC because of concerns about the adequacy and accuracy of its public information. The SEC ultimately revoked Preston’s registration.
Rae did not respond to Sharesleuth’s request for comment. Two other writers, George Ronan and Christopher Malcolm, had bylines on 13 stealth promotion pieces about companies listed as vehicles for the global pump-and-dump schemes.
We previously determined that both men were fictitious. The stealth promotion articles bearing Ronan’s byline, for instance, used pictures of three different people to represent him, with the image varying by site:
Similarly, we found that photos used to depict Malcolm were used for a second fake writer, Christopher Lourenco.
Our prior investigation found more than 140 articles bearing Ronan’s name, on SeekingAlpha and six other sites. At least 17 focused on Honig-backed companies.
We found that the fictitious Ronan was credited with stealth promotion stories about five of the companies that were touted by the global pump-and-dump rings, all on a site called Gurufocus.com. The pieces supposedly written by Malcolm were divided between Gurufocus and a second site, Born2Invest.com.
Our analysis showed that the stealth promotion articles often preceded paid internet and email campaigns by services that acknowledge their touting and disclose their compensation. In some cases, the campaigns cited the pieces by Rae, Ronan and others, creating the appearance of broader investor interest.
Here, for example, is a section of a report on Preston that used stealth promotion articles posted at Investing.com, TalkMarkets.com, SmallCapExclusive.com, SmallCapNetwork.com, SeekingAlpha.com and Gurufocus.com as evidence the company had been “Validated by Major Press Outlets.
SMALL CAP EXCLUSIVE
Small Cap Exclusive was a close cousin to MarketExclusive.com, an older site that often featured articles about Honig-back stocks, about Opko and about other companies in which Frost had an interest. That list included Majesco Entertainment Co. (former Nasdaq: COOL), and its successor, a skin-regeneration company called PoliartyTE Inc. (Nasdaq: PTE).
PolarityTE was the subject of a two-part Sharesleuth investigation in 2018 (see stories here and here).
(Disclosure: Mark Cuban, owner of Sharesleuth.com LLC, has no position, long or short, in the shares of any company mentioned in this report. Chris Carey, editor of Sharesleuth, does not invest in individual stocks and has no position in any of the companies mentioned in this report).
Market Exclusive was created by David Zazoff, an executive with a New York investor-relations firm. He told Sharesleuth at the time of our original story that he sold the site to an investment group in 2013. That was before the site began posting content on a regular basis.
Zazoff’s firm was the official investor-relations representative for some of the companies featured on Market Exclusive. However, he denied in 2018 that the firm, MDM Worldwide Solutions Inc., had any involvement in the stealth promotion that we spotlighted.
Small Cap Exclusive originally used a privacy service to hide details of its domain registration. But we noted that the address and telephone number it listed on its site were the same as those for Market Exclusive.
We also noted that Small Cap Exclusive and Market Exclusive had another thing in common – nearly all of the contributing writers whose images and bios appeared on the two sites were fictitious (14 people out of 17).
Our original investigation found a fair amount of overlap between Small Cap Exclusive, Market Exclusive and SmallCap Network. For example, a fake Small Cap Exclusive writer called James Peters also had a feature page at SmallCap Network.
His articles at Small Cap Exclusive included stealth promotion pieces on two companies backed by Honig’s group — MGT Capital Investments Inc. (OTC: MGTI) and VBI Vaccines Inc. (Nasdaq: VBIV).
MGT Capital was one of the three companies at the heart of the SEC’s complaint against Honig and his associates.
The articles credited to Peters at SmallCap Network focused on three companies linked to Honig – MGT Capital, VBI Vaccines and U.S. Gold Corp. (Nasdaq: USAU) – as well as six of the companies listed in the two global pump-and-dump cases. Some of those were deleted from the site.
We also found that Rae had bylines on at least six now-deleted articles on SmallCap Network, and was listed as a contributor on several roundup-type pieces in Market Exclusive’s early days.
In addition, we found that the picture that Market Exclusive used for another fictitious writer named Mark Collins also was used by SmallCap Network to represent an equally fictitious writer named George Tanner.
Both were credited with pieces about Honig-backed companies. Collins’ byline appeared atop two stealth promotion articles we found about companies listed in the global pump-and-dump cases.
THE SEC CASE AGAINST THE HONIG GROUP
As we mentioned previously, the SEC brought charges in September 2018 against Honig, Brauser, Frost and six other individual defendants, related to alleged pump-and-dump schemes at three small companies – MGT Capital; BioZone Pharmaceuticals Inc. — now Cocrystal Pharma Inc. (Nasdaq: COCP); and Mabvax Therapeutics Holdings Inc. (formerly Nasdaq: MBVX).
The SEC also charged Frost’s company, Opko Health; a Liechtenstein-based investment fund called Alpha Capital Anstalt; and various corporate entities controlled by Honig and his associates.
All but one of the defendants agreed to settle the charges against them. Frost, Opko, Brauser, Alpha Capital and three longtime Honig business associates are to pay nearly $12 million in disgorgement, penalties and interest.
The SEC has not yet assessed financial penalties against Honig, who it described as the chief architect of the schemes. Attorneys have said in court proceedings that the Justice Department is conducting a criminal investigation that involves at least some of the defendants.
As we noted in our original investigation into the stealth promotion articles, a former executive who was charged with securities fraud in connection with a 2011 pump-and-dump at a company called YesDTC Corp. (formerly OTC: YESD) implicated Honig and Zazoff in the scheme.
That executive, Joseph Noel, entered into a plea agreement in 2014. His sentencing was continued in April 2015, and since then, all but one of the 26 subsequent court filings has been sealed.
JOHN FORD
One of the defendants in the SEC case against Honig’s group — John H. Ford — was a prominent author at SeekingAlpha.com. That site is built around content from outside contributors. Ford posted 40-plus articles at that site, more half of which were about companies linked to Honig, or were about Opko, which had invested in certain companies alongside Honig, Brauser and Frost, Opko’s CEO.
The SEC’s complaint said Ford’s articles were part of the pump-and-dump schemes involving MGT Capital and BioZone. He also wrote favorably about the third company, Mabvax.
The SEC alleged that Ford falsely claimed he had not been compensated for the articles. Securities regulations require writers, websites or other entities that are paid to promote stocks must disclose that publicly.
IRTH COMMUNICATIONS CASE
The SEC more recently brought and settled charges against IRTH and one of its owners, Andrew Haag. Its release, in July, said the firm tweeted or retweeted links to 23 positive articles on nine client companies, without disclosing the source or amount of the compensation it received to put out those tweets.
IRTH agreed to refrain from further violations of SEC rules and pay just under $75,000 in disgorgement, penalties and interest. Haag also agreed to cease and desist from further violations, and pay a $7,500 civil penalty.
The SEC did not specify which Twitter posts were covered by the action, except to say that the posts appeared between November 2017 and February 2018.
Our review of IRTH’s account turned up more than 20 tweets in that period that linked to stealth promotion articles by Rae, Ronan, Collins and three other writers. They focused on seven IRTH clients that were part of our original report.
Those companies were:
— U.S. Gold, which was the subject of a separate Sharesleuth investigation last year.
— Vuzix Corp (Nasdaq: VUZI)
— Citius Pharmaceuticals Inc. (Nasdaq: CTXR)
— BioSig Technologies Inc. (Nasdaq: BSGM)
— Hemispherx Biopharma Inc. — now AIM ImmunoTech Inc. (NYSE: AIM)
— MassRoots Corp. (OTC: MSRT)
— Global Blockchain Technologies Corp. – now Global Gaming Technologies Corp.(OTC: BLKCF)
IRTH stopped tweeting links to the stealth promotion articles in February 2018, after we asked why so many pieces by Rae, Ronan and others offered bullish assessments of the firm’s clients.
IRTH handled investor relations for at least 10 Honig-backed companies. It also represented roughly a dozen other public companies whose shares were the subject of nearly 90 stealth promotion pieces.
NEW CHARGES IN THE BLAKE INSOMNIA CASE
The SEC brought charges in October against an American attorney, Jillian Sidoti, saying that she helped facilitate the fraudulent sale of roughly $7.2 million in Blake Insomnia shares as part of the broader global scheme.
It said Sidoti drafted documents that she knew contained false information about Blake Insomnia’s operations and control, including a private placement memorandum, registration statements and letters to its transfer agent, lifting trading restrictions on shares.
The SEC said the pump and dump involving Blake Insomnia’s shares ran from December 2016 to June 2017.
The complaint did not identify the owner or owners of the $7.2 million in stock that was sold. It appears that they have yet to be charged.
OTHER CASES
The SEC brought a civil case last year against Knox and another defendant, alleging that they helped clients with hidden ownership interests improperly sell shares in more than 50 small public companies.
Authorities also brought civil and criminal cases against financier Morrie Tobin, who secretly controlled two of the companies used in pump-and-dump schemes – Environmental Packaging Technologies Holdings Inc. (OTC: EPTI) and CURE Pharmaceutical Holding Corp. (OTC: CURR).
Those cases alleged that Tobin enlisted Knox and his associates to help conceal the true ownership of the shares in those companies – through their overseas entities — and to facilitate the planned dumping of up to $15 million of that stock.
We found one stealth promotion story about CURE Pharmaceutical Holding, by a fictitious writer named Luke Douglas. His name appeared atop more than two dozen stealth promotion pieces, all focused on companies linked to Honig, IRTH or the global pump-and-dump rings.
Tobin pleaded guilty in February 2019 to one count of securities fraud and one count of conspiracy to commit securities fraud.
In a bid for leniency, Tobin tipped off the FBI to another widespread fraud scheme, one in which wealthy parents paid bribes to college admissions-test administrators, coaches and athletic staffers, and other intermediaries, to ensure that their children were accepted at the schools they were targeting.
The investigation, dubbed Operation Varsity Blues, led to charges against actress Lori Loughlin; her husband, clothing designer Mossimo Giannulli; actress Felicity Huffman and more than 50 other defendants.
Tobin was sentenced in August to a year and a day in prison on the securities fraud charges.
CHANGES AT THE TOUT SITES
Small Cap Exclusive updated the domain information for its site in 2017. For a brief period, it listed Rae – the writer of many of the stealth promotion stories — as the registrant.
The contact information on the site itself also changed, to listed owner as JBN Partners LLC.
The domain information was again made private not long afterward.
JBN Partners is run by a stock promoter named James Filippone. He lives in South Carolina, and had prior ties to Honig, Brauser and Frost through one of the companies they bankrolled, MusclePharm Inc. (OTC: MSLP)
Filippone previously operated FlipVentures LLC, which acted as a middleman in making payments to other promotion sites for touting campaigns – including the one that led to the criminal charges against Ciccarelli.
Some of the sites that were paid by FlipVentures were owned by another South Carolina company run by Ciccarelli and Christopher “Gabe” Nix. The SEC brought charges against Nix in 2014 in connection with his role in a pump-and-dump scheme involving shares of Amogear Inc. (formerly OTC: AMOG).
Nix also was indicted on criminal charges in connection with the scheme. He pleaded guilty to wire fraud, securities fraud and conspiracy to commit securities fraud and was sentenced to 18 months in prison on each count.
Ciccarelli was not charged in connection with that case.
Small Cap Exclusive remains in operation, and now makes no secret that it is paid to promote stocks, disclosing the source and amount of the compensation it gets for certain articles (see this $50,000 tout of Mydecine Innovations Group Inc.).
Small Cap Exclusive’s two companion sites, Savvy Trader Resource and Capital Equity Review, have not added content since 2018.
Records show that Ciccarelli was the domain registrant for OTC-Expert.com, which first appeared in January 2016 and sent out promotional emails to subscribers.
Our investigation found that OTC-Expert was paid to promote at least five companies in which Honig or his associates had stakes. It also sent out emails touting Blake Therapeutics.
Another entity, TheStockExpert.com, featured many of the same stock. It listed its business address as a house in Johns Island, S.C. We found that Ciccarelli used the same address when he incorporated another business in October 2018.
Both of those promotion sites are now defunct.
SmallCap Network is now under new ownership. Like Small Cap Exclusive, it is more clear about its nature as a paid-promotion site.
