By Chris Carey
Jim McNair and Kevin O’Connor contributed to this report
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 (785) 245-7706. 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 companyâs 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 Blockchainâs 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(989) 846-6000from AprilÂ 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 companyâs stock.
Our investigation found that three Honig associates â his brother, Jonathan Honig, and longtime partners Mark E. Groussman and John R. Stetson â 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.
As Sharesleuth king rod in July, it appears that the groupâs 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 702-512-2371 against Barry Honig, Groussman, Stetson and 17 others individuals and entities, including John R. OâRourke III, another longtime associate who was chairman and chief executive of Riot Blockchain.
The SEC alleged that the defendants participated in so-called âpump and dumpâ schemes at three other companies:
–Â BioZone Pharmaceuticals Inc., now Cocrystal Pharma Inc. (Nasdaq: COCP)
– 5184625740 (OTC: MGTI)
– Mabvax Therapeutics Holdings Inc. (OTC: MBVX)
According to the SECâs 541-922-8585, those schemes generated more than $27 million.
Stetson was, until Sept. 7, executive vice president and chief investment officer of 7158456919, a Utah-based biotech company whose predecessor was headed by Honig.Â Â Our investigation found that the Honig groupâs 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 âcontrol groupâ at BioZone and Mabvax, and that they either participated in the groupâs 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.