Phillip Frost, Miami science museum’s namesake, charged with securities fraud

Phillip Frost, the founder of Miami-based OPKO Health and the namesake of the Phillip and Patricia Frost Museum of Science, was charged Friday with securities fraud.

According to the U.S. Securities and Exchange Commission, from 2013 to 2018, Frost and nine other investors manipulated the share price of the stock of three unnamed companies “in classic pump-and-dump schemes.” In such schemes, an investor purchases stock, promotes the company without disclosing his ownership interest to inflate its value, and then sells the shares as the value rises.

Publicly held OPKO Health was also named as a defendant in the SEC’s complaint. Trading in shares of the pharmaceutical firm was halted Friday afternoon, but after-hours trading showed an 18 percent decline in OPKO shares.

OPKO released a statement late Friday that said, in part, “OPKO and Dr. Frost have always prided themselves on adhering to the highest standards of financial disclosure, and they are confident that once a proper investigation is completed and the facts of the case have been fully disclosed, the matter will be resolved favorably for them.”

Frost, who was born in 1936, allegedly participated in two of the three schemes. According to the complaint, he made at least $1.1 million. Forbes estimates his net worth at $2.6 billion.

“In every scheme ... some combination of [four others charged] and Frost either explicitly or tacitly agreed to buy, hold or sell their shares in coordination with one another, knowing that a pump and dump was in the offing that would allow them all to profit handsomely,“ the SEC alleges.

The commission did not name the three companies that were the targets of the schemes.

The SEC named South Florida businessman Barry Honig of Boca Raton as the ringleader of the alleged schemes. The arrangement allegedly involved purchasing stock at steep discounts through shell companies or at terms highly unfavorable to the given company. Then, the SEC says, Honig would coordinate with Frost and others to manipulate coverage and price movement of the stock.

The alleged fraudsters generated more than $27 million from the unlawful stock sales, while causing “significant harm to retail investors who were left holding virtually worthless stock,” the SEC said in its release.

Honig could not immediately be reached for comment.

Earlier this year, Honig was the subject of investor scrutiny after he transformed a Colorado biotech company into a blockchain company. That firm, Riot Blockchain, announced it was the subject of an SEC inquiry months after the Wall Street Journal reported Honig had sold out his stake. A defendent named in Friday’s complaint, John O’Rourke, is CEO of Riot.

Read the full complaint here.

In its statement released Friday, OPKO wrote, “The SEC failed to provide notice of its intent to sue prior to filing the complaint, which contains serious factual inaccuracies.

“Had the SEC followed its own standard procedures OPKO and Dr. Frost would gladly have provided information that would have answered a number of the SEC’s apparent questions, and filing of this lawsuit against them could have been avoided.“

Frost, a medical doctor and serial entrepreneur, and his wife, Patricia, pledged $45 million to open the science museum along Miami’s bayfront, including an extra $10 million after the project ran behind. In 2011 he signed the Giving Pledge initiated by Warren Buffett and Bill Gates, in which signers promise to give the majority of their wealth to charity.

In addition to their gift to the science museum, the Frosts have donated millions to the University of Miami, including $100 million to its engineering program. The Frost School of Music is named in his honor, as is the Frost Art Museum at FIU. Last year, Frost was named the most charitable person in all of Florida by the Chronicle of Philanthropy.

In response to the news of the SEC filing, the Frost Museum of Science issued a statement to the Miami Herald that read: “We are extremely grateful for the support of Dr. Phillip and Patricia Frost, who are steadfast in their commitment to education, science and technology. Without their dedication, the museum would not be here today.”

A Philadelphia native and dermatologist by training, Frost made his wealth by developing and then selling several health-related firms. In 1986, he sold Key Pharmaceuticals to Schering-Plough for $836 million. In 2005, he sold generic drug maker Ivax to Israel-based Teva for $7.6 billion. And in 2011, he sold health group Continucare to Metropolitan Health Networks for $416 million. In each company, Frost was among the largest shareholders.

Frost is also chairman of publicly held investment firm Ladenburg Thalmann. Shares in that firm were down 15 percent Friday in after-hours trading. According to Forbes he has significant holdings in at least 18 other companies.

Other South Florida individuals named in the complaint are:

John Stetson, born in 1985, of Fort Lauderdale.

Michael Bauser, born in 1956, of Lighthouse Point. He currently works in an office in Miami in the same building as Frost, according to the SEC.

John O’Rourke, born in 1985, of Fort Lauderdale. He currently works at an office in Boca Raton with Honig and Stetson, and at times, Mark Groussman, according to the SEC.

Mark Groussman, born in 1973, of Miami Beach. He occasionally works at an office in Boca Raton with Honig, Stetson and O’Rourke, according to the SEC.

Miami Herald reporter David Smiley contributed to this report.