Federal regulators are ramping up their investigation into small-cap broker dealer Laidlaw & Company for their role in executing stock manipulation schemes that left main street retail investors with millions in losses.
The Financial Industry Regulatory Authority (FINRA), who is leading the investigation, is currently examining the role of top Laidlaw executives in stock manipulation, lack of transparency and parking stock. Some of the stock offerings under investigation were securities sold by Laidlaw brokers at the behest of known microcap investor Barry Honig.
In September, the Securities and Exchange Commission (SEC) brought an enforcement action against Honig and his associates (Team Honig) for orchestrating pump and dump schemes as a group of undisclosed affiliates.
Barry Honig, a former lightweight New York boxer, is known for his dedication to ‘responsible investing’; however, a deal with him has been conversely referred to as “a deal with the devil” according to sources from Microcap and other industry players. For years, public filings have shown Honig as a passive investor. However his investments have been seen to ride up in share price, stir up investor interest, then skyrocket down after the ‘window dressing’ comes off.
His crew of alleged bad actors – Team Honig – has been chronicled for years here at TERIBUHL.com and by Chris Carey at Sharesleuth and Bill Albert at Barron’s. It consists of biotech billionaire and philanthropist Philip Frost, his fellow co-investing partners Michael Brauser/John O’Rourke/Marc Groussman, John Ford – the promoter who wrote favorable analysis on stocks, priming them for the ‘pump’ of Honig’s ‘pump and dump’ – and Harvey Kesner, a deal lawyer from SIRF LLP linked to a number of Honig ‘s investments.
News of how Laidlaw’s CEO Matt Eitner and Managing Director of Investment Banking Jimmy Ahern worked with Honig to manipulate stock prices first came to light in an investigative story by TERIBUHL.com last month.
According to former Laidlaw brokers, Eitner and Ahern are accused of running ‘the dump’ element of Team Honig’s scheme, using the firm’s retail clients to offload toxic securities. In return, they are believed to have received deeply discounted stock warrants, personal consulting fees and possibly brown bag cash kickbacks.
Many former Laidlaw staff members have been subpoenaed and summonsed for on-the-record testimony against Eitner, Ahern, and Honig, including registered brokers Rob N. Rotunno, Craig A. Bonn, John Marinaccio and Jodi Fauci.
All three brokers – Rotunno, Bonn and Fauci – worked for Laidlaw for a decade.
Jodi Fauci could be a key witness for the regulators’ investigation because, for a time, she held the role of back office manager for Laidlaw and could have seen, how Eitner and Ahern would prevent brokers from selling their clients’ shares when stocks were on high. On occasion she had to fill in for John Marinaccio the Anti-Money Laundering Director whose role was to over see trades with the clearing firm. Marinaccio is likely one of FINRA’s best witness because of his day to day view of how orders got filled. Marinaccio and Fauci confirmed they did an on-record interview with FINRA when subpoenaed. Fauci now works for a firm on Stanton Island.
Rotunno and Bonn could be key witnesses as well. Currently named in FINRA arbitration claims filed against Laidlaw by former clients, according to former colleagues, these brokers were encouraged to start what became known as ‘cross trades’ with these former clients.
As previously reported, to help Honig keep stock prices up – so his team could dump shares at a stock’s high – Laidlaw’s Eitner and Ahern bullied brokers into pushing toxic shares onto naive retail clients before restricting the share sales when Team Honig got out of the stock.
According to two sources, Eitner and Ahern would promise brokers cheap warrants – or even side deal cash – for putting Laidlaw clients into those deals. As Rotunno and Bonn were not part of Eitner and Ahern’s inner circle – the ‘Pump Pump Loose Loose’ group – when their clients demanded out of the stock at its high, Eitner and Ahern advised they open new client accounts and sell the shares their previous clients wanted out of to those new clients, even though the stock was on a downward tear.
This ‘cross trades’ process was similar to a Ponzi scheme; stock was bought and sold around the firm’s client list to make small profits for a few, so it seemed there was much liquidity in it. Whoever was stuck in the stock when Team Honig dumped, lost out.
When questioned as to the legality of this practice, Eitner and Ahern were said to have referred interested parties to Sichenzia Ross Ference LLP – a law firm with close associations to the business deals of Barry Honig.
With Honig now in the hotspot, it appears Eitner and Ahern are making moves on their own to exit stocks that were part of a planned manipulation scheme. A few years ago the Laidlaw duo tried to make a move out of Honig’s playbook in a company called Relmada but it wasn’t a clean exit like Honig’s been able to pull off for years as the lead player in the scheme. Shares in a company called Spherix ($SPEX), have been sold by Laidlaw in October with visible market moves that read like a pump and dump. And this week Laidlaw gathered it’s brokers in staff meeting to ready a push for a new biotech IPO designed as a profitable exit for Eitner and Ahern and one of Honig’s prior associates Rob Knie.
Honig’s Lackeys try being Lead Architect of Stock Schemes
The SEC detailed in court documents how Team Honig gains leadership influence over company boards and cheap stock before the pump and dump is executed. Per the SEC: Honig and his colleagues would acquire large equity positions in exchange for financing a development-stage company’s debt and when the company couldn’t repay the steep interest rates it had to allow Honig stock conversions that gave him a larger ownership percentage without spending more money. At that point Team Honig would force appointment of their own board directors and axe true independent directors. Then Laidlaw as the broker dealer would come in to do a secondary Regulation D offering to accredited investors or structure a Private Investment in a Public Company (PIPE) deal to get shares sold to outside investors and create liquidity in the market so Honig could execute a dump at the stocks high.
Take the case of a clinical stage drug trial company called Relmada Therapeutics ($RLMD). A deal Laidlaw brought Honig into that started with his investment in a company called Camp Nine, which later became Relmada through a reverse merger in May 2014. The deal gave Honig 7.75 percent ownership of Relmada. Laidlaw convinced the company to do an IPO but with a private non-deal roadshow where Laidlaw would introduce certain investors to Relmada and recommend who Relmada would allow to invest. Those private Laidlaw clients happen to be Team Honig and his associates. Eitner and Ahern were well compensated for their investment banking work by Relmada through the IPO to the tune of $4.2 million in fees and stock rose to a high of $20 soon after it went public. Laidlaw had raised $48 million of new equity for Relmada. On top of the investment banking fees the Pump Pump Loose Loose and We Are Pretty Good At This, personal LLCs controlled by Eitner and Ahern were paid thousands in fees monthly. I previously reported how money from these LLCs is used to benefit the Laidlaw brokers who agreed to sell their clients the risky investments without asking to many questions on why Laidlaw was supporting the worthless stocks.
The Relmada deal was very profitable for early investors and the Laidlaw team but didn’t end well. Relmada later sued Eitner and Ahern for Laidlaw leaking private company info to investors they brought in and for their role in trying to try and take over Relmada after the investment banking fees dried up. The litigation was very public and embarrassing, exposing Jimmy Ahern as lying about earning a college degree and stopped the Laidlaw take-over campaign but the company lost over 40% of its value a year after its IPO. Relmada, who sued for racketeering and tortuous interference, even accused Eitner and Ahern of front running the Laidlaw clients they brought into invest from 2012-2014. It’s this practice of front-running that FINRA is currently investigating and a core element to how Laidlaw is believed to have helped Honig earn millions on his alleged pump and dump deals.
The Relmada deal was the first time Eitner and Ahern where trying to be leaders of a pump scheme but they were publicly exposed and didn’t complete their plan. Of course Team Honig still made millions on the post-IPO pump of Relmada without any backlash. According to a former Laidlaw broker who sold the Relmada offerings, once Eitner and Ahern got their teeth in the company they pushed Relmada’s management to hire a former bio-tech analyst named Robb Knie to ‘promote’ the stock. Knie had been acting as a consultant to many small cap public companies after the hedge fund he worked for left him without a secure job after the financial crash. They bullied Relmada’s CEO to pay Knie a cash and stock payout of $2 million and said this was the fastest way to get an IPO done and build a relationship with Honig as an investor.
Eitner and Ahern first met Knie in 2011 on a deal with Aspen University ($ASPU). The CEO of Aspen was the same Honig-backed CEO of Interclick, which was one Honig’s most famous and profitable deals. Robb Knie was been named in the Wizard World lawsuit which called out misconduct in the deal. He was latter dropped from that suit. By 2016 Relmada had tanked down to around $1 and still trades in that range as of today.
After the Relmada IPO, Eitner and Ahern rewarded themselves with million dollar water front beach homes both purchased in the second week of October 2014. The duo was enjoying their new found wealth and had no problem showing it with firm bought new Mercedes and full time private drivers. Their vacation homes were bought in locations the mid-30 year olds had only dreamed of living in growing up with middle class incomes. Matt and his wife Katie Eitner spent $2.3 million for 1817 N, Ocean Ave, Surf city NJ, which is on Long Beach Island. Jimmy and Jillian Ahern spent $3.175 million on 58 Snow Inn Road, Harwich, MA, which is in Cape Cod. The Aherns paid cash for the Cape Cod house.
After the beach homes purchase Laidlaw & Co began showing visible drops in revenue. As of December 2014 gross revenue for Laidlaw was $45,726,373. Going into 2015 its asset under management was declining and FINRA was getting more customer complaints. As of 2015 revenue was down $10 million ending the year at $34,308,397 and the slump continued in 2016 ending the year at $24,171,714, according to internal Laidlaw financials seen by this reporter. By 2016 the 175-broker firm had a mass exodus of top performing brokers who were leaving the firm with a bitter taste in their mouth from Ahern and Eitner’s high pressure and verbally abusive sales practice that resulted in loosing clients’ money on the Honig Deals. As of press time Laidlaw is believed to be only a 98-broker firm.
Is Laidlaw now running their own P&Ds?
Spherix is a company that was an early investment for Barry Honig originally as a patent troll. Laidlaw executed about half a dozen follow on offerings in Spherix which included selling a PIPE offering to retail investors who might not be accredited investors. The stock would spike of merger or press announcements but then tumble when the announcements panned out to ad no value to the company. According to ex Laidlaw brokers their internal order system would be restricted so that brokers couldn’t choose to sell the stock on its way down. They had to go the AML director who had to get permission from Eitner to sell and by the time that process went through the value had been lost. Meanwhile Eitner and Ahern would be front-running Laidlaw clients selling a block of shares they own. As example one text seen by this reporter showed brokers on the PPLL team would get a message saying management had sold 40,000 shares and 5,000 would go to the broker who could then choose which of their clients got in a sell order. It was design to give clients a small taste of a profit and reward brokers who played along with Eitner and Ahern. When Laidlaw couldn’t sell clients to keep investing Spherix would just change its biz model and move into a new line of business. The company as gone from patent investing, to an internet messaging company to most recently a biotech company and is led by a man named Anthony Hayes. Spherix also had Rob Knie, age 49, as head of investor relations. At age 22 Knie was arrested for petty larceny and filing a false statement with the Board of Elections as the president of the Young Democrats of Rockland County. He plead to the false statement charge and repaid the stolen funds.
This March Laidlaw sold an offering for 2,222,222 shares an avg cost of $1.35 to its clients. The pitch was Spherix was going to acquire 100% of a company attempting to compete with Snapchat called Datchat and they needed to raise $3 million. Unbeknownst to the Laidlaw’s brokers Matt Eitner’s wife Katie had made a founder investment in Datchat acquiring shares at $.25. Katie Eitner doesn’t have a history of start-up investing. Additionally, Jimmy Ahern made the same investment in 2015. The shares were allowed to age so that by the time a merger came along they would be free trading. But during FINRA arbitration this year, it was revealed that Ahern and Eitner hadn’t told brokers about their possible economic gain if the two companies merged. If Datchat’s founding stock turned into free trading public stock Eitner and Ahern could have their own private windfall because they’d control when Spherix investors could get out of the stock.
Then magically there was a press announcement calling off the Datchat merger. Instead it was announced only a million dollar investment would be made by Spherix into Datchat in exchange for equity in Datchat. Since Datchat raised money through an offering called Regulation A they are allowed limited audited reporting of financials statements. Public filings still don’t show how the $1 million was really used at Datchat and it could have been spent paying back Eitner and Ahern’s founding investment.
Calling off the merger appears to be a blatant slap in regulators face showing Eitner and Ahern know they are being investigated but are not worried about being caught.
On October 11, Spherix announced a new merger this time with a biopharma platform company called CMB Biopharma that claims to be ‘researching’ a drug to help leukemia. The stock flew from $1.01 to $1.55 in pre-trading with 5.2 million shares traded that day. The average trading volume for Spherix is around 60,000. But the street has caught on to how $SPEX trades and a short interest drove the stock down below the price of the March offering closing at $1.05 that day. Additionally, two current Laidlaw brokers said they were not able to sell on the morning of the stock run.
Spherix has also made a $675,000 equity investment in a drug development company called Hoth Therapeutics. According to internal emails and public filings Hoth was started by Matt Eitner, Jimmy Ahern, and Robb Knie each owning one-third of the company for an initial investment of $105,000 in May 2017. Robb Knie was made CEO of the company and a young female office manager with no experience in medical research from Spherix was made V.P. The investment was planned so that when Spherix made their investment in Hoth the trio would get paid back as a loan with interest for $150,000 but still keep their founding equity. Then Laidlaw did a Reg D offering in October 2017 for up to $5 million for .25 a share of preferred stock with a 7% interest. SEC filings say only $1 million was raised. The preferred stock is structured to convert to common upon a public offering. Eitner bought into that deal along with a few Laidlaw retail clients. It’s unclear if the clients in the private offering were told Eitner and Ahern had personal investment in Hoth when it was pitch on the phone but it is disclosed in the offering memorandum.
Now Hoth is being rushed to IPO. This week Eitner and Ahern held company wide meeting pumping up its brokers to sell Hoth at a whopping price of $5.50 to $6.50. The S-1 filing says the ticker will be $HOTH with hopes to list on NASDAQ. The rush to IPO could be because Eitner and Ahern know FINRA is investigating and they’d better cash out of their investments before they are kicked out of the industry or the broker dealer is expelled. The lead lawyer on the Hoth offering is Richard Friedman from Sheppard Mullin is one of the founding members of Sichenzia Ross Friedman Ference LLP – the law firm involved in all of Honig’s deals.
A legal review of the offering docs for this publication showed: “There was a possibly relevant patent issued in December 2017 that relates to Hoth’s business, but other than that, it’s hard to discern any meaningful operations. The M&A transaction that Hoth entered into with Spherix in 2017 essentially gave Spherix control of Hoth, but did not appear to provide significant core technologies that are in line with Hoth’s stated business purpose. The Hoth S-1 states that Laidlaw is a “selling group” in the offering, but does not describe this any further. This is a material omission.”
Additionally the “Conflict of Interest” paragraph appears to have a significant error. The disclosure on page 90 of the S-1 reads “Persons associated with Laidlaw, which is expected to be a selling group member in this offering, collectively beneficially own 16.60% of our outstanding common stock”. The problem with this is that the beneficial ownership table lists Ahern’s and Eitner’s ownership percentages prior of the offering as 29.21% in the aggregate, not 16.60%. This could mean Hoth will need to file an amended S-1 offering.
“Assuming the SEC reviews this S-1, it would be interesting to see if the SEC deems disclosures among the various related parties (i.e. Hoth, Spherix, Chelexa and their respective principals) as being adequate to protect the investing public,” attorney Wesley J. Paul of the New York based Paul Law Group told this publication.
According to two current brokers at Laidlaw it was not mentioned that Eitner and Ahern have significant equity ownership of Hoth in their sales meeting this week. The brokers have to read the S-1 to learn that.
Honig and Laidlaw lawsuit
After my first story exposing Laidlaw’s role with Honig, a former longtime client has sued the Laidlaw for two million dollars with claims of common law fraud, negligence, breach of fiduciary duty for putting clients in unsuitable investments and possible parking of stock. The suit filed on Oct 4th is unique because it’s the first one tying Honig and Laidlaw together in investing schemes. It list 17 stocks believed to be part of the scheme including Spherix, Relmada, and Aspen Group. That client is Dr. Bruno Casatelli who was the father-in-law of one of Laidlaw’s top brokers. The broker is no longer with the firm. Attorney Dax White of Vero Beach The White Law Group even put out a press release looking for more Laidlaw clients to join the suit. Attorney White wouldn’t comment on the case which will be arbitrated by FINRA. Matt Eitner did not respond for comment when asked why Laidlaw has not disclosed this lawsuit.
U.K. regulator, the Financial Conduct Authority, has also opened a whistleblower claim into Laidlaw. Laidlaw is registered with the FCA, which enables them to sell to investors in that domicile. The FCA has the ability to impose unlimited fines on a broker dealer and ban them form selling to U.K. residents—they work like the Securities and Exchange Commission and don’t bring criminal charges. The case is currently being investigated by Liam Docherty of Enforcement and Market abuse.
Honig and Laidlaw did not respond for comment to this story.