Miami biotech billionaire and philanthropist Dr. Phillip Frost says he was stunned by the stock trading fraud charges filed against him earlier this month by the Securities and Exchange Commission. Frost denies the allegations, saying in a statement, they "are belied by common sense, my history of supporting promising scientific technology, and the facts."
Frost declined WLRN's invitation for an interview.
In an interview with WLRN, Securities and Exchange Commission Chairman Jay Clayton did not address the charges against Frost, citing "a longstanding commission policy" not to comment on enforcement actions. He also refused to discuss Frost's claim that the SEC "departed from its own longstanding practice of providing advance notice and a meaningful opportunity to address their questions in advance of filing an action.”
However, Clayton did address the type of stock trading his agency accuses Frost of conducting and the agency's investigative role.
Frost made his fortune in the pharmaceutical and biotechnology industries. He is a dermatologist by training and has bought, built and sold companies. He has donated hundreds of millions of dollars to groups throughout South Florida. He still runs OPKO Health, a publicly traded drug and diagnostic company headquartered in Miami.
The SEC accuses Frost of participating in a scheme manipulating the price of low-cost, thinly traded stocks. Nine others are charged along with Frost. They’re accused of buying shares of three companies, touting their business prospects and then selling when the stock prices went up.
It’s called a 'pump and dump' scheme.
"Pump and dump is a manipulation scheme that has been around about as long as markets have been around," says Clayton.
Frost says he remains a long-term investor in both companies included the federal charges.
The Securities and Exchange Commission claims Frost made at least $1 million in the trades. Together the scheme allegedly made $27 million dollars for those accused of taking part.
Here is an edited excerpt of WLRN's interview with SEC Chairman Jay Clayton.
WLRN: Explain where the illegal action happens in (a pump and dump trade). If an investor is successful they may want to brag about how successful they are. Is that considered a pump?
Clayton: You're raising a very important issue, which is how do you differentiate between legitimate market activity and a scheme. And we try very hard to make sure that when we do bring actions as a commission, that we're not adversely affecting legitimate market activity.
What are some of the hallmark signs of a pump and dump that the Securities and Exchange Commission uses as it reviews those kinds of transactions to decipher between what may be illegal activity and what could be legitimate market activity?
I'll give you a stark example that the company actually doesn't do anything...or no meaningful business activity or no meaningful change in its business activity despite increasing in value by a substantial amount.
What's the threat of these pump and dump schemes?
People people use the word confidence a lot. Confidence is critical in our marketplace. To the extent people are doing things that would undermine confidence, it's important to deter them or stop them.
I know you won't address the specific charges against Dr. Frost and others that were filed earlier this month by the Securities and Exchange Commission. The company that Frost heads up, OPKO Health, released a statement saying, "The SEC failed to provide notice of its intent to sue prior to filing the complaint." Again, I'm not asking you to address the specifics of the against Dr. Frost, but does the SEC usually tell targets about possible charges before they're filed?
It's not appropriate for me to comment.
Generally speaking, is there a practice that the commission has in engaging with a person of interest in these types of cases prior to charges being filed?
We have a number of policies and procedures in place but I'm not going to comment on a specific one in this context.
Would one of those procedures be discussing potential charges?
Like I said, I'm not going to comment on specific procedures, but I can tell you that we have policies and procedures designed to ensure that we do things in an appropriate manner.
Would one of those policies and procedures be the process that OPKO Health describes?
Like I said I'm not going to comment.
(With) an enforcement action involvving a fairly well-known corporate executive, is that something that you would be made aware of prior to the action being taken?
I'm not going to comment on our on our policies and procedures. We handle matters the same regardless of who's involved. That's that's the right way to approach these things.