Open Letter to SEC Chairman Jay Clayton

Regarding SEC Complicity in Frost gang Securities Frauds

November 6, 2019
2126 Lyndale Avenue S #6
Minneapolis, MN 55405

Jay Clayton, Chairman

Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
By Email to chairmanoffice@sec.gov

Dear Chairman Clayton,

Not too very long ago, the SEC website used to proclaim, “First and foremost, the SEC is
a law-enforcement agency.” Those words have disappeared, and the sentiment behind them is
gone, too. In the case of the Frost gang, the SEC (or at least certain actors within the SEC) now
seem intent on aiding, abetting, enabling and covering up illegal and highly profitable actions by
Phillip Frost, his henchmen, and companies controlled by the Frost gang and its associates.
Phillip Frost is the leader of a white collar gang that specializes in market manipulation
and securities fraud, especially pump and dump securities frauds. Frost has consented to
judgment and paid a $5 million fine as a result of securities fraud charges in ​SEC v Honig​.
However, Frost’s settlement with the SEC allowed Frost to continue as Chairman and CEO at
Opko Health (OPK), where Frost is also the largest shareholder. Further, Frost gang members
and associates continue with fraudulent acts at a variety of companies in violation of the
securities laws of the United States of America.
I write regarding the complicity of the SEC with past and ongoing frauds of the Frost
gang. The situation is complicated and there are a lot of documents, but there is ample expertise
at the SEC to help you get a handle on things. Therefore, I will jump right in and address the
issues without any more introduction or background.

1. The role of registration statements in Frost gang P&D’s

My amended complaint in ​Pederson v Frost I​ lays out in detail the Frost gang general
method of accumulating cheap or free shares of a company and then registering those shares for
sale prior to a P&D securities fraud by filing a registration statement (RS) with the SEC. My
complaint also details the specifics of the filing of the RS and the approval of the RS by the SEC

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in the BioZone P&D. However, neither the original complaint nor the amended complaint in
SEC v Honig ​mentions the role of the SEC in facilitating the P&Ds by approving the RSs.
The SEC has approved RSs in numerous Frost gang P&Ds to the point where such RS
approvals by the SEC are hallmarks of Frost gang P&Ds. In fact, John Ford’s name on such an
RS by MGTI was one of the key pieces of evidence in establishing the existence of the P&D
securities frauds described in ​SEC v Honig.​
Why did the SEC omit this important aspect of the Frost gang P&D securities frauds
from the ​SEC v Honig​ complaint?

2. Frost gang connections within the SEC

According to a statement by Dan Fisher in the Garcia Properties litigation, Michael
Brauser boasted to Fisher that the Frost gang had connections inside the SEC that insulated them
from Fisher’s whistleblower complaint. The SEC needs to investigate its connections with
Brauser and other members of the Frost gang.

3. Kesner connections to the SEC

Harvey Kesner is the Frost gang attorney who was responsible for pushing the RS
through the SEC in preparation for the BioZone P&D. Kesner has pushed many such RSs
through the SEC for many Frost gang P&Ds. Kesner’s connections and communications with
the SEC need to be investigated. Also, the SEC needs to take legal action to bar Kesner from
practicing before the Commission.

4. McKessy phone call

In 2015, then SEC Whistleblower Chief Sean McKessy called me personally to try to get
me to back off from pursuing my allegations against Phillip Frost and his gang. The
circumstances leading up to that phone call need to be investigated.

5. Timid and weak enforcement / Frost’s consent to judgment

I wrote an open letter to SDNY Judge Edgardo Ramos when the SEC announced that the
agency had agreed to a settlement with Phillip Frost. The issues I raised in that letter have not
been addressed by the SEC.

6. Denver Lough’s PTE shares

There is overwhelming evidence that the Frost gang perpetrated a P&D securities fraud at
COOL/PTE. The SEC has subpoenaed PTE and is presumably investigating. Denver Lough, a
key player in the fraud and the former CEO and chairman of COOL/PTE, has been removed as
CEO by the BOD and has resigned as a director. The SEC just gave effect to an RS allowing
Lough to sell seven million shares of PTE.

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 The SEC website now says, ​"The mission of the SEC is to protect investors; maintain
fair, orderly, and efficient markets; and facilitate capital formation. The SEC strives to promote a
market environment that is worthy of the public's trust." How does does approving an RS
allowing Denver Lough to sell seven million shares of PTE further the SEC’s mission?

7. “Capital formation” by Frost gang companies after P&Ds

The SEC has given effect to numerous RSs at Frost gang companies to sell new shares to
the public after the initial phase of the P&D is complete. I have written to the SEC regarding
several specific instances of this practice, urging the SEC not to approve such RSs. Apparently,
the existence of fraud does not enter in to the SEC’s determinations about giving effect to RSs.

8. Lack of timely enforcement

SEC v Honig was filed years after the evidence was available to bring those same
charges. In the meantime, the Frost gang initiated and continued many other securities frauds,
while using their resources to attack and silence critics. This same type of delay by the SEC is
occurring with PTE, as well as many other easily provable Frost gang P&D securities frauds.

9. Possible reasons for poor performance

I suspect that there are multiple reasons for the SEC’s treatment of the Frost gang. The
evidence strongly suggests that corruption within the SEC is a primary reason.

10. Request for OIG investigation

I have previously requested that the SEC Office of the Inspector General (OIG)
investigate several of the items listed above. I now repeat and expand my request to include all
of the items listed. These investigations need to be completed and the findings need to be made
available to the public in a timely manner.

These issues I raise fall into three broad categories: (a) Frost gang connections with the
SEC; (b) Processing and approval of RSs by the SEC; and (c ) the SEC’s lack of timely and
effective responses to my whistleblower tips and other communications, and the SEC culture
around that. For category (a), it should be a simple matter for the OIG to determine the identity
of the SEC employees who have communicated with Kesner and other Frost gang members and
associates, and the content of those communications. Similarly for category (b), it should also be
straightforward to review the processing of RSs by Frost gang companies, including whether
such processing included any evaluation for fraud. Addressing category (c) is simple, but likely
problematic for the agency. It requires that the agency be evaluated as to whether its purpose is
to serve the interests of a corrupt billionaire (Frost), or to serve the interests of the American
public.

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 The issue of registration statements deserves more discussion here. There are several
categories that need to be examined.
1. RSs filed before a P&D that allow insiders (“selling shareholders”) to dump their
cheap/free shares. BioZone is a prime example.
2. RSs filed after a P&D that allow a company to sell shares to the public after a P&D. PTE
and RDVT are prime examples. In such situations the proceeds are often looted by Frost
gang members and associates.
3. The special case of Denver Lough’s seven million shares at PTE.

I have previously provided the SEC with voluminous documentation of all the matters
listed above. I now respectfully request a complete response to this letter by the SEC.

Agents from the Department of Justice are copied on this letter. Given the evidence of
internal corruption at the SEC, it may be appropriate for the DOJ to conduct their own
investigation of the SEC regarding the issues addressed in this letter.

This letter is posted at Scribd, with a link from Twitter.

Lee Pederson

Cc:
SEC OIG
Phillip Frost (℅ attorney Joe Dixon)
PTE (℅ attorney Maggie Dalton)

Bcc:
SEC and DOJ agents (FBI and US Attorney’s Office)
Journalists and business writers
Other interested persons