Status Report on Pederson v Frost II ("pvf2")

Posted on scribd.com on August 27, 2020

UNITED STATES DISTRICT COURT

DISCTRICT OF MINNESOTA
Court File No. 19-cv-01777 (JNE/DTS)

Prepared by Lee Pederson (Plaintiff)

Date: August 27, 2020

On Thursday August 27, I filed a number of documents in my case against

billionaire fraudster Phillip Frost. Included in my court filings are a 134-page
Amended Complaint with 43 attached exhibits (1,178 pages of exhibits). I also
filed a 20-page Opposition to the defendants' motions to dismiss.
I realize that no one (except Frost's lawyers) are going to read all of it, so I
have prepared this relatively short summary of the case comprising excerpts from
the court filings.

A. Main Facts in the Present Case

1. The central facts of this case show that Defendant Phillip Frost bribed
Defendant Daniel Fisher with the goal of concealing securities frauds.
1.1. Defendant Phillip Frost is the leader of a white-collar gang (the "Frost gang")
that specializes in market manipulation and securities fraud.
2. Frost and the Frost gang conducted a pump and dump ("P&D") securities fraud
at BioZone Pharmaceuticals, Inc. ("BZNE") starting from about 2011.
3. Defendant Cocrystal ("COCP") is the successor to BioZone.
4. In September of 2018, the SEC charged Defendant Frost and other members of
the Frost gang for the P&D securities fraud at BioZone.1
5. Frost consented to judgment in the SEC case ("SEC v Honig") in December of
2018.2 The judgment was approved by SDNY Judge Edgardo Ramos in January of
2019. Under the consent judgment, Frost agreed to pay $5,523,387.52 (over 5.5
million dollars) in fines, disgorgement and interest.
6. Defendant Fisher was a victim of the securities frauds at BioZone.3

1
SEC v Honig. See Exhibits 2, 3, 4 and 14.
2
See Exhibit 4.
3
See Exhibit 37.
1
7. Frost committed torts against Plaintiff Pederson and Defendant Fisher during
the course of the securities frauds at BioZone.4
8. Starting in 2014, Defendant Fisher and Plaintiff Pederson worked together to
expose the securities frauds at BioZone.
9. Pederson and Fisher had a general agreement to work together to seek
compensation for both of them for the damages done to them by Frost and the
Frost gang.
10. Beginning in about 2014, Fisher pursued a lawsuit against Frost gang members
and entities (including COCP) seeking about $295,000 in damages.
11. Beginning in about 2015, the SEC began an investigation into the securities
frauds at BioZone based upon information provided by Pederson and Fisher. This
SEC investigation directly led to the filing of SEC v Honig almost three years later.
12. The DOJ is conducting a concurrent investigation into the securities frauds at
BioZone and other companies based upon information provided by Pederson and
Fisher.
13. In February of 2018 (about seven months before the SEC filed its lawsuit
against Frost), Fisher settled his lawsuit against the Frost and Frost gang under
circumstances in which about $1,176,000 went from COCP to Fisher via a
convoluted series of transactions.
14. Fisher's settlement with the Frost gang netted Fisher an amount more than
$800,000 over the amount Fisher was seeking in damages in his lawsuit.
15. As part of the settlement, Fisher agreed with Frost to stop collaborating with
Pederson to expose the Frost gang's securities frauds.
16. As part of the settlement, Fisher also agreed to withdraw Fisher's complaints
about the Frost gang to the SEC and DOJ.
17. Frost sits on the board of directors ("BOD") at COCP. Frost controls the
COCP BOD through share ownership and influence over other directors.
18. Frost orchestrated the settlement agreement to buy Fisher's silence in the
context of ongoing SEC and DOJ investigations of Frost.
19. In essence, the settlement comprised an $800,000 bribe from Frost to Fisher
(using COCP's assets) in exchange for (a) Fisher withdrawing his accusations
about Frost to the SEC and DOJ; and (b) Fisher agreeing to stop collaborating with
Pederson.5
20. Pederson seeks damages from Frost and COCP for tortious interference with
the business relationship between Pederson and Fisher.
21. Pederson seeks damages from Fisher for Fisher's unjust enrichment.

4
See Exhibit 1.
5
See Exhibit 12: May 20, 2020 "Bribery Details Letter" from Pederson to
Assistant US Attorney-1.
2
 B. Phillip Frost and the Frost gang
21.1. Frost and the Frost gang use deception and secrecy both in conducting their
frauds and in concealing their frauds. This presents a challenge to their victims, to
law enforcement, and to others who are interested in understanding and exposing
their frauds.
21.2. Some important facts about the gang's activities are held so closely by the
gang members that they have never been revealed. Facts that do become available
are often distorted, out of context, or obscured by "noise" so that they are difficult
to assemble into a coherent picture of what the gang has done.
21.3. It should be easily understandable that victims of the gang often do not
immediately understand what has been done to them. It takes time to put the
available pieces together.
22. Phillip Frost and his gang have carried out securities frauds at BioZone and at
multiple other companies besides BioZone.
23. SEC v Honig describes Frost gang securities frauds at three companies:
BioZone, MGT Investments ("MGTI"), and MabVax ("MBVX"). Frost
participated in the P&Ds at BioZone and MBVX.
24. SEC v Honig named 10 individuals and 10 entities as defendants. Nine out of
nine individual defendants charged in the BioZone P&D have consented to
judgments. Nine out of ten entity defendants have consented to judgments.
Charges have been dropped against the tenth entity defendant because that entity
was dissolved prior to the litigation. Only one individual defendant (who is
accused only in the MGTI P&D, in which Frost was not charged) has not
consented to judgment SEC v Honig.
25. The SEC has so far obtained judgments for over $11.3 million in fines,
penalties, disgorgement, and interest in SEC v Honig, with further amounts yet to
be determined from defendants with partial consent judgments.
26. The Frost gang operates as a conspiracy to commit securities frauds (the
"securities fraud conspiracy"). The securities fraud conspiracy includes Frost and
other individuals. The securities fraud conspiracy includes entities owned and/or
controlled by Frost including Opko Health, Defendant Cocrystal, and Frost
Gamma Investments Trust. The securities fraud conspiracy includes other entities.
27. Core individual members of the Frost gang include Barry Honig, Harvey
Kesner, Michael Brauser, Steve Rubin and Jane Hsiao.
28. Honig often acts as the chief strategist and arranger of the frauds, so the Frost
gang is sometimes referred to as the "Frost-Honig gang" or "Team Honig." Honig
also sometimes acts independently of Frost in other securities frauds.
29. In some documents and correspondence, associations of Frost gang members
are sometimes referred to as the "Frost Group."
3
30. The Frost gang is adept at creating and merging public companies, creating
other entities, changing entity names and company ticker symbols, and changing
("pivoting") business models of the entities.
31. Plaintiff Pederson has compiled a report from publicly available sources that
summarizes the activities of the Frost gang at public companies that have shown
red flags for securities frauds (Exhibit 9: Frost gang Report version 11.0).
32. The Frost gang Report describes:
a. Many Frost gang companies that have shown red flags of securities fraud;
b. Seven Frost gang companies with histories of litigation involving alleged
securities frauds;
c. 37 individual Frost gang members and associates named as defendants in
such litigation;
d. 14 Frost gang entities named as defendants in such litigation.

126. Frost is the leader of a nationwide enterprise (the Frost gang) that has
profited from securities frauds at publicly traded corporations.
126.1. The Frost gang securities fraud enterprise has at least three major
components that operate on a national level, including (a) sales of securities in all
50 states; (b) false and misleading promotion of securities in all 50 states; and (c)
systematic suppression of critics, skeptics and victims in all 50 states (see Exhibit
33: Frost gang Special Report).
126.2. Other components of the Frost gang securities fraud enterprise that operate
and/or have effects on a national level include (a) illegal swap trading, as described
in the complaint and amended complaint of SEC v Honig; and (b) the use of
broker/dealers to push the shares of Frost gang companies at the retail level.6
126.3. The Frost gang securities fraud enterprise may have still other components
that operate and/or have effects on a national level including (a) relationships with
market makers; (b) relationships with hedge funds; and (c) relationships
influencing decisions and actions within the SEC.
127. By using the public securities markets to commit frauds and by using public
media to transmit their fake pump stories, the Frost gang essentially operated in all
50 states, including Minnesota.
128. Frost is subject to personal jurisdiction in Minnesota under the Minnesota
long arm statute by having transacted (illegal) business within the state.
129. Frost gang corporations include, but are not limited to, BioZone/Cocrystal
and MabVax.

6
Teri Buhl has reported on broker/dealer Laidlaw & Company pushing stocks of
Frost gang companies on its retail clients. Frost may have used broker/dealer
Ladenberg Thalmann in a similar way when Frost was chairman.
4
130. Such corporations also include, but are not limited to, Opko Health,
PolarityTE, Pershing Gold, and other companies described in Exhibit 9: Frost gang
Report.

217. From 2014 until early 2017, Pederson and Fisher worked together using their
three-prong strategy against the Frost gang. Pederson and Fisher worked together
on all three aspects of the strategy: (a) civil litigation; (b) press coverage; and (c)
Federal law enforcement.
218. Pederson and Fisher began their collaboration with relatively scant material
and evidence against the Frost gang, except for what they knew about the gang
from first-hand experiences regarding FrostZone. However, they had both been
harmed by the Frost gang, and they shared an absolute certain conviction that Frost
and his gang members were fraudsters and criminals.

252. On or about December 7, 2015, Fisher sent an email (with attachments) to

agents at the DOJ and SEC, labeling the Frost gang as "White Collar Terrorists."
Fisher wrote in his email:
"The Frost Group is applying white collar terrorism against me
as the price for litigating against them and cooperating with the SEC
and the FBI. Please read this to see the Affidavit (Cocrystal
Settlement Agreement) they are demanding that I execute to avoid
financial ruin. Signing this, which I will never do, will seriously
damage your investigation. …
"I sued them (attached) over an unpaid $295,000 promissory
note. We are now offering to settle the lawsuit with them. Most of the
terms can be worked out. But, a major issue is that they insist that I
recant my testimony, statements, and documentary evidence
relating to the Frost Group and the companies that they invest. I
have provided the SEC and FBI factual information. To settle,
they are demanding that I perjure myself by agreeing to execute an
Affidavit (Attachment A of the Settlement Agreement) recanting the
information provided by me. I informed them that I would not do this
since the information provided the SEC and FBI, to the best of my
knowledge, is accurate. I will never agree to recant 4 years of my
investigation, Lee Pederson's investigation, and the hard work of the
SEC and FBI. However, Cocrystal (Frost Group company), is
threatening to foreclose against 580 Garcia (me) since I won't agree to
the Affidavit and the intentional fraudulent actions of the Frost Group
companies. …

5
 "My attorney [Cella] has recommended that I should drop my
litigation ASAP and try to walk away from the Frost Group. However,
the Frost Group will not let me do this without them extorting $500K
to $1MM and deeding the property to them which will cost me over
$1.5MM. The Frost Group's unchecked financial terrorism will ruin
me." (bold added)
253. In December of 2015, Fisher reported to Pederson that Fisher had spoken
with both FBI-1 and SEC-1, and that FBI-1 had flown to New York to meet with
SEC-1 about the case.
254. On December 23, 2015, Fisher received another subpoena about FrostZone.

257. By the end of 2015, Pederson and Fisher were both hopeful that the SEC
would quickly take enforcement actions and that the FrostZone saga would soon be
resolved. However, that was not to be.

261. (l) As of 2016 (over two years after the BioZone P&D securities fraud
began), the SEC had not taken formal enforcement action against the Frost gang
for the BioZone fraud, in spite of the availability of overwhelming evidence of
fraud.

261. (n) As of 2016, it was not clear to either Fisher or Pederson that Federal law
enforcement authorities would ever act against the Frost gang for their P&D frauds
or other frauds related to the P&Ds.

262. Fisher's and Pederson's efforts to battle the Frost gang were taking a serious
toll on both men. Most weeks, each of them worked over 60 hours on their battle.
Both men were under financial strain, because they did not have time to pursue
normal employment. Though Fisher still had some of his $2 million settlement, he
was paying large legal bills each month. Both men were also under emotional
strain. Fisher's wife Sharon was also under severe emotional strain.

315. Frost's bribery of Fisher is detailed in a May 20, 2020 letter (the "Bribery
Details Letter") from Pederson to the Assistant United States Attorney who has
been leading the DOJ investigation of Frost since at least 2014 (AUSA-1).7 This
10-page single-spaced letter is attached hereto as Exhibit 12 and is incorporated by
reference in its entirety into this Amended Complaint. The numbered points in the

7
The Bribery Details Letter can be seen at:
https://www.scribd.com/document/462324297/Frost-Bribery-Charges-Letter-to-
AUSA-1
6
Bribery Details Letter are specifically incorporated as factual allegations in the
present case.
316. While the Bribery Details Letter focuses on the criminal aspect of the
bribery, it is also entirely applicable in the present case to describe the mechanics
of Frost's bribery of Fisher and Frost's intent to interfere with Pederson's business
relationship with Fisher.
316.1. In brief, the Bribery Details Letter describes how Defendant Frost used
Defendant COCP to direct an $800,000 bribe to Dan Fisher.

289. Pederson has not seen the settlement agreement between Fisher, COCP, Frost
and other Frost gang members, but the available evidence indicates that the
settlement agreement includes the following terms:
a. Fisher agreed to withdraw his complaints to the SEC and DOJ about the
Frost gang.
b. Fisher dropped his $295,000 claim against COCP.
c. Fisher paid off the Garcia Properties mortgage for about $1,176,000 less
than he owed on it.
d. Fisher agreed to stop his collaborations with Pederson, including
refraining from providing documents and testimony in support of Pederson's
claims against Frost and his gang.
e. Fisher agreed to stop communicating with Pederson.

+++++

An important part of the Frost gang's operational methods is described in

Exhibit 22: Frost gang Special report. Here is an excerpt:

Introduction

Members of the Frost-Honig gang have been committing financial frauds

and crimes for many years. Such illegal activities inevitably draw attention from
regulators, law enforcement, victims, journalists, market participants and others. A
key aspect of the gang's criminal longevity has been their ability to neutralize
threats against their illegal enterprises by various means, including initiating their
own legal actions. This Special Report provides examples of the Frost gang's
responses to threats in specific cases over the last ten years.
The Frost gang's pattern of suppressing threats by legal action has several
recurring themes including (a) threatening and/or initiating litigation against those
who cannot afford to litigate against them; (b) having gang members and entities
(Honig, Kesner, FGIT, CoCrystal) act as proxies for Frost so that Frost can appear
7
to be above the fray; (c) playing games with jurisdiction and venue; (d ) "playing
the victim" while initiating legal proceedings; (e) using delay tactics to drive up the
cost to their opponent while avoiding having to produce discovery; (f) taking both
sides of the case to control the outcome; (g) compartmentalizing information so
that the gang can make conflicting representations to different people and different
courts; and (h) accusing critics of illegal "short and distort" securities frauds to
cover up their own "pump and dump" (P&D) securities frauds. In all cases, the
gang members are willing to throw unlimited amounts of other people's money
(assets of corporations they control) at the litigation once it starts.
The basic approach of the Frost gang's litigation strategy is to deny, delay,
attack and obfuscate. Their goal is to avoid examination of the evidence of their
crimes and frauds at any cost.
This Special Report focuses on the Frost gang's use of legal processes to
neutralize threats from individuals. …

+++++

If you have managed to read this far, I thank you for your kind attention.