Miami billionaire Phillip Frost is one of 10 people the Securities and Exchange Commission charged on Friday, accused of participating in a fraud plot that generated more than $27 million in what the SEC is calling a series of "classic pump-and-dump schemes."
The SEC alleges that from 2013 to 2018, Frost — who founded pharmaceutical company OPKO Health and is a primary benefactor of the Phillip and Patricia Frost Museum of Science in Miami — and nine other investors manipulated three companies' stock share prices for their own gain. The SEC did not share the names of the three companies.
The investors would promote the companies without disclosing that they owned a stake, wait for their stock prices to rise and then sell their shares. Retail investors, meanwhile, "were left holding virtually worthless stock," according to the SEC statement.
"[The group charged] engaged in brazen market manipulation that advanced their financial interests while fleecing innocent investors and undermining the integrity of our securities markets," said Sanjay Wadhwa, senior associate director of the SEC's Division of Enforcement. "They failed to appreciate, however, the SEC's resolve to relentlessly pursue and punish participants in microcap fraud schemes."
RELATED: Little-known secrets only the richest people know
Little-known secrets only the richest people know
Little-known secrets only the richest people know
Spending Must Align With Goals
One of the keys to being rich is having goals, said Michael Kay, president of Financial Life Focus and author of “The Feel Rich Project.”
“They know what they care about,” he said. “Maybe it’s passing wealth to another generation, maybe it’s attaining a particular lifestyle. They are mindful of not wasting resources on things that have no value.”
According to Kay, the wealthy only seem to spend money on things that they care about. The rest of us can learn from this by setting our own goals and then monitoring our spending to see if it aligns with those goals.
“Are you really spending in accordance with what you value?” asked Kay. “Do the beliefs and realities jive?”
Don’t Waste Money to Impress Others
Most rich people don’t spend their time and money trying to impress others. “They are not in a race,” Kay said. “They know they have made it, so their attention is not on what others think.”
In fact, many wealthy individuals wouldn’t have become rich if they had spent their hard-earned money buying things to keep up with others, he said. Living below their means and rejecting big-spending lifestyles are key secrets of the country’s richest people, according to the best-selling book, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy.”
Spending money to appear rich before you actually are is a surefire way to sabotage your wealth-building goals. So, forget about the Joneses and focus on what matters: accumulating your wealth in the coming years. If you’re determined to appear rich but don’t want to spend money, use these insider strategies.
Have Plenty of Liquidity
The rich make sure they have sufficient liquidity, or cash, to cover their short-term needs. They have an emergency fund, so “they don’t have to disrupt their life for an unexpected occurrence,” Kay said.
The fact that rich people have money set aside for rainy days isn’t solely a function of their wealth. They have cash reserves because they are disciplined enough to save.
Everyone should aim to build an emergency fund with enough cash to cover six to nine months of expenses, Kay said. However, you don’t have to set that much aside all at once. You just need to be working toward that goal with every paycheck. With that in mind, you should arrange to have a set amount automatically transferred from your checking account to savings each month.
“Like anything else, it’s a goal,” Kay said. “It only makes you a failure if you’re not working on it.”
Avoid Fees at All Costs
Fees can easily eat away at your wealth. Whether it’s a late fee on a credit payment, a foreign transaction fee from using a debit card abroad or an overdraft fee on your checking account, it’s important to avoid incurring unnecessary fees.
“Wealthy people understand every fee they pay means less money in their pockets,” said Taylor Schulte, CEO of Define Financial in San Diego.
Know What You’re Paying in Investment Fees
The rich also pay attention to investment fees —
something that many people overlook. For example, more than half of workers don’t know they’re paying fees on their workplace retirement savings accounts, according to a study by the National Association of Retirement Plan Participants. Yet, those fees can eat away at your returns, Schulte said.
“The more you’re paying in mutual fund fees or transaction fees means less money in your pocket,” he said.
Even small fees can have a big impact. If you invest $100,000 over 20 years and pay a 1 percent annual fee, your portfolio value will be about $30,000 less than if you had paid a 0.25 percent annual fee, according to the Securities and Exchange Commission’s Office of Investor Education and Advocacy.
Check your account statement to see what fees you’re paying. If they seem high, the SEC’s Office of Investor Education and Advocacy recommends asking whether the costs can be reduced. You also should shop around for accounts and investment firms with low fees. Then, you’ll be able to keep more of the money you worked hard to save.
Asset Location Is as Important as Asset Allocation
If you’ve read anything about investing and saving for retirement, you’ve likely encountered advice about asset allocation. That means having the right mix of investments, rather than putting all of your money in just one asset. However, the rich know that asset location is just as important as asset allocation, Schulte said.
In other words, the rich don’t keep all of their assets in one type of account, such as a tax-deferred retirement savings account. Wealthy people also have investments in brokerage accounts to limit the impact of taxes in retirement, Schulte said.
Choose the Right Retirement Savings Account
You can earn an up-front tax benefit by contributing to a 401k or similar plan because contributions come out of your paycheck before taxes — lowering your taxable income — and the money grows tax-deferred. But when you withdraw that money in retirement, it will be taxed at your regular income tax rate — which is currently as high as 39.6 percent for the wealthiest taxpayers.
You don’t get any tax breaks by investing in stocks, bonds or mutual funds through a brokerage account. But if you hold those investments for more than a year, they’ll be taxed at the long-term capital gains rate, which ranges from 0 percent to 20 percent but tops out at 15 percent for most taxpayers.
The types of investments you have in your accounts can have a dramatic effect on your long-term returns, Schulte said. Typically, it’s best to keep securities, such as bonds, mutual funds and dividend-paying stocks, in tax-deferred retirement savings accounts. Then, keep your individual stocks in brokerage accounts.
Year-Round Tax Planning Is Crucial
The rich don’t wait until April to start thinking about their tax returns. They take steps throughout the year to lessen the impact of taxes, Kay said. With the help of tax professionals, the wealthy also avoid making costly tax mistakes.
If you have the resources, check in regularly with a financial or tax adviser throughout the year. Stay up-to-date on the latest news that can affect your taxes, and keep records or receipts that could help you qualify for various tax deductions.
Wealthy individuals also protect their savings by making charitable contributions — gifts of cash, goods or both — throughout the year, Kay said. If you itemize your tax return rather than take the standard deduction, you can deduct charitable contributions to qualified organizations. The more you deduct, the more you reduce your taxable income.
“Charitable giving is an excellent tool to mitigate tax consequences,” Schulte said. “The wealthy know this, and you don’t have to be wealthy to do it.”
Whether you write a check to your favorite charity or donate clothes you no longer wear to Goodwill, hang on to your receipts and claim your charitable deduction.
Or, be more strategic with your giving by setting up a donor-advised fund, Schulte said. These simple, low-cost funds are available through investment firms and allow you to get a tax deduction at the time you set aside money in the account. Then, you can make grants by following your own time schedule.
It’s Important to Hire Advisors
Wealthy people surround themselves with knowledgeable tax, legal and financial professionals. To increase your odds of accumulating wealth, don’t assume you need to be rich to hire an advisor. On the contrary, investing in a support system now can help you achieve the wealth you desire down the line.
“If you keep using money as the reason you can’t get on the right track, you will keep making the same mistakes,” Kay said. “[The wealthy] don’t try to do it all themselves.”
But Choose Your Advisor Carefully
Don’t skimp by hiring a novice advisor. Kay recommends hiring the best person you can afford so that you don’t waste money on bad advice. You can locate a fee-only financial planner near you at NAPFA.org, the website of the National Association of Personal Financial Advisors.
If you do your due diligence and research your advisor before hiring them, you can avoid losing money. After all, you don’t want to end up like any of these celebrities who got scammed.
OPKO Health and Frost are both named in the suit, though the SEC only believes Frost participated in two of the three schemes and earned approximately $1.1 million. The longtime health care investor is believed to have a net worth of $2.6 billion, according to Forbes.
Frost's pharmaceutical company said in a statement that the SEC did not notify them of their plan to file suit and claimed the complaint contained "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," the company said. "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."
The scheme was allegedly led by South Florida businessman Barry Honig, one of the largest shareholders in Riot Blockchain Inc., a cryptocurrency company that saw its stock dovetail by 24.3 percent after the news broke. Riot Blockchain, in which Honig is heavily invested, was subpoenaed in April as part of a formal SEC investigation, CNBC reported earlier this year.
"Honig was the primary strategist, calling upon other Defendants to buy or sell stock, arrange for the issuance of shares, negotiate transactions, or engage in promotional activity," the SEC complaint said.
Honig, who allegedly made more than $3.4 million via the scheme, could not be reached for comment.