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Growth Capitalist

(https://www.growthcapitalist.com/2016/09/sec-investigating-trading-by-pipe-investors-in-mgt-capital/)

SEC Investigating Trading by PIPE Investors in MGT Capital

By Teri Buhl | September 22, 2016

The disclosure on September 16 of the receipt of a subpoena by Securities and Exchange Commission, followed by the New York Stock Exchange’s announcement on September 20 that it would not approve the listing of the company’s stock after it completes a controversial reverse merger with two companies owned by software pioneer John McAfee, sent shares of MGT Capital (MGT) plummeting more than 40% this week, before trimming losses to about 25% by Thursday.

Growth Capitalist has learned the nature of the regulator’s questions center on the trading activity of Barry Honig, a microcap investor, who made a $700,000 equity investment in MGT Capital last October, according to people familiar with the SEC’s inquiry.

according to people familiar with the SEC’s inquiry. Barry Honig The SEC is asking about the

Barry Honig

The SEC is asking about the timing of trades by well-known microcap investors Honig; Michael Brauser, another investor who has often invested with Honig, and others in an effort to determine if the investors acted as a group in trading MGT’s stock, which could violate securities laws prohibiting “short-swing” trading by insiders and affiliates who individually or collectively own more that 10% of a company’s shares. Long-time MGT PIPE investor Iroquois Capital, run by combative manager Josh Silverman, is also named by investigators, according to those who have seen the subpoena.

The SEC is seeking evidence that the investors communicated directly with each other to collude to buy and sell MGT shares together. If the investors were found to have coordinated their trading on MGT stock, any gains from trades made within six months of each other would be subject to forfeiture under Section 16(b) of the Securities Exchange Act.

MGT’s current CEO Rob Ladd issued a press release September 16 saying that the company has “no indication or reason to believe it will be subject to enforcement proceedings. The company is fully cooperating to comply with the SEC's request.”

Honig invested $700,000 in MGT in October 2015, when the stock was trading at $.25 according to SEC filings. Honig received 2.8 million of common shares with a six-month holding period. Rob Ladd, MGT Capital CEO, negotiated the Honig financing for the company.

Capital CEO, negotiated the Honig financing for the company. Michael Brauser MGT Capital is currently in

Michael Brauser

MGT Capital is currently in the process of a reverse merger with two of John McAfee’s companies: D-Vasive, a maker of anti-spying software, and Demonsaw, a provider of anonymous file sharing. On September 8 at the company’s annual shareholder meeting investors voted to authorizing the issuance of 43,800,000 shares of Common Stock in relation to the proposed acquisition of D-Vasive and Demonsaw, according to an 8-k filed with the SEC on September 14. MGT Capital confirmed this week for Growth Capitalist the reverse merger is not closed yet and John McAfee doesn't have majority control over the company. McAfee's executive chairman title comes with only one of five board votes. This also means his stock options from his compensation plan, approved through a shareholder vote on September 8, are not yet effective.

a shareholder vote on September 8, are not yet effective. John McAfee Honig is believed to

John McAfee

Honig is believed to have traded out of most of his position by May, just eight months after he made his investment, because he did not vote on the reverse merger according to insiders. When the deal with McAfee was announced on May 13 the stock traded from $.36 to a high of $5.58 in July. Over the last three months the stock has primarily traded above $3. Honig did not return a request for comment made through his attorney.

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