Pharmaceutical billionaire Phillip Frost, 81, who parlayed stakes in small pharmaceutical companies into a $2.8 billion fortune, allegedly participated with “a group of prolific South Florida-based microcap fraudsters” in promoting two penny stocks, the Securities and Exchange Commission said today.

The SEC is charging 10 individuals, including Frost, with manipulating the stocks of three companies by trading shares to create the illusion of liquidity and using paid-for posts on the website Seeking Alpha and Internet message boards. The SEC says that the effort resulted in profits of $27 million, while retail investors were left holding worthless shares.

Investigators allege an investor named Barry C. Honig served as the ringleader of the scheme. In each of three cases, the SEC says, Honig orchestrated the purchase of shares at steep discounts. The participants would buy shares in coordination with each other, driving prices up. The group would control the actions of management without disclosing that they were in control. Then they would arrange for the publication of promotional articles to juice the stock price further.

“As alleged, Honig and his associates 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 in 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.”

Frost is currently the chairman and chief executive of OPKO Health, a $2.7 billion (market capitalization) maker of vitamin-D-based drugs, growth hormone, and clotting factor for hemophiliacs. Shares in the company dropped 18% after the SEC announced that it was pressing charges.

Frost was born in 1936, the third son of a shoe-store owner from South Phladelphia. He attended medical school on a scholarship at the Albert Einstein College of Medicine, and chose to specialize in dermatology. After he developed a device for taking skin biopsies, he struck up a friendship with a lawyer, Michael Jaharis, who would also become a pharmaceutical billionaire. They went into business around an ultrasound device for cleaning teeth, but then merged that company with Key Pharmaceuticals in 1972. They sold that company, the developer of some of the first sustained release formulations, to Schering-Plough in 1986 for $836 million. In 1987, Frost founded Ivax, a maker of generic drugs. He sold it to Teva Pharamceuticals for $7.6 billion in 2005.

Frost’s personal office and representatives for OPKO Health did not return requests for comment. Forbes called Honig’s number at GRQ Consultants and was told “he’s not home right now.”

Story by Matthew Herper and Michela Tindera.

-This story has been updated from its original version.