In September 2018, [CEO and Chairman of National Holdings Corporation Michael Mullen] engaged in insider trading of Fortress subsidiary TG Therapeutics Inc. (“TG Therapeutics’)–managed and directed by Defendants Michael Weiss, Daniel Hume, and Neil Herskowitz, among others–before it announced disappointing clinical results. When TG Therapeutics announced those results on September 25, 2018, its stock dropped 44%. But on a day that TG Therapeutics lost nearly half its value, Defendant Mullen sold put options he had purchased twelve days earlier–and more than doubled his money. Several of National’s directors and officers facilitated and attempted to cover up Mullen’s insider trading.
[U]pon information and belief, at Fortress’s direction, National had aggressively marketed and sold TGTX to NSC’s own customers.” Mullen was the managing director of Opus National Private Client Group (“Opus Private”) … Between September 13 and 24, Opus Private accounts sold another 152,545 shares of TGTX, including 100,000 shares from a single account on September 17.
Prior to the internal investigation into Michael Mullen’s alleged insider trading, he considered Kay Johnson – a chief compliance officer – to be invaluable to National Holdings Corp. Months earlier, Mullen’s performed Kay Johnson’s performance review. Notably, he stated “I told Kay I have a two-year plan. She needs to train her heir apparent to replace her as CCO and I will move her upstairs … I envision Kay as president, chief operating roles and even beyond.”
According to InvestmentNews, “The goodwill between National Holdings and Ms. Johnson likely started to unravel in September 2018, when a clearing firm alerted Ms. Johnson to suspicious trading activity related to TG Therapeutics, a company whose CEO is on the board of Fortress Biotech, which owned National Holdings until February of this year.”
According to a Reuters, “Owning National [Securities] gives Fortress an in-house underwriter and a private sales force of about 700 brokers – nearly a third of whom have been flagged by regulators – to help it raise money for its stable of nine ventures that are developing new drugs or treatments.”
The article goes on to provide examples of specific instances where Natioanal Securities Corp was recommending stocks from biotech companies owned by their parent company, Fortress. National Securities Corp has recommended stocks from companies like Mustang Bio, Inc (MBIO.O), Avenue Therapeutics, Inc (ATXLO), and Checkpoint Therapeutics Inc (CKPT.O). Unfortunately for their clients, these stocks ended up underperforming, sometimes significantly.
For outside investors, Fortress’s ventures not only carry the typical risks of a long-shot biotech bet; they also come with unique conditions that can put outsiders at a disadvantage relative to the parent company.
- CRD# 7569
- SEC# 8-164
- 79 Disclosures:
- 62 Regulatory Events
- 2 Civil Events
- 15 Arbitrations