According to news stories, biotechnology incubator Fortress Biotech Inc. raised $240 million by using its own brokerage firm, National Securities Corporation, to sell investments to thousands of investors, according to an investigation by Reuters. The company is alleged to have employed analysts who were bullish on their own companies without adequately disclosing this conflict of interest.
In August of 2017, National Securities Corporation analyst Jonathan Aschoff recommended that investors buy Avenue Therapeutics Inc. (ATXI.O), a young company with one drug in development and no revenue. His note on National Securities’ website predicted the stock price would double to $15 per share in a year. A year later, the stock traded at around $4.
Aschoff made similarly bullish comments about Checkpoint Therapeutics Inc (CKPT.O) and Mustang Bio Inc. (MBIO.O), whose share prices also declined in value. Aschoff did not mention that the company he worked for, National Securities Corporation, is owned by the same company that controls Avenue Therapeutics, Checkpoint Therapeutics, and Mustang Bio, which is Fortress Biotech Inc.
Fortress Biotech is led by entrepreneurs Lindsay Rosenwald (President and CEO) and Michael Weiss (Executive Vice Chairman). Rosenwald and Weiss have created over 50 biotechnology companies over the last 20 years.
Fortress Buys Controlling Interest In National Securities Corporation
In September 2016, Fortress bought a controlling interest in National Securities Corporation’s parent company, National Holdings Corp. The arrangement is quite unusual but gives Fortress the ability to raise capital for drugs and treatments it is developing by tapping into its in-house underwriter and sales team of 700 brokers.
“If this setup seems like a conflict of interest, that’s because it is one: National brokers are required under U.S. regulations to ensure that they promote investments deemed appropriate for their clients – the same clients to whom they are marketing securities in their parent company’s ventures in biotech, a notoriously high-risk sector,” the Reuters article states.
National Securities does disclose this conflict of interest in prospectuses when it underwrites offerings for Fortress, but Scott Silver, an attorney who represents investors in cases of securities and investment fraud, said many investors likely don’t grasp the conflict of interest or why it’s a problem.
“Many investors have no idea what’s in the prospectus. They trust their broker and sign what they’re asked to sign. Later, when their investment has lost money, they are shocked to learn about the high commission their broker earned for selling to them and the conflict of interest,” Scott Silver said.
Did National Securities Corporation Recommend Fortress Biotech or Mustang Bio?
National Securities Corporation has subject of many regulatory disclosures. Their publicly-available FINRA BrokerCheck report lists 78 disclosures, including many customer disputes. In 2017, Reuters reported that 35% of their brokers had a history of disputes, financial difficulties, or regulatory issues, which is more than three times the average for the industry.
National Securities Corporation has underwritten many securities offerings, some of which have failed or lost significant value for investors.
Silver Law has investigated multiple current and former National Securities advisors, whose alleged misconduct includes over-concentration, unsuitable investment recommendations, churning, and unauthorized trading.
Recovering Investment Losses
Investors who have losses with a National Securities investment may be able to recover their losses through the FINRA arbitration process. Silver Law Group is a nationally-recognized securities arbitration and investment fraud law firm, has extensive experience recovering losses for investors through FINRA arbitration.
Scott Silver, managing partner of Silver Law Group, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice and represents investors across the country in securities investment fraud cases. If you have investment losses, contact Scott Silver of the Silver Law Group at firstname.lastname@example.org or toll free at (800) 975-4345 for a no cost consultation to discuss your options.