Reuters reports that Fortress Biotech (FBIO -0.9%), controlled by long-time biotech entrepreneurs Dr. Lindsay Rosenwald and Michael Weiss, has leaped across an ethical line with its ownership of a stock brokerage, National Securities, that promotes Fortress subsidiary companies to retail investors.
Fortress acquired a controlling stake in National Holdings Corp. the parent of National Securities, about two years ago, giving it an in-house underwriter and a private sales force of ~700 brokers, almost a third of whom have been flagged by regulators.
National Securities analyst Jonathan Aschoff subsequently issued bullish calls on Fortress companies Avenue Therapeutics (ATXI -2.3%) (down 74% from the $15 price target), Checkpoint Therapeutics (CKPT +1.2%) (down 86% from the $18 target) and Mustang Bio (MBIO +1.2%) (down 68% from the $21 target).
National brokers have raised at least $240M from individual investors while Fortress is working on raising an additional $125M. When Fortress floats a new issue, it uses part of the proceeds to repay the costs to acquire the rights to the drugs, thereby derisking its investment.
Brokers are required to clearly disclose any such relationships, which National did in its prospectuses, but apparently did not in its research reports or dealings with customers.
In an interview with Reuters, Mr. Weiss said: “We over-disclose. We tell everything. We are the most honest management team ever to walk through this biotech business.”
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