Capital, Market

Stock scandals: Biotech incubator Fortress purchased brokerage firm to tout its own startups — Reuters

When an analyst touts a biotech stock, you hope he’s not getting paid by the company’s owner, right? Well that’s exactly what Jonathan Aschoff — and other analysts at National — are being accused of, according to a new report by Reuters.

Michael Weiss

Here’s the short of it: the biotech incubator Fortress, launched by longtime biotech entrepreneurs Lindsay Rosenwald and Michael Weiss, acquired the brokerage firm National Securities in 2016. After all, if you’re in the business of startups, why not own a brokerage firm that can help them raise money? Since buying up the team of about 700 brokers, Fortress and its slew of startups have benefited from the recommendations of National’s analysts, according to Reuters. Specifically, the analysts have touted the stocks of Avenue Therapeutics, Checkpoint Therapeutics, and Mustang Bio, among others.

The brokers have helped raise at least $240 million from thousands of individual investors to fund Fortress or its related biotech companies, according to the wire service, which cites data from National itself. And the SEC shows Fortress-related deals are in the works now to raise $125 million more.

Lindsay Rosenwald

In its report, Reuters notes that amid its inquiries into the relationship between Fortress and National, the brokerage firm suddenly posted a new page on its website titled “Meet our Majority Shareholder, Fortress Biotech.” In a section on potential conflicts of interest, National said they “have built a unique model that inherently aligns Fortress’ business objectives with the financial interest of National’s clients.”

The real hangup isn’t so much that National was peddling Fortress-tied startup stock, but that the connection wasn’t made obvious to investors who were buying. Specifically, Aschoff did not disclose the relationship in his analyst notes. However, National discloses the conflict of interest in prospectuses for securities offerings it underwrites for Fortress, in keeping with US regulations.

In an interview with Reuters, Weiss, executive vice chairman of Fortress, 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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