Activist Investor Calls For MindMed CEO’s Termination Due To Alleged Fraudulent Acts
FCM MM Holdings, one of Mind Medicine’s (NEO: MMED) shareholders with a 6.1% stake, has formally filed a complaint with the US Securities and Exchange Commission regarding various allegations against the company. The complaint refers to current allegations the firm faces: self-dealing, a lack of significant disclosure, false statements, and public statement fraud.
The shareholders’ complaint also highlights that should these allegations be proven true, these can be considered criminal acts by CEO Robert Barrow in violation of Sarbanes-Oxley.
FCM MM Holdings is the holdings firm by MindMed’s co-founder Dr. Scott Freeman, who demanded changes in the firm earlier this year.
READ: Mind Medicine Sees Co-Founder Become An Activist Shareholder Demanding Changes
On self-dealing, the complaint points to the lawsuit Freeman v. Burbank et al. that alleges “that MindMed’s intellectual property was mishandled due to a one-sided deal” negotiated purportedly in secret by Stephen Hurst (then MindMed’s CEO) and Carey Turnbull (CEO of Ceruvia Lifesciences, a firm whose predecessor was allegedly founded by Hurst).
“If the deal occurred, Ceruvia has undisclosed freedom to operate on MindMed’s IP surrounding LSD and its derivatives, and MindMed is not able to research or compete on BOL-148,” the complainant’s statement read.
Furthermore, the complaint examines whether the biotech firm sufficiently communicated to investors the potential risk of MM-110 failing to obtain full US Food and Drug Administration product approval. The activist shareholder relayed that it has “conducted a rigorous review of publicly available data” after the firm terminated the drug candidate’s program and has concluded that “it is highly unlikely the FDA would have allowed the study to be performed in the US as written.”
The study was then conducted in Australia, yielding “topline results.” But when these were presented to the FDA, it was disclosed that the regulatory body requires the firm “to complete a myriad of pre-clinical safety studies prior to instituting additional clinical trials in the US.” Barrow said these could take years and subsequently closed down the program altogether.
Related to the filed complaint, the activist investor sent the company board a letter which is headlined by a call for Barrow’s termination–mainly for the latter’s inaction in a competitor firm’s use of MindMed’s intellectual property.
“Medihuasca is a recently discovered rival company whose website, which went public in May 2021, uses proprietary MindMed IP and lists Nico Forte, MindMed’s Chief of Staff and associate of Mr. Hurst, as its CEO,” the investor’s statement noted.
Barrow is being asked to step down for being “employed by MindMed for twenty-eight months during which time the mishandling of MindMed IP and alleged transgressions occurred.” The investor is also calling for Forte’s termination given that he is listed as Medihuasca’s CEO and a board director of competitor Savant HWP, which founded Ceruvia.
“Let me be clear; we continue to see significant value in MindMed; however, executives and complicit board members must go immediately, so we can unleash the potential of MindMed,” said FCM’s Chief Executive Manager Jake Freeman.
The complaint also calls the authorities’ attention on “the departures of several high-profile executives of the company right before they were required to sign off on MindMed’s SEC filings.” It further notes that auditor Ernst & Young was fired shortly after reporting that MindMed had a material weakness in its internal controls under Sarbanes-Oxley.
Earlier in October, FCM also called for the board to cancel the firm’s plan to do a public offering of 7,058,823 units containing a common share and one warrant, expected to gross $30 million. The investor maintains that the firm “has not presented a convincing need for additional equity financing at this time, particularly at such a depressed valuation.”
The stock subsequently dropped 35% as the deal was issued at a 31% discount to the current stock price. Canaccord Genuity Capital Markets reiterated their speculative buy rating and $60 long-term price target but said that the terms of the offering are puzzling and unusual.
Mind Medicine Inc. last traded at $3.85 on the NEO.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.