Articles Tagged with Kadmon

Stoltmann Law Offices previously posted about Scott Wayne Reed, former broker at Wells Fargo Advisors, selling away to his customers, including customers of Wells Fargo. On December 15, 2020, the Arizona Corporation Commission filed a “Notice of Opportunity for Hearing Regarding Proposed Order to Cease and Desist, Order for Restitution, Order for Administrative Penalties, Order for Revocation and Order for Other Affirmative Action” against Reed, his wife, Sarah Reed, Pebblekick, Inc. and Don K. Shiroishi, the Chief Executive Officer and President of Pebblekick.

According to the ACC’s notice, Mr. Reed sold at least $3.5 million of investments in short-term, high-interest notes issued by Pebblekick. Mr. Reed sold these notes as offering an annualized rate of return of sixty-percent (60%). In turn, Pebblekick paid at least $191,340 to Reed. He sold these notes to clients as “100% safe” investments and represented that he also invested in Pebblekick. He went as far as personally guaranteeing $100,000 of the $200,000 investment made by one investor.Reed also sold other outside investment to customers, which he alleged were connected to Pebblekick, including but not limited to Precision Surgical, Mako Studio, and Ascensive Creator.

Reed was a registered representative of Wells Fargo Advisors at the time that he sold this investment, but did not disclose that he was selling notes in Pebblekick or that he received nearly $200,000 in commissions and fees for selling Pebblekick. According to the ACC, “when Reed’s firm reported him for potentially selling away and the Securities Division requested Reed to provide information and documents concerning the allegation, Reed impeded the Division’s investigation by providing responses that were false, incomplete, and misleading.”

Scott Wayne Reed (“Agent Reed”), of Scottsdale, Arizona, has been engaging in various misconduct in customer accounts for years now. Most recently, earlier this year a Wells Fargo customer alleged that Agent Reed solicited him to invest in “an investment opportunity in a company not offered by Wells Fargo Advisors”, Reed broker-dealer at the time. Upon information and belief, Reed tried to solicit several customers to invest in outside business activities sponsored by Hollywood producers. This “selling away” activity led to Reed’s departure from Wells Fargo on April 7, 2020.

Several of Agent Reed’s customers have complained that he sold them unsuitable investments in private placements, oil and gas investments, hedge funds, and mutual funds and over-concentrated their accounts in private placements. In 2017, elderly clients of Reed filed a complaint against Reed’s previous brokerage firms, Accelerated Capital Group (“ACG”) which is now out of business, and Coastal Equities, and later adding him personally to the complaint, for selling them several unsuitable investments. Included in these investments were various Staffing 360 issuances, Aeon Multi-Opportunity Fund, which became Kadmon, and Aequitas, which ended up being a Ponzi scheme. The clients lost their entire investment in Aequitas. They lost between 92% to 99% of their investments in Staffing 360 and lost 70% of their investments in Aeon/Kadmon. Reed sold these investments to his clients even after there were red flags that these companies were completely failing and drowning in debt.

Agent Reed has bounced around several brokerage firms, and has also worked as a registered investment advisor. From 1999-2001, he was registered at Ameritrade. His longest tenure was at Fidelity from 2001 through July 2010. He had brief stints at Strategic Advisors, Inc. and Meridian United Capital before joining Accelerated Capital Group from 2010 through 2015. Agent Reed was registered with Coastal Equities for only five months then joined Wells Fargo from April 2016 through April 2020. While his CRD Report states that he “voluntarily resigned” from Wells Fargo, the explanation details that his resignation came while he was under investigation for selling away. He has been registered with First Financial Equity Corporation since April 2020. Reed was also a dually registered RIA with Gentry Wealth Management from July 2010 through April 2016, which became Ashton Thomas Financial in 2015. According to his FINRA BrokerCheck Report, Mr. Reed operates as “Reed Private Wealth”.

Aeon Multi-Opportunity Fund I is a pooled private-equity fund. This investment was originally offered by John Thomas Financial and called the JTF Multi-Opportunity Fund. According to the amended Form D filing with the SEC, “various” placement agents sold Aeon, including Accelerated Capital Group. The funds raised by this Regulation D offering were invested in various technology and medical companies, such as Kadmon, Jawbone, Spotify, and Square. It also invested in Staffing 360, increasing the Claimants’ concentration in this failing company even further. According to the Regulation D filing, the total offering was $500 million. By April 27, 2012, only $3.35 million was sold. The expenses to invest were extraordinary. Aeon charged a 2% Annual Management Fee, an 8% Placement Agent Fee, 20% performance fee, and additional fund and transaction related expenses.

In January 2017, Aeon Multi-Opportunity Fund shares were converted into shares of Kadmon, a publicly-traded biotech company. By July 27, 2016, Kadmon was already a massive failure. It downsized its IPO to $75 million from originally a $100 million offering. It priced at the bottom of its proposed share range at $12 and fell to almost $10 despite existing investors committing to buy $40 million at the IPO. Kadmon (KDMN) has been recently trading for around $4 per share.

Kadmon was founded by Sam Waksal in October 2010, who became the CEO in 2014. Sam Waksal previously pled guilty and served jail time for insider trading at ImClone System, his brother Harlan’s company. In less than six years of operation, the Waksal brothers blew through $675 million of the cash raised by Kadmon leaving it with only $8.6 million in cash and a first quarter net loss of $32.8 million. In summary, Kadmon was a sinking ship years prior to the Aeon Multi-Opportunity Fund conversion, which was nothing more than a cash grab in an attempt to keep Kadmon afloat. At the time that investors could convert their shared from the Aeon fund to Kadmon, their investment was already down 47.81%.

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