Brokerage Firms Can Be Liable for Investment Losses in Aeon Multi-Opportunity Fund and Kadmon Holdings
Published On: March 19, 2020
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%.
Pooled private-equity funds and Regulation D private placements are high-risk, expensive investments. While some eventually go public, like Kadmon, they are typically illiquid long-term, if not forever. As illustrated by Kadmon, even those that result in a public offering typically suffer substantial damages. Aeon/Kadmon investors have lost nearly 70% of their investment, if not more. Broker dealers who offered this investment could be liable pursuant to FINRA Rule 2111 for failing to perform due diligence into this investment, or for recommending that their investors convert their shares to Kadmon. Certainly, a recommendation to invest in a company operated by a convicted felon, like Waksal, is extremely high-risk, at best.
If your broker or registered investment advisor sold you Kadmon and you have suffered damages, please contact our office at 312-332-4200 for a free evaluation. We work on a contingency fee basis, so we don’t make any money until you do!
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