New Accusations Unfold in MindMed Saga

Investors say the company made false statements in a recent SEC filing.

Like a can’t-look-away real-life soap opera, the MindMed drama is slipping into a chapter of fresh accusations.

MindMed investors Jake Freeman and Chad Boulanger of FCM MM Holdings LLC, sent a letter on Nov. 14 to the MindMed’s (Nasdaq: MNMD) Carol Vallone, chairman of the board of directors for MindMed, alleging errors discovered on the company’s Nov. 10 filing with the U.S. Securities and Exchange Commission.

The letter focused on what it claimed are “several false statements” made by MindMed in the filing, pointing to certain legal fees that were underreported by more than $1.5 million. MindMed told Canadian regulators that those fees were only $1,936, then told the SEC those fees were $400,000.

Freeman demanded that the MindMed board hire an independent law firm to sort out whether the company engaged in self-dealing and securities fraud activities “to hide or otherwise mislead investors that MindMed’s previous outside counsel had a conflict of interest in protecting MindMed’s intellectual property and other assets.”

Freeman also questioned whether MindMed’s internal controls were “adequate to ensure that MindMed accurately reports financial results,” spinning up that accusation from March when, according to SEC filings, the company fired its accounting firm, Ernst and Young (EY), after EY identified “an instance of a material weakness in the company’s internal controls over financial reporting in connection with the company’s accounting for contracts.”

Freeman’s letter went on to complain about how a management employment package was structured, because it “protects management rather than providing accountability and oversight to ensure that management is aligned with shareholders’ interests.”

This is just the latest complaint from Freeman, a recent investor in MindMed through FCM MM Holdings, which currently holds 5.6% of the outstanding shares of MindMed. Freeman made headlines when he purchased nearly 5 million shares of Bed Bath and Beyond stock in July, keeping that company afloat during an “existential crisis for survival,” then bought stock in MindMed after raising $25 million from friends and family. That stock purchase sent MindMed stock soaring at the time.

His first letter to Vallone and the board of directors of MindMed in mid-August called on the board to adopt a new strategic plan proposed by FCM, including refocusing on its core drugs, cutting cash burn, and terminating MindMed’s at-the-money equity offering.

Things are bumpy at best at MindMed.

The company was running a $189.6 million deficit as of Sept. 30, 2022, though management said it still has enough working capital for the next year. They also state in their SEC filing that they have commitments to pay $33.4 million for significant research and development contracts. They have not generated any revenue and “will continue to require substantial capital to develop their product candidates and fund operations for the foreseeable future,” according to the SEC filing.

MindMed also experienced serious management changes in the last nine months, including a new CEO, CFO, and board chairman, plus the resignation of both founders.

The stock has been up and down all year – and nobody can predict what’s next.

So the question is: Is Jake Freeman a hero, trying to pull off a Bed Bath and Beyond fix-the-errors 2.0 buyout? Or is there something else behind the scenes driving his letter-writing and ongoing investor activist investigation?

Or is this some sort of family drama kicking in, because Dr. Scott Freeman, the uncle of Jake Freeman and the co-founder and former chief medical officer of MindMed, wants a more active role in the company?

Tune in later when things promise to get, um, stickier.

Dave Hodes

David Hodes is a business journalist based in the Washington D.C. metropolitan area. He has contributed feature articles to several cannabis and psychedelics publications, as well as general business/lifestyle publications, on a variety of topics. Hodes was selected as 2018 Journalist of the Year by Americans for Safe Access. He is a member of the National Press Club, and the deputy booking agent for the National Press Club Headliners Committee.

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