National Holdings nears settlement with former chief compliance officer

In a dismissal order signed Feb. 8, Judge Laura Taylor Swain for the U.S. District Court for the Southern District of New York dismissed the action “without costs to either party.” The order says, however, that either party may reopen the case or extend the time within which it may be settled within 30 days of that date. The specifics of the non-monetary terms were kept confidential.

Kay Johnson, former chief compliance officer of National Holdings’ broker-dealer and advisory subsidiaries, filed the complaint in July 2019 alleging her 16-year career with the brokerage firm came to a screeching halt once she began to investigate and report findings of insider trading by National Holdings executives, including Chief Executive Officer Michael Mullen.

In her complaint, Johnson alleged two months before being terminated that she “received her largest-ever bonus” and Mullen stated in her January 2018 performance review, “Kay will not retire as chief compliance officer as long as I am around … I envision Kay as president, chief operating roles, and even beyond.” The goodwill between the two allegedly changed in September 2018, however, when a clearing firm alerted Johnson to suspicious trading activity related to TG Therapeutics, a subsidiary of biopharmaceutical company Fortress Biotech, the majority owner of National Holdings from 2016 until February 2019.

According to Johnson’s complaint, Mullen engaged in insider trading in September 2018, days before TG Therapeutics announced disappointing clinical results. Specifically, Mullen opened an options account and purchased 470 “put options” on TG Therapeutics for $114,745.52. On a day that TG Therapeutics’ stock dropped 44 percent, Mullen sold the put options he had purchased 12 days earlier and more than doubled his money, the complaint alleged. “Several of National’s directors and officers facilitated and attempted to cover up Mullen’s insider trading,” the complaint further alleged.

The complaint also described a “brotherhood” culture under Mullen, in which “business” was conducted at strip clubs, and that Mullen created a “hostile” culture that “sidelined women employees.” In its motion to dismiss, the company argued Johnson, along with others, were let go because the Seattle-based company was restructuring its compliance department and moving it to Florida.

The company further argued Johnson’s allegations lacked evidence, including that Mullen traded on material non-public information or that he was even aware of Johnson’s investigation. They further claimed Johnson brought her allegations to the Securities and Exchange Commission’s Office of the Whistleblower only after losing her job.