Shares of MarketWise Inc. were set for a selloff Tuesday, after the financial-research and analytics company said it decided to wind down its Legacy Research business after misconduct by certain managers was discovered.
The wind down will affect 104 jobs, or about 18% of MarketWise’s total workforce. Some of the employees will be offered new roles within the company or have their positions eliminated.
The reorganization, which is expected to be completed in the first half of fiscal 2024, was announced a week after Jon Mikula, a former employee of Legacy Research, was charged with conspiracy to commit securities fraud by federal prosecutors. The charges relate to payments received from December 2019 through August 2021.
The stock
MKTW,
took a 5.2% hit toward a four-month low in morning trading. The selloff lowered the company’s market capitalization by about $36 million to $651.7 million.
The company disclosed an internal email to employees from Stansberry, which said Mikula was charged with “surreptitiously receiving large payments” for recommending low-quality stocks to subscribers of Palm Beach Venture, while “claiming falsely” that his work was independent.
By the time the scheme was exposed in the fall of 2022, Stansberry said Mikula had already been fired.
He said the company also learned that Teeka Tiwari had a consulting agreement with a company owned by a merchant bank that was involved in Mikula’s activities, which was a violation of company policy.
“Unfortunately, even after learning of Tiwari’s violations, Legacy Research’s senior managers neither terminated him nor took any steps to alert Legacy’s subscribers about this very serious breach of our company’s most important ethical standard,” Stansberry wrote.
This resulted in Legacy Research’s reputation being “irrevocably damaged,” Stansberry said, and led to the decision to wind down the business’s operations.
The company noted that Legacy Research’s net income had been in decline throughout 2023, and totaled about $9 million in the second half of the year. That compares with net income of $140 million reported in the third quarter.
MarketWise said it is “unable in good faith” to estimate the costs from the reorganization and the impacts on overall operations.
The company’s announcement comes several months after the company announced a number of leadership changes, including the appointment of Stansberry as CEO, as previous CEO Amber Lee Mason and board members Mark Gerhard and Rican Hodgson resigned and Chief Corporate Development Officer Marco Ferri was terminated without cause.
The stock has tumbled 26.8% over the past three months, while the S&P 500 index
SPX
has gained 12.3%.
