SEC Charges Hedge Fund Adviser with Short-And-Distort Scheme
Litigation Release No. 24267 / September 13, 2018
Securities and Exchange Commission v. Gregory Lemelson, Lemelson Capital Management, LLC, and The Amvona Fund, No. 18-civ-11926 (D.Mass., filed September 12, 2018)
The Securities and Exchange Commission charged a hedge fund adviser and his investment advisory firm with illegally profiting from a scheme to drive down the price of San Diego-based Ligand Pharmaceuticals Inc., reaping more than $1.3 million of gains for the adviser and the hedge fund.
The SEC's complaint charges that Gregory Lemelson and Massachusetts-based Lemelson Capital Management LLC issued false information about Ligand after Lemelson took a short position in Ligand in May 2014 on behalf of The Amvona Fund, a hedge fund he advised and partly owned. Short-sellers profit when the price of stock declines. According to the SEC's complaint, Ligand's stock lost more than one-third of its value during the course of Lemelson's alleged scheme. After establishing his short position, the complaint charges that Lemelson made a series of false statements to shake investor confidence in Ligand, lower its stock price, and increase the value of his position.
The SEC's complaint, filed in federal court in Massachusetts, alleges that Lemelson used written reports, interviews, and social media to spread untrue claims, including that Ligand was "teetering on the brink of bankruptcy" and that Ligand's investor relations firm agreed with his view that its flagship Hepatitis C drug, Promacta, was going to become obsolete. Lemelson also allegedly misled investors by citing a European doctor's negative views on the same Ligand drug without revealing the doctor was Amvona's largest investor and had a significant financial interest in seeing Ligand's stock price decline.
The SEC's complaint charges Lemelson and Lemelson Capital Management with violating the anti-fraud provisions of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder, as well as violating Section 206(4) of the Investment Advisers Act of 1941 and Rule 206(4)-8 thereunder, and seeks to have them return allegedly ill-gotten gains with interest and pay monetary penalties. The complaint names the Amvona Fund as a relief defendant and seeks to have it return gains it obtained as a result of Lemelson and his firm's alleged misconduct.
The SEC's investigation was conducted by Virginia Rosado Desilets, Sonia Torrico, and Jennifer Clark, and supervised by David A. Becker. The SEC's litigation will be led by Marc Jones and Al Day.