SEC Wins Jury Trial: Hedge Fund Adviser Liable for Securities Fraud

Litigation Release No. 25258 / November 8, 2021

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)

On November 5, 2021, jurors in Boston federal court returned a verdict in the Securities Exchange Commission's favor against a hedge fund adviser and his investment advisory firm.

Gregory Lemelson and Massachusetts-based Lemelson Capital Management LLC were charged with fraud in September 2018 for reaping more than $1.3 million in illegal profits by making false statements to drive down the price of San Diego-based Ligand Pharmaceuticals Inc. The SEC's evidence at trial showed that after establishing a short position in Ligand through his hedge fund, Lemelson made a series of false statements to shake investor confidence in Ligand and lower its stock price, increasing the value of his fund's position. The false statements include assertions that Ligand's investor relations firm had agreed that Ligand's most profitable drug was on the brink of obsolescence and that Ligand had entered into a sham transaction with an unaudited shell company in order to pad its balance sheet. The evidence also showed that Lemelson had boasted about bringing down Ligand's stock price through his "multi-month battle" against the company.

The jury found Lemelson and Lemelson Capital Management liable for fraudulent misrepresentations, finding that they violated the anti-fraud provisions of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. The court will determine remedies at a later date.

The SEC's litigation was conducted by Marc J. Jones and Alfred A. Day, of the Boston Regional Office. The SEC's investigation was conducted by Virginia Rosado Desilets, Sonia Torrico, and Jennifer Clark, and supervised by David A. Becker and Carolyn Welshhans.