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SEC Issues Fraud Charges Against Gregory Lemelson, Lemelson Capital Management, Amvona Fund

Gregory Lemelson

A news release issued by the Securities and Exchange Commission (SEC) on September 13, 2018 reports that the SEC has issued charges against Gregory Lemelson, a hedge fund adviser, and Lemelson Capital Management LLC, his Massachusetts-based investment advisory firm, alleging they “illegally profit[ed] from a scheme to drive down the price” of Ligan Pharmaceuticals, a San Diego-based company, ultimately making more than $1.3 million in illicit gains.

According to the SEC’s complaint, Mr. Lemelson “took a short position” in Ligand Pharmaceuticals, meaning he would make a profit if its stock price fell, in May 2014. He allegedly did so on behalf of his partially-owned hedge fund, The Amvona Fund. Shortly afterward, the SEC alleges, he and Lemelson Capital Management distributed “false information” about the company, whose stock declined by more than one-third as Mr. Lemelson allegedly orchestrated his scheme. The complaint states that after he took the position, he “made a series of false statements” aiming to reduce the confidence of Ligand’s investors in the company, as well as to reduce its stock price, ultimately resulting in increased value for him. These alleged false statements encompassed “written reports, interviews, and social media,” and included statements that the company was “teetering on the brink of bankruptcy,” according to the SEC. He also allegedly provided investors with a European doctor’s “negative views” on a certain Ligand drug, Promacta, but did not disclose that this doctor was “Amvona’s largest investor and had a significant financial interest in seeing Ligand’s stock price decline.”

In June 2014, according to the SEC, Mr. Lemelson allegedly made statements that the drug in question—which was Ligand’s “main source of licensing revenue”—would seen be “going away,” and he supported this claim by “falsely” stating that a representative of the company agreed with him. He also allegedly “falsely claimed that Ligand engaged in a sham licensing transaction with another pharmaceutical company and had run up so much debt that the company had virtually no value,” neither of which was true, according to the SEC. According to the SEC, Mr. Lemelson’s plan had its intended effect. When he allegedly started making false statements, on June 16, 2014, the company’s share price opened at $67.26/share. A few months later, on October 13, 2014, it had declined about $23, or about 34%. “By that time,” according to the complaint, “[Mr.] Lemelson had ‘covered’ the vast majority of Amvona’s short position in Ligand generating approximately $1.3 million in illegal profits.”

The SEC alleges Mr. Lemelson and Lemelson Capital Management violated sections of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940; it is seeking injunctive relief, disgorgement of ill-gotten gains together with prejudgment interest, and civil penalties. The complaint, filed in a Massachusetts federal court, remains pending.

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